Although we might forget the tedious parts of running a company, having a proper payroll system will allow having a smooth relationship between the employees and the employers.
Additionally, knowing the employment regulations and payroll taxes laws of Hong Kong will save some headaches for the Human Resources department in the long run and avoid troubles with the local authorities in Hong Kong, allowing the business owners to focus on important issues like growing and developing the business.
An Overview of the Hong Kong Payroll
As your company grows and changes, the internal control of your company must evolve as well. This can be the key to keeping your employees happy and retaining talent, as well as keeping your business to maintain compliance.
It is commonly expected that an employer pays the salaries to their employees in time and form, as well as to assure that the payroll tax deductions and social security tax regulations and contributions, such as unemployment insurance, are in line with the local laws.
In Hong Kong, the law that oversees issues such as this is the Employment Ordinance, containing all the rights and protections of employees. Other aspects covered in the law are when a working relationship starts and the terms of employment, holidays, social security funds, no-pay leave, paychecks, etc.
Mandatory Provided Fund (MPF)
In contrast to other jurisdictions, in Hong Kong the employer doesn't need to withhold any payroll tax amount from the salaries, this responsibility is delegated to the employees, as it must be reported on their annual income tax declaration.
According to the Mandatory Provided Fund Authority, the minimum contribution is 5% of the monthly income, for most cases. The contributions of the Mandatory Provided Fund (MPF) are saved for the employee's retirement.
These contributions are taken both from the employee’s salary and the employer’s pocket. Every month, the employer is in charge of retaining the contribution from the salary of each employee and, together with the contribution deposit the total amount into a special account.
Choosing Payroll Systems
Traditional methods for the payroll process have been around for a long time. They can be as simple as using cash and paper forms to get acknowledgment of receipt from the employees. Currently, using the traditional way is less common as other alternatives perform more efficiently and are more secure.
Thanks to the advancement of technology and the internet, the way people manage the payment of salaries to their employees, and the control of business-related expenses, has become digital and almost instantly.
There are plenty of payroll software programs options to choose from that can accommodate different budgets and companies sizes.
Essentially, payroll software makes the whole process as easy as pressing a button, as it automates payments of the salaries to your employees. Additionally, any calculation and other operation related to the salaries or contributions can be done in seconds.
Supporting documents for accounting records
As part of the obligations of a Hong Kong company, according to accounting rules the record of salaries payment and contributions must be kept by the owners for a period of, at least, seven years. In this sense, having a digital backup is better than storing a regular piece of paper.
Employees have the right to request their employer proof of the salary and other benefits they have been paid, as well as any contributions that were retained. This supporting document is known as a payslip or payment slip. Although there is no specific format, this document normally includes:
- Company name
- Name and position of the employee
- Period of work for that salary payment
- Detail of days worked in the period, annual leave is taken, unpaid leave, etc.
- The amount of salary
- Commissions paid
- Benefits such as insurance
- Any bonus granted in that period and nature
- MPF contribution
Advantages in the Payroll systems
As we have mentioned in the section above, there are many options when choosing what kind of system can be implemented to help the operation of your company, here we analyze some advantages:
Traditional Payroll System
- Company size: it works best for small companies with small working teams.
- Cost: there is almost no extra money needed to be invested.
- Format: the format for the payroll slip can be simple.
- Training: there is no need for training, just to know how to do basic math operations.
- Time consumption: integrated payroll software helps the Human Resources team to save time in the financial management of the company, as most of the processes are automated and can be customized to the company’s needs.
- Company size: it can help medium and big companies to manage their employee’s payroll more efficiently.
- Accuracy: it is less likely for the user to make mistakes, and it can be easily reviewed and changed.
- Format: the format of the payroll slip can be personalized and adjusted. Some templates can be automatically generated
- Security: as it's becoming a standard, most of the software offers a backup of the information on the cloud.
- Insights of the operations: it can help to provide insights on the business operation cost and expenses.
- Accounting for payroll: the records can be easily moved to the accounting software of your choice.
Disadvantages in the Payroll systems
Now that we have discussed the point in favor, it is time that we give a contrasting perspective and review the situations in which the payroll system may fall short:
Traditional Payroll System
- Time consumption: as there is no automation in the process, it might become too time-consuming to do all the calculations every month.
- Accuracy: it can be common to make calculation mistakes and cause some conflicts with the employees.
- Security: as traditional payroll uses essential software like excel or even paper slips, the records can be easily corrupted or lost.
- Insights of the operations: it is harder to obtain wisdom from the company, as it might require more time and fully dedicate someone to this task.
- Accounting for payroll: although the records can be passed down to your accountant, the process could be more time-consuming and further verification may be required by the team. Some software might offer the option to file tax forms as well.
- Cost: some payroll software can become too pricey for a company with a small budget.
- Training: sometimes might be needed, as well as some training, for the user to get a grasp of how to properly use the software.
- The human factor: there might be some oversights from the user that can affect the final results, as there is room for inaccuracies.
As trivial as it may seem, keeping a good record of payment to your employees and having an efficient system will create confidence in your employees. Currently, many payroll services in Hong Kong adjust to most companies' sizes and needs.
However, the key to successfully implementing a payroll system is to adequately choose the tools that will adjust to your company’s needs without sacrificing accuracy and efficiency.
If you need a company to support you with payroll management, you can visit our Company Secretary Review page and find the right service provider for your company.
How does the Hong Kong Payroll work?
Hong Kong's payroll system is typically monthly, paying employees on the last day of each month. The minimum wage is HK$37.50 per hour, with an average workweek of 40-48 hours.
What is the Mandatory Provided Fund (MPF)
What are some advantages and disadvantages of using payroll software vs traditional methods?