Payroll Outsourcing in Hong Kong — what do employers need to know?
When hiring your first employees in Hong Kong, it's important to consider your obligations when it comes to payroll/and statutory requirements. In this article, we give practical advice on the recruitment and hiring process, including remuneration and reference checks. We’ll also cover what employees are entitled to by law, retirement funds, and salary reporting.
Our payroll solutions ensure that employers meet all their legal obligations. Here is your complete guide to hiring and payroll outsourcing in Hong Kong.
Where to find suitable candidates
To attract and hire quality staff in Hong Kong, employers use online portals, as well as professional recruiters and networking.
Finding candidates online in Hong Kong
Online job advertisement sites can promote your role to quality candidates who are looking out for opportunities. JobsDB.hk, efinancialcareers.com, and LinkedIn.com are commonly used and offer options to promote or feature your job listing, for higher visibility with job seekers.
Recruitment services
Using recruitment agencies is also very common. Here are some things to know when hiring through a recruiter.
In Hong Kong, recruiters usually charge between 20-25% of the candidate’s annual salary. To ensure that the employee is a correct fit, the recruiter's fee is repayable if the employee quits soon after hire.
While it can get you access to candidates you might not otherwise see, the fees are usually higher than you’d pay if you used a job board.
The right recruiter can be helpful in narrowing down candidates and navigating the local market. They may already have a database of appropriate candidates for you.
Recruiters can specialise in an industry or profession. Make sure that they are the right fit for you and ask for guidance from their expertise.
Prepare with a clear list of what you’re looking for and previous experience the recruiter can look out for.
Lean on your network
The Hong Kong business community is relatively small, and with fewer degrees of separation. You may also find that networking with individuals in your industry or with a Chamber of Commerce can offer up some options for hiring.
Can I hire someone from overseas?
Hiring foreign employees is common, but it's important to check the work visa requirements before you make your final decision. Some professions or skill sets may require justification to hire a candidate from outside of Hong Kong.
Whatever avenue you choose to go down, it’s important to have your criteria ready, with clear questions and guidelines on how to assess candidates. A defined vetting and interview process will keep you from wasting time in the process, and help you to find the strongest fit for your business.
How do reference checks work in Hong Kong?
Reference checks are common in Hong Kong, especially if a candidate works with a recruiter. The recruiter will likely ask for names and contact details of previous employers and managers to verify experience and CV details.
There is no formal reference letter procedure in HK, as in places like Germany, but many job seekers may request a basic letter confirming employment dates and position.
Should I ask my candidate for a background check?
Background checks are not common for general employment, but you’ll find that they are standard in industries such as finance and education. The items in a background check depend on the employer and position. It may include a criminal record search, credit history review, drug test and reference checking.
Onboarding an employee
In order to attract and recruit the right candidate, a competitive remuneration package is essential. Ensure all bases are also covered when it comes to your statutory obligations in the Labour Department’s Employment Ordinance. Here we will take a look at what you need to do.
What are your obligations as an employer?
Employers in Hong Kong have a relatively small number of obligations with respect to their employees and payroll. There is no need to file taxes for staff on a monthly basis in addition to paying salaries. Regulation comes in the form of mandatory insurance, contracts, retirement contributions and yearly salary reporting.
A high-level overview of Hong Kong government requirements:
Employee Compensation Insurance (ECI)
Issuing monthly payslips
Paying the legal minimum wage (currently HK$34 per hour)
Sign a written employment contract, including statutory leave entitlements
Mandatory Provident Fund (MPF) contributions
Prepare tax forms for all employees
Report salaries paid to the Inland Revenue Department (IRD)
What forms of insurance do I need to provide?
A company must provide Employee Compensation Insurance (ECI), for all employees. The insurance provides compensation in case of workplace accidents, across every industry. Premiums depend on salary level, the nature and venue of work (i.e. office work vs. construction work), and so on.
There are no other types of insurance required, however most employers opt to offer health insurance as a benefit and part of a remuneration package.
