Hong Kong has increased the minimum hourly wage rate from HK$37.5 (US$4.8) to HK$40 (US$5.11).
Hong Kong employers must record the total number of hours worked by an employee in a wage period if:
- The employee is paid the minimum wage; and,
- The wages payable to the employee for the period are less than the monetary cap specified in the Ninth Schedule to the Employment Ordinance (or a proportionate amount if the wage period is less than a month).
According to the Ninth Schedule, the monetary cap has been increased from HK$15,300 (US$1,957) per month to HK$16,300 (US$2,085) per month.
SMW is expressed as an hourly rate. In essence, wages payable to an employee in respect of any wage period should be no less than the SMW rate on average for the total number of hours worked.
How to calculate the minimum monthly wage
The minimum wage in Hong Kong can be calculated using the Labor Department’s Minimum Wage Reference Calculator.
The calculator provides the monthly minimum wage payable based on input information, such as the number of days worked in a month and hours worked per day. The calculator assumes a consistent wage rate for each working day of the month and that the employee has not taken any statutory holidays.
Penalties for paying below minimum wage
Under the Employment Ordinance, employers who willfully or without a reasonable excuse fail to pay minimum wage are liable to prosecution, which may lead to a fine of HK$350,000 (US$44,781) and up to three years of imprisonment.
Base salary and bonuses
The base salary serves as part of the salary structure in Hong Kong. The base salary should be mutually agreed upon between the employer and the employee. It is usually paid monthly and must be stipulated in writing, usually in the service contract or agreement. The base salary will depend on factors such as the employee's position, educational level, and industry levels.
"Wages" in Hong Kong refers to all types of remuneration, including earnings, allowances, tips, and service charges payable to an employee concerning work or work to be done.
Companies may also choose to offer bonuses or other benefits to employees, either on a fixed basis or performance-dependent. There are no legal obligations for employers to pay bonuses to employees in Hong Kong; however, it is customary to provide an end-of-year payment (usually paid before the Lunar New Year), which may be a 13th or 14th salary, double pay, or other end-of-year bonus.
If stipulated in the contract, this type of end-of-year payment is subject to provisions of the Employment Ordinance. Under the ordinance, an employee is "eligible for an end-of-year payment if he has been employed under a continuous contract for a whole period. The payment period shall be the period specified in the employment contract or a lunar year if it is not specified."
The bonus amount may be specified in the contract. If not specified, the amount must be equivalent to the employee's average monthly salary in the 12 months preceding the day the bonus payment is due. If the employee has been employed for less than 12 months, the bonus is calculated based on the shorter period.
Suppose a bonus is considered an end-of-year payment under the Employment Ordinance. In that case, employees are eligible for a pro-rata end-of-year payment if they have been employed continuously for at least three months in a payment period. The employee is eligible for the pro rata payment if they continue to be employed after the payment period or if the company dismisses them after this date unless they have engaged in serious misconduct.
In addition to the end-of-year payment, companies may also provide gratuitous bonuses, which are one-off payments or incentives, usually given as a reward for good performance. The amount, payment schedule, and conditions of this type of bonus are up to the company's discretion. If a bonus is considered gratuitous under the Employment Ordinance, the employer is not obliged to pay it to the employee.
Allowances, including traveling allowances, attendance allowances, commission, and overtime pay, are considered a type of wage under Hong Kong’s Employment Ordinance. They do not include:
- The value of any commodities or services provided to the employee at the expense of the employer;
- Contributions to retirement schemes;
- Gratuitous bonuses, end-of-year payments, commissions, or allowances that are payable at the discretion of the employer;
- Mon-recurrent travel allowances or the value of travel concessions or travel allowance for actual expenses incurred by the employment;
- Any sum payable to the employee to defray extraordinary expenses incurred by them by the nature of their employment or
- Gratuity payable on completion or termination of a contract of employment.
As there are no limits on the number of work hours for adults in Hong Kong, employers are not obligated to pay for overtime. However, employers may choose to provide overtime pay for employees by stipulating terms in the employment contract.
Overtime pay, if included in the employment contract, is considered a type of allowance and, therefore, falls under the definition of wages under the Employment Ordinance.
Other payroll obligations
Unlike most countries, the employer does not withhold individual income tax or salaries tax as it is known in Hong Kong. Instead, individuals need to pay their taxes themselves.
As such, only two administrative requirements apply to employers in Hong Kong.
Keeping payroll records
Employers need to keep records of the following information concerning their employees:
- Personal details;
- Nature of employment: full-time or part-time;
- Amount of cash remuneration, non-cash remuneration, and other fringe benefits;
- Contributions to the Mandatory Provident Fund or its equivalent;
- Amendments to the terms of the employment contract; and
- Period of employment.
The IRD needs to be informed of the following:
- Changes in the employee’s particulars (change of residential address, marital status, etc.);
- Changes in the terms of employment; and
- The Hong Kong Identity Card No. of the employee.
Reporting remuneration paid to an employee
The IRD issued the Employer’s Return to Companies every year. Within one month of receiving the Employer’s Return, the company must complete it and lodge with the IRD even if it does not hire any employee, the business has not commenced, or the business has ceased.
- Unmarried individuals who are paid an annual income of HK$132,000 (US$16,889);
- Married individuals (regardless of amount);
- Part-time staff (regardless of amount); and
- Directors (regardless of amount).
Employees are defined as:
- Individuals employed by a Hong Kong company, including:
- Part-time and full-time staff;
- Hong Kong and non-Hong Kong residents;
- Persons who provide services for the company in or outside Hong Kong; and
- Employees assigned or seconded to a Hong Kong company by its overseas holding company.
When the company hires a new employee, it needs to inform the Inland Revenue Department within three months by filing the IR56E return for them.
When an employee leaves Hong Kong permanently, or for a substantial period, the employer needs to:
- Ascertain from the employee their expected date of departure;
- File duplicate copies of the Employer’s Return one month before the expected date of departure and
- Withhold all amounts due to be paid to the employee (including salaries, commission, bonus, reimbursement of rent/expense, money or money’s worth included) from the date of filing the Employer’s Return until the employee has made tax clearance and can produce to the employer a “letter of release” issued by the Inland Revenue Department.
Below, we listed some tax forms that the Inland Revenue Department requires under specific situations for your easy reference:
Statutory Obligation of an Employer to Report Remuneration Paid to an Employee
Tax form to complete
Statutory period for notification
Commencement of employment
Within 3 months
Both IR56E & IR56B are required for the commencement year
Still employed as of March 31
Within 1 month
Must be submitted annually together with a BIR56A
Cessation of employment
Not later than 1 month before cessation
IR56B for the cessation year is not required
Departure from Hong Kong
Not later than 1 month before departure and withhold money from tax clearance
IR56B for the cessation year is not required