Payroll and HR Obligations for Hong Kong Employers
Although Hong Kong is very business-friendly and constantly
ranked among the top countries for its ease of doing business, when it comes to
HR and payroll compliance, most foreign owned companies and start-up businesses
find employer and employee compliance burdensome. This is often due to the
limited resources available in time and funds. Hiring a headcount early on
solely for the administration of personnel matters for a small team can rarely
justify the expense. However, the consequences of an oversight and the
resulting potential non-compliance with labour laws and related regulations can
be severe. In this short guide, we will highlight the most common issues
business owners and directors should keep in mind.
Conditions of Service and Records
Before the commencement of an employment, the employer must
inform the employee of the conditions of employment, including wages, wage
period, length of termination notice and any entitlement to year-end payment. During
the preceding twelve months the employer is required to keep records, for each
employee, of the name and identity card (HKID), employment contract and amendments to
terms of employment, date of commencement of employment, job title, wages and
amount of cash remuneration paid in respect of each wage period, non-cash and
fringe benefits, employer’s and employee’s contributions to MPF, wage period,
periods of annual leave, sick leave, maternity/paternity leave and holidays
entitled and taken, amount of year-end payment and the period to which it
relates, period of notice required for termination of contract, and date of
termination of employment. Business owners are required to keep business records,
including payroll records, for at least seven years.
Employing Foreigners
An employer must ensure that the employee is allowed to take up the employment (in other words is legally employable). Any foreigner wishing to take up an employment and the company intending to employ a foreigner should apply for the applicable visa with the Immigration Department.
Salary Payment
Wages shall become due on the expiry of the last day of the
wage period. An employer should pay wages to an employee as soon as practicable
but in any case not later than seven days after the end of the wage period. An
employer is required to pay interest on the outstanding amount of wages to the
employee if he fails to pay wages to the employee within seven days when it
becomes due.
Statutory Paid Annual Leave
An employee shall enjoy rest days, statutory holidays and
paid annual leave during employment.
The statutory rest day is at least one day in every period
of seven days. The rest day may be either paid or unpaid.
There are 12 statutory holidays in Hong Kong. Employees
are entitled to receive holiday pay on statutory holidays.
The number of paid annual leave days ranges from 7 to
14 according to the length of employment for a period of every 12 months
of employment. From the third year of employment, an employee is entitled to
one additional paid leave day per year. The annual leave accumulated is to be
taken within the following period of 12 months and should be granted for a
consecutive period. Most employers however offer at least 14 days of
annual leave and allow employees to take leave days during the current leave
entitlement period rather than a year later.
Paid Sickness Days
An employee can accumulate paid sickness days after having
been employed under a continuous contract. Paid sickness days are accumulated
at the rate of two paid sickness days for each completed month of the
employee's employment during the first 12 months, and four paid sickness days
for each completed month of employment thereafter. Paid sickness days can be
accumulated throughout the whole employment period, but shall not exceed 120
days at any one time.
The daily rate of sickness allowance is a sum equivalent to
four-fifths of the average daily wages earned by an employee in the 12-month
period preceding the following specified dates. Sickness allowance should be
paid to the employee not later than the normal pay day.
Maternity and Paternity Leave
A female employee employed under a continuous contract
immediately before the commencement of her maternity leave and having given
notice of pregnancy and her intention to take maternity leave to the employer
is entitled to a continuous period of 10 weeks' maternity leave.
Maternity leave should be paid for a period of 10 weeks and
it should be paid on the normal pay day of the employee.
When the employee’s absence from work to attend medical
examination in relation to her pregnancy, post confinement medical treatment or
miscarriage is supported by an appropriate medical certificate, any such day on
which she is absent shall be counted as a sickness day.
An employer is prohibited from dismissing a pregnant
employee from the date on which she is confirmed pregnant by a medical
certificate to the date on which she is due to return to work upon the expiry
of her maternity leave.
A male employee is entitled to 5 days’ paternity leave for
each confinement of his spouse if he is the father of a new-born child or a
father-to-be. A male employee is entitled to paternity leave pay equivalent to
four-fifths of the average daily wages
Submissions to IRD
Employers are required to file the annual employer’s return
(BIR56A) with the Inland Revenue Department. In addition, an employer has to
include a return for each individual employee (BIR56B) with the annual
employer’s return. However, the reporting already begins when a new employee is
hired. Within three month of the commencement of an employment, the employer is
required to file a notification of the employment (IR56E) with the IRD. On
termination or end of service or should the former employee intend to leave
Hong Kong a notification to that effect (IR56F, IR56G respectively) should be
filed.
Pay-records and MPF
Each month, after remitting
contributions to their trustee, employers should also provide each employee
with a monthly pay-record within seven working days. The information required
to be shown in this written record includes:
- the amount of the employee’s relevant income;
- the amounts of both employer’s and employee’s
mandatory contributions;
- the amounts of both employer’s and employee’s
voluntary contributions, if any; and
- the date on which contributions were paid to the
trustee.
Valid Reasons for
Termination
A contract of employment may be terminated by the employer
or employee through giving the other party due notice or payment in lieu of
notice.
The five valid reasons for dismissal or variation of the
terms of the employment contract are:
- the conduct of the employee;
- the capability or qualifications of the employee
for performing his work;
- redundancy or other genuine operational
requirements of the business;
- statutory requirements (i.e. it would be
contrary to the law to allow an employee to continue to work in his original
position or to continue with the original terms in his employment contract); and
- other substantial reasons.
An employer may summarily dismiss an employee without notice
or payment in lieu of notice if the employee, in relation to his employment:
- wilfully disobeys a lawful and reasonable order;
- misconducts himself;
- is guilty of fraud or dishonesty; or
- is habitually neglectful in his duties.
Statutory Restrictions on Termination of Employment Contract
An employer shall not dismiss an employee under the
following circumstances:
- maternity protection;
- paid sick leave;
- giving evidence or information to the
authorities;
- trade union activities; or
- injury at work.
Severance and Long
Service Payment
An employee is eligible for severance payment or long
service payment subject to the following conditions:
Severance payment
Severance payment is applicable to a continuous employment
of not less than 24 months to employees who are dismissed by reason of redundancy,
or if a fixed term contract expires without being renewed by reason of
redundancy.
Long service payment
Employees who have been employed under a continuous contract
of at least 5 years are entitled to long service payment unless the dismissal
is by reason of redundancy or a summarily dismissal due to the employee’s
serious misconduct. Long service payment is further applicable on the employee’s
retirement or death.
Payroll Services and Solutions
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Complete Payroll Solution
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Integrated Compliance Service
Making use of Encore
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we will automatically include the payroll records in your bookkeeping and
prepare the annual employer’s tax return for the company and tax record for the
employee.
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Reduced HR and IT
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Stress-free payroll and
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Compliant
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Our expert local staff ensures
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