Written employment contracts must outline the terms of employment for all employees
At the most basic level, a contract summarises what was agreed verbally as a written record. A template saves time and can ensure all employees are using the same standard, with role specifics and remuneration to be added in. The contract should include the following information:
Details; The name and address of the company and the employee
Job title and description; i.e. an explanation of what’s expected from both parties
Key dates; Starting date (or expected date, if a visa approval[link to visa article] is pending), duration of contract
Working hours and days
Working arrangements in inclement weather (typhoons prohibit work a few times every year)
Remuneration package: Base salary; along with any incentives and commission
Bonus; many companies offer an additional month of salary as a yearly bonus, i.e. 13 month salary.
Employee benefits, such as paid health insurance
Paid leave entitlements, such as annual leave, parental leave, sick leave, statutory holidays, time in lieu.
Length of probationary period, after which the full termination period applies.
Ending of the contract; standard terms include 1-3 months’ notice of termination, or payment in lieu of notice (on both sides). The duration of notice period depends on seniority as well as the nature of the business
What are the paid leave allowances in Hong Kong?
The annual paid holiday leave in Hong Kong is a minimum of 7 days for the first and second year, increasing up to 14 days at 9 years of service. Holiday, sick leave and parental entitlements are less generous than those in Europe. Hence, many companies will offer additional holiday leave (12-20 days depending on seniority), as well as health insurance and parental leave.
How does parental leave work?
The required parental leave allowance is 14 weeks for mothers and 5 days for fathers, although as mentioned above, this generally increases depending on the expectations of the candidate that a company may be trying to attract.
Parental leave is calculated at 80% of the average daily wages earned in the prior year, subject to certain conditions on hours worked and length of employment. The Hong Kong government will subsidise maternity leave pay for weeks 11-14, up to HK$80,000.
Why do I keep hearing about "MPF"?
MPF is short for Mandatory Provident Fund, Hong Kong's compulsory savings scheme. It requires employers and employees to contribute towards their retirement, similar to a 401k system in the US. Each party contributes 5 percent of the salary of the employee each month, subject to certain thresholds. The maximum contribution for employers is HKD 1,500 per month per employee, i.e. around USD 200. Employees are expected to join the scheme administered by the MPF provider of their new employers when they change jobs.
How is MPF paid?
First, the employer's chosen scheme needs to be joined by the new hire. Then the company withholds the employee's 5% contribution from their regular salary payment and pays it into the MPF account each month, along with the employer contribution of 5%.
Employees use the account to invest in funds within the chosen scheme, and can withdraw them upon retirement, or in limited other circumstances. Voluntary contributions by both employer and employee are possible and can be an additional benefit to a package on offer during the recruitment phase.
Paying salaries tax in Hong Kong
Companies are not required to withhold or pay any taxes on an employee’s behalf.
Employees are responsible for filing their own taxes and pay them directly to the Inland Revenue Department (IRD) on an annual basis. No additional taxes need to be paid by the employer, such as social security tax or health insurance tax.
Payroll records and reporting requirements
Report remuneration paid to employees by submitting an annual Employer’s Return to the IRD. This is to identify who has been paid to work in Hong Kong and not for the purpose of tax to be paid by the employer. It is the employee’s responsibility. Save and maintain payroll records of the employees for at least seven years. Payroll services can be provided by a third-party provider or an in-house payroll team. You may also need to consult with an accounting firm for assistance with filing your tax returns and keeping records of your employee’s wages and contributions.
The final take on payroll outsourcing in Hong Kong
In this article, we’ve covered how to find staff and what happens when you hire them, as well as an overview of statutory requirements, retirement contributions and employment contracts. Payroll service providers in Hong Kong can assist you to ensure your company meets all its obligations as an employer as well as save time.
As one of the world’s freest economies, it is relatively easy to set up a business in Hong Kong, and that includes the labour market. However, it is essential to know how local employment works to avoid unnecessary fines or penalties from the government. It can be an expensive learning curve, so in many cases it pays to outsource this to a service provider.
Reach out to us at Shepherd Asia at info@shepherd-asia.com for more information on how we can help you to navigate the Hong Kong market.
