As a rapidly growing market, Hong Kong can be an excellent place to establish a subsidiary and grow your business. However, Hong Kong’s extensive payroll regulations outlined in its Employment Ordinance can make hiring and Hong Kong payroll options complicated for companies unfamiliar with local laws and processes.

Taxation rules in Hong Kong

Most employees and employers must contribute to the Mandatory Provident Fund (MPF) for retirement. Each contribute 5% of relevant income. When employees earn below the minimum income threshold, they don't contribute, but employers still do.

You must enroll your regular employees in an MPF scheme by their 60th day of work. Casual construction and catering employees must be enrolled within 10 days and some employees are exempt.

You don’t need to withhold income tax from your employees throughout the year. Instead, employees file the tax themselves and pay Hong Kong’s Inland Revenue Department (IRD) at the end of every fiscal year.

Hong Kong payroll options for companies

You have numerous Hong Kong payroll options that depend on the size of your company and how active you will be in Hong Kong.

  • Larger companies often choose to run their own local payroll for their Hong Kong employees. Beforehand, you must register your Hong Kong subsidiary and hire employees in the country to handle payroll requirements. You’ll need extensive knowledge of Hong Kong employment regulations to ensure your compliance with all laws.
  • If you do not want to run payroll yourself, you can hire a Hong Kong payroll processing company. As the employer you will still be responsible for immigration, tax, and payroll regulations, but a separate company can handle payments and more.
  • If you do not want to set up a subsidiary in Hong Kong, you can streamline the entire hiring process, including payroll, in compliance with local laws by partnering with a Global Employment Platform like G-P.

How to set up a payroll in Hong Kong

First, you’ll need to register your business with the IRD within one month of starting business. The IRD will administer your tax regulations, collect taxes, and make sure you're compliant. You’ll also need to submit an annual employer’s return as well as these forms:

  • IR56E: Required for new hires likely to be chargeable to Salaries Tax. Submit within three months after the employee’s start date.
  • IR56F: Required to report an employee’s termination no later than one month before employment ends.
  • IR56G: Required to report any employee leaving Hong Kong for more than one month. 

You are also expected to set up your MPF scheme. Under Hong Kong payroll regulations, any new employees must be enrolled in your company’s specific scheme. The employee can then choose their investment options.

Entitlement and termination terms

Employees in Hong Kong are guaranteed specific entitlements and termination terms. Certain employment terms must be agreed upon prior to commencement of employment, such as the employee’s compensation and benefits, wage period, termination requirements, and whether the employee is entitled to an end-of-year payment. It is best practice for these terms to be clearly outlined in a written employment contract.

For example, the required notice of employment termination varies depending on the length of the service.

During the first month of probation, no notice or payment in lieu is needed. Afterward, the contract’s notice period applies, with a seven-day minimum. If the contract is silent, at least one month’s notice is required.

Once probation is completed, or if none applies, the employment contract should stipulate a minimum seven day notice period. If no notice period is stipulated, at least one month applies. Payment in lieu of notice is also allowed.

Streamline global payroll management with G-P

G-P streamlines each step of the payroll management process with our market-leading Global Growth Platform™. Pay your team with confidence anywhere in the world in 150+ currencies with our 99% on-time automated payroll system — all with just a few clicks. Our products also integrate with leading HCM solutions, syncing employee payroll data across platforms automatically to create one reliable, convenient source of truth for HR teams.

Contact us to learn more about how we can support you.