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 an employee 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 employment, the employer must inform the employee of the conditions of employment, including wages (eg rate of wages, overtime rate, etc), wage period, length of termination notice and any entitlement to year-end payment. The employer is required to keep records for each employee covering the period of the employment during the preceding 12 months, including: name and HKID, employment contract and any 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 Mandatory Provident Fund (MPF) contributions, 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.
An employer must ensure that the employee is allowed to take up the employment (in other words is legally employable). The employment cannot start until the employee has a valid visa or HKID status permitting the holder to work. Any foreigner wishing to take up employment and the company intending to employ a foreigner may need to apply for the applicable visa with the Immigration Department.
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 seven 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 no 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. (On 9 July 2020, Hong Kong’s Legislative Council passed a bill which includes an extension of the statutory maternity leave to 14 weeks. It is expected that the measures under the new bill will come into force by the end of the year).
Maternity leave should be paid for a period of 10(/14 as above) 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 five 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 (IRD). 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 the 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 the employer’s and employee’s mandatory contributions;
- the amounts of both the 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 (ie 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 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 five 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.
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