Payroll Services in Hong Kong

Hong Kong’s mandatory employer cost is 5% of relevant income into the Mandatory Provident Fund, and it caps. The maximum relevant income is HK$30,000 a month, so employer and employee contributions each stop at HK$1,500 a month – HK$18,000 a year. That maximum has been unchanged since 1 June 2014 and the minimum of HK$7,100 since November 2013. Both are under statutory review, but no new figures have been adopted, and numbers circulating in the press are proposals rather than law.

Because the contribution caps, the employer’s MPF cost as a percentage of salary falls away above HK$360,000 a year: 5.00% up to that point, 3.75% at HK$480,000, 2.50% at HK$720,000, 1.50% at HK$1.2 million and 0.75% at HK$2.4 million. On statutory cash cost alone, Hong Kong is one of the cheapest places to employ a senior person.

One asymmetry catches small employers every time. Where relevant income is below HK$7,100 a month, the employee contributes nothing – but the employer still pays its 5%. The same shape applies at the start of employment: the employee makes no contribution for the first 30 days, and enrolment can wait 60 days, but the employer’s liability accrues from day one.

Two exemptions matter commercially. Employees aged under 18 or 65 and over are outside MPF, as are members of MPF-exempted ORSO schemes. And people who come to Hong Kong to work for not more than 13 months, or who are covered by an overseas retirement scheme, can be exempt – which is why many secondees sit outside MPF. That exemption has to be claimed rather than assumed.

On 1 May 2025 Hong Kong abolished the use of employer mandatory MPF contributions to offset severance payment and long service payment. It is the largest change to Hong Kong payroll economics in a generation, and it is not retrospective. It did not remove the employer’s existing offset entitlement – it froze it. Service before 1 May 2025 remains offsettable, indefinitely. Service from that date onward is not.

That produces a two-portion calculation with two different wage bases in the same sum. The pre-transition portion uses the last full month’s wages immediately before 1 May 2025 – the April 2025 figure – permanently frozen, times two-thirds, for years before the transition. The post-transition portion uses the last full month’s wages before termination, on the same two-thirds basis, for years from 1 May 2025. Both use a monthly wage ceiling of HK$22,500, giving HK$15,000 per year of service, and the two together are capped at HK$390,000.

The trap in the cap is which portion it squeezes. Where the two portions together exceed HK$390,000, the excess comes off the post-transition portion – the part the employer cannot offset. So the cap does not relieve the new exposure; it relieves the grandfathered one. What an employer now has to provision for is an accruing, un-offsettable liability of up to HK$15,000 for every post-transition year of service: ten years is HK$150,000 per employee at any salary above HK$270,000.

Two things make this harder in practice. The pre-transition portion cannot be calculated at all without the April 2025 monthly wage for every employee in service then, and employers who did not capture it have a data-recovery problem that gets harder every year. And the Government’s 25-year subsidy scheme shares part of the post-transition cost, most generously in its first years – but only if the employer claims it.

Every significant statutory payment in Hong Kong is calculated on the employee’s average wages over the preceding twelve months. Holiday pay and annual leave pay use the twelve-month average daily wage. Sickness allowance, maternity leave pay and paternity leave pay use four-fifths of it. The end-of-year payment and payment in lieu of notice use the twelve-month average. None of them uses basic salary, and none of them uses the current month.

What counts as wages is broader than most foreign employers assume: all remuneration, earnings, allowances, tips and service charges capable of expression in money, including commission and attendance allowances. Overtime counts where it is constant, or where its monthly average over the preceding twelve months is at least 20% of average monthly wages. Excluded are the employer’s MPF contributions, genuinely discretionary bonuses, the value of accommodation, food or medical care, and expense reimbursements.

The commission point is the classic Labour Tribunal claim. A salesperson’s annual leave pay and holiday pay must include twelve months of commission, and paying basic salary only is unlawful underpayment.

The disregarding provisions are the part that actually goes wrong. When computing the twelve-month average, the employer must exclude both the period and the wages paid for it for any time the employee was not paid, or was paid less than full wages – rest days, holidays, annual leave, sickness days, maternity and paternity leave and similar. Leave a part-paid sick month in the denominator and the average comes out too low, so every downstream entitlement is underpaid. Both halves have to come out.

Hong Kong has no pay-as-you-earn system. The employer does not deduct salaries tax and does not remit it. The employee is assessed directly and pays their own tax, normally in two instalments, on a year of assessment running 1 April to 31 March. What the employer does instead is report – and, in exactly one situation, withhold.

Salaries tax is charged at the lower of two calculations. The progressive rates run 2%, 6%, 10%, 14% and then 17% on the remainder, in bands of HK$50,000 of net chargeable income after allowances. The standard rate applies to net income with no allowances and has been two-tiered since 2024/25: 15% on the first HK$5 million and 16% above that. The basic allowance rose from HK$132,000 to HK$145,000 for 2026/27, so any source still showing HK$132,000 is out of date for the current year.

The reporting cycle is fixed. The IRD issues the BIR56A on the first working day of April and the employer files it with an IR56B for every employee within one month. An IR56E is due within three months of a new employee starting and an IR56F one month before an employee leaves. An IR56M covers payments to people who are not employees – consultants, freelancers and sub-contractors.

The departing-employee rule is the one withholding obligation and the most operationally dangerous item on this page. An employee leaving Hong Kong for more than a month requires an IR56G at least one month before departure – and from then the employer must withhold all money payable to that person, final pay and bonus included, for one month or until the IRD issues a letter of release, whichever is earlier. An employer that pays the leaver out anyway can be held liable for the unpaid tax.

The statutory floor in Hong Kong is low and the market rate is not. Annual leave starts at 7 days after a year of service and rises one day a year to 14 days at nine years, while market practice for a professional role is well above that. There is one rest day in every seven. Notice is one month where the contract is silent.

Holidays are where foreign employers make an expensive contractual error, because Hong Kong has two lists. General holidays are the bank-holiday list of 17 days, used by banks, schools and public offices – and granted by most white-collar contracts. Statutory holidays are the Employment Ordinance minimum: 15 in 2026, rising to 16 in 2028 and 17 in 2030, when the two lists converge. A payroll configured to the statutory list against a contract promising general holidays is underpaying.

Sickness allowance is not an annual allotment that resets. Employees accumulate paid sickness days at two a month in the first year and four a month after that, up to 120 days held at any time, and a sickness day qualifies only as part of an absence of four or more consecutive days. A payroll system with a resetting annual entitlement is structurally wrong for Hong Kong.

Maternity leave is 14 weeks at four-fifths of the twelve-month average daily wage for an employee with at least 40 weeks’ continuous employment. The employer pays all fourteen weeks and then reclaims weeks 11 to 14 from the Government, capped at HK$80,000 – so it is cash-flow negative first, and employers who never file the claim lose the money. Paternity leave is five days on the same four-fifths basis.