Introduction to Payroll in Hong Kong
Compliance with local labor laws is paramount when running payroll in Hong Kong. Processing timely, accurate, and compliant payroll, in turn, requires expertise in local employment practices and specific legislation. Skuad’s Hong Kong payroll services provide up-to-date guidance on how you can stay compliant with complex local requirements while ensuring your workers are consistently paid correctly and on time.
Taxes, employee compensation, benefits, and more
Our experts in Hong Kong employment practices help you navigate specific tax laws, employee compensation requirements, and benefits expectations for payroll processing.
- Income, regional, and corporate taxes
- Social taxes, including healthcare, unemployment, and pension
- Compensation for vacations, various leave types, and holidays
- Other withholding taxes and required employee contributions
The fundamental steps to a successful payroll process are straightforward. Broken down into pre-payroll, payroll calculation, and post-payroll phases, these three components are meant to ensure every step of the payroll process is geared towards accuracy, timeliness, and compliance. The pre-payroll phase focuses largely on preparation, input gathering, and validation. The calculation stage deals only with the potentially complicated computations surrounding worker pay. Lastly, the post-payroll phase begins with the actual payout and ends with various levels of accounting and reporting.
As the guidelines followed throughout the rest of the payroll process are established during the pre-payroll phase, it is crucial that your organization performs its due diligence in this preparatory step.
Your business profile relevant to the payroll process revolves around the appropriate registered business numbers and identification for sending various forms and documentation. These include tax forms, payslips, reimbursements, and other relevant documents.
Different work locations may require different work policies, even within Hong Kong. Ensure that you are setting up the right policies per work location.
Leave policies need to be set in accordance with local employment practices while also aligned with company policy. Leave policy directly impacts salary calculations, and therefore needs to be crystal clear and well-defined.
In the same vein, attendance policy needs to be carefully delineated and accurately accounted for as it is the foundation of salary computations. Clear, compliant policies need to be in place for regular and overtime hours, for instance, as well as additional concerns such as half-day permissions and other on-duty requests. The measures and tools used for attendance tracking also need to be factored into pre-payroll development. Integration with online timesheets and biometrics is a straightforward example.
Every step of the way needs to be guided by local employment regulation. In Hong Kong, the Employment Ordinance offers most of the relevant labor laws with which you need to stay compliant.
When it comes to salary considerations, it is standard to base minimums not only by what is locally mandated, but also by what is local and industry norm. That, however, is just the start. You also need to consider the entire compensation package, which includes not just base pay but also deductions and benefits. You must also accommodate the need for diverse pay structures within your organization, and even within the same teams.
Often a balance between what’s usual based on local labor practice and the standard company policy, the pay schedule you implement must also incorporate consideration of local holidays and other special non-working days.
Mandatory employee inputs and validation will form part of the basis for the calculation of compensation. Also remember to require and submit any relevant documents as appropriate, such as reimbursement invoices.
Payroll Calculation Phase
The actual calculation of compensation is a mix of local legislation that dictates specifics such as taxation, deductions, and mandatory benefits, as well as internal policy within your organization. Automated digital systems alleviate most of the work that goes into collecting the inputs that affect payroll calculation and even the actual computation, once it’s calibrated to the correct processes.
Actually paying out the salaries comprises most of the post-payroll phase. After completing all relevant compensation calculations, you send the advice to your bank or payment processor to begin salary disbursement. In this step, automated systems can be a big help too, especially if they provide a direct deposit integration.
Once all salaries have gone out, you need to account for all expenses processed, and worker compensation is one of the most significant costs shouldered by an organization.
Reporting and compliance
Where accounting is internal, reporting and compliance is typically external. You need, for example, to comply with local labor laws and report any required statutory deductions to the appropriate local government agency.
With each step of payroll requiring significantly detailed and important work, partnering with an expert provider like Skuad is a preferred method of running payroll in Hong Kong.
Payroll Processing Company in Hong Kong
The right payroll processing provider in Hong Kong guides you through complex local employment legislation so you can focus on growing your business. Skuad’s in-country expertise helps you make payments to your remote workers in Hong Kong while staying compliant with local labor laws so you can practically hand-over your payroll concerns and focus on other crucial areas of your business.
Skuad also helps with payroll documentation and management. A payroll management service maintains financial records involved with payroll in compliance with local labor laws. These can include records of employee gross and net salaries, reports of deductions and benefits, accounting of incentives, and payslip or invoice generation, among others.
According to Hong Kong’s Employment Ordinance, an employer found to willfully and without reason fail to pay its workers’ salaries is liable for prosecution, which can result in fines of up to $350,000 as well as a prison sentence of a maximum of three years.
That’s just for failure to pay wages. There are separate fines for which employers are liable that apply to other issues of non-compliance. For example, employers who fail to grant mandated rest days to eligible employees will be fined $50,000.
Clearly, compliance to local labor employment legislation is not limited to employee salaries, social security contributions, and taxation, though of course each of those will be guided by specific sets of labor law. To be able to meet all the compliance requirements in Hong Kong, you will inevitably need in-country expertise.
For many businesses, Hong Kong is a prime outsourcing destination due to its geographical location and a labor force that’s highly educated and technically skilled. It is also a key international trade hub that warmly welcomes outsourcing business processes. The problem arises when trying to secure enough in-house expertise to successfully comply with all of the territory’s labor laws.
This is where a payroll processing solutions provider like Skuad becomes invaluable in your remote working strategy. Handing off payroll processing in Hong Kong to Skuad lets you focus on your business and scaling your remote teams to pursue international growth. Skuad understands the various nuanced components of payroll and the in-country compliance requirements they entail.
Generally, payroll is comprised of the base pay, and then the benefits and deductions that together make a compensation package. Within those overall parts, however, there are several more nuanced components, including:
Most of the time, the basic building block of base pay is the official working hours during which contractors or employees perform their duties. In Hong Kong, the current mandated minimum wage is HK$ 37.50 ($4.78) per hour. That is expected to change in 2023.
Depending on your contracts, you may need to factor in performance-based compensation on top of hourly pay. You may also implement performance reviews that permanently change the base rate of workers every quarter, half-year, or full-year.
Leaves and holidays
Workers in Hong Kong are entitled to various types of leaves (sick, paid, maternity, paternity, bereavement, etc). Even if you are working with contractors with reduced protections compared to full-time employees, you may still opt to offer them the same privileges to make your contracts more attractive.
Social security, insurance, and pensions are additional components included in payroll. For these components, you will require in-country expertise to accurately calculate them and perform related mandated processes such as reporting.
Probation period and termination
Payroll is also affected by the often-reduced rates during probation, and the packaged one-time final payments related to resignation or termination. Additionally, you need to keep an eye on local labor laws in Hong Kong related to what you can and cannot do when a worker is under probation or resigns / is terminated.
Why Outsourcing Payroll in Hong Kong Is an Ideal Strategy
With everything that goes into payroll processing in Hong Kong, there are generally two ways to go about it: build up enough in-house resources and local expertise to dedicate to Hong Kong payroll, or partner with an expert service provider to handle it for you while you focus on other important business matters.
Skuad is a trusted global HR platform that offers payroll as well as hiring and management services in Hong Kong and many other parts of the world.
Learn more how you can leverage Skuad for your own business.