The increasing importance of environmental, social and governance (ESG) issues in corporate Hong Kong has directed attention towards the payroll function, with many leadership teams now prioritising payroll compliance as part of their planning.
Today, the benefits of robust payroll systems are plentiful; beyond supporting regulatory compliance, they bolster your organisation’s reputation and foster a positive work culture internally.
In this article, Ken Wong, Managing Director for Payroll for Asia, and Miles Ng, Associate Director, Business Development, explain the significance of payroll compliance for contemporary business leaders and provide advice for engaging quality payroll services in Hong Kong.
Statutory requirements for payroll in Hong Kong
In Hong Kong, the Employment (Amendment) Ordinance – known as the 713 Ordinance – sets out the rules by which businesses must calculate the statutory entitlements of employees. The purpose of the ordinance is to ensure employees of all types are appropriately compensated for their work.
The eight key statutory entitlements identified in legislation are:
- holiday pay;
- annual leave pay;
- sickness allowance;
- maternity leave pay;
- paternity leave pay;
- end-of-year payment;
- payment in lieu of notice; and
- amounts to remedy unreasonable and unlawful dismissal.
“Employers should comply with the 713 Ordinance and calculate statutory entitlements on a 12-month average wage basis,” Miles says.
Correct calculation of wages for individual staff members is crucial to avoid incorrect statutory entitlement figures.
Changes to payroll law
The legislative landscape in Hong Kong is unique and constantly changing. A significant amendment was made on 1 May 2023, when the region’s statutory minimum wage rate increased by 6.7% to HKD40 per hour.
Changes to payroll legislation can be very technical and may only impact a few employees in select industries. For example, in April 2023, the Hong Kong Legislative Council passed the Occupational Safety and Occupational Health Legislation (Miscellaneous Amendments) Bill 2022 (“the Bill”). This Bill amended the Factories and Industrial Undertakings Ordinance (Cap. 59), the Occupational Safety and Health Ordinance (Cap. 509), and their subsidiary legislation. The Bill seeks to increase the overall maximum penalties for occupational safety and health (“OSH”) offences to enhance their deterrent.
To maintain ongoing compliance with payroll regulations, businesses must be proactive about staying up to date with changes and adjusting internal processes accordingly.
Why regulatory compliance is important
One way the Hong Kong government drives a high standard of good governance in the corporate sector is by enforcing penalties for non-compliance.
“Companies who fail to adhere to payroll legislation can face legal scrutiny and potential litigation,” Miles says. “For example, if an employer wilfully and without reasonable excuse fails to pay wages to an employee when it becomes due, they are liable to prosecution and, upon conviction, to a fine of HKD350,000 and to imprisonment for three years.”
The government is also encouraging employees to report unfair dismissals or unfair employers, and recent high-profile underpayment cases have put the wider public on high alert for malpractice.
With all this in mind, businesses must take compliance seriously if they are to maintain the trust of key stakeholder groups, protect their reputation and minimise their risk of penalisation.
How to ensure regulatory compliance
The frequency and complexity of changes to commercial law can make payroll compliance challenging.
“It’s not always easy to interpret legislative changes and how they might impact an employee,” Ken explains.
Ensuring compliance can be especially difficult for large organisations that need to keep track of legislative developments in several jurisdictions.
One way business leaders can support compliance is by engaging a reputable payroll services firm.
“Having a specialist team on hand gives you confidence that you’re taking the right steps to adapt to any and all legislative changes impacting employees,” Ken says. “Being able to lean on their experience helps ensure your business stays compliant and safe from penalisation or reputational harm.”
In addition to the many advantages of outsourcing your payroll, such as cost-effectiveness and time savings, there are several other ways in which it can strengthen your overall compliance strategy. By entrusting your payroll processes to a reputable outsourcing provider, you not only ensure accuracy and efficiency, but you also gain access to additional benefits that can fortify your compliance efforts by:
- staying up to date with changes to regulations;
- undertaking regular audits;
- educating employees on the value of compliance; and
- leveraging digital technology for better accuracy.
How to choose the right payroll partner
As payroll is a primary business function, your choice of service provider can significantly influence the short- and long-term success of your business.
“Good outsourced payroll providers offer a valuable hands-on business partnership in which you are fully supported to maintain compliance,” Ken explains. “They are there to provide expert advice on any payroll matter – including details such as the wording of employment contracts – and to help neutralise potential problems before they arise.”
When seeking payroll services in Hong Kong, we recommend taking the following steps for the best outcome.
The benefits of appointing a company secretary with strong tax knowledge
If you engage a company secretary whose expertise is limited to company incorporation, you may fail to capture all the valuable growth opportunities available. Company secretaries with robust tax knowledge, or work side by side with an in-house tax expert, can add more value to your new business venture by:
- explaining the different legal vehicles you can incorporate as, including how they work and their suitability for your situation;
- developing a tax-efficient corporate structure based on your wider operating model and supply chain arrangement, ensuring your business group pays the lowest fair share of tax while extracting maximum profit;
- determining your eligibility for available tax incentives; and
- liaising with executive staff and regulatory bodies to develop a group-wide governance framework that incorporates beneficial, fully compliant tax and transfer pricing strategies.
If you are branching into Singapore and your existing company has a large, complicated structure, these value-add opportunities can help minimise confusion during the incorporation process while also ensuring a bright, prosperous future for your new entity and wider corporation.
1. Consider your current and future needs
Your service provider should be ready and able to take care of immediate issues and capture opportunities to futureproof your internal systems.
- Therefore, starting by developing an in-depth understanding of your business’s current and future payroll requirements is important. In today’s dynamic business landscape, organisations are increasingly asking themselves a series of crucial questions when considering service partners such as: Are we looking at expanding quickly?
- Do we need to consider both a local workforce and different geographies?
- Are we looking at implementing employee share plans?
- Are we adopting a model of FTEs or are they leaning more towards leveraging on the GIG economy?
You can then use this knowledge to search for a team equipped to meet all your needs.
2. Assess the provider’s competencies
Once you have a shortlist, it is time to check each provider’s ability to assist you. Seek a provider that specialises in:
- establishing robust data security solutions;
- delivering responsive customer support; and
- providing sophisticated human resources management system solutions.
Ideally, they will have a track record of servicing organisations similar to yours (in size, complexity and location), and the ability to adapt to evolving demands as your company grows.
3. Investigate the provider’s expertise and accuracy
Next, be sure to investigate potential partners’ experience level and service history.
“Fundamentally, payroll is about making sure people are paid the correct amount in a timely manner, so check that the provider has a track record of doing that consistently,” Ken says.
Experienced providers take an exploratory, deep-dive approach to their service delivery. This approach allows them to uncover the specific challenges an organisation is facing and design robust solutions to meet current and forecasted needs.
A wealth of experience also makes payroll teams better at targeting the root cause of problems, resulting in an effective and efficient service experience.
4. Check the provider’s geographical footprint
To support seamless payroll administration and cut costs, multinational organisations should consider engaging a globally minded firm with extensive experience navigating the cultural and regulatory complexities of cross-border payroll.
Ken points out that language barriers can also pose a challenge.
“Business leaders sometimes fail to realise this will be an issue until they become familiar with the tasks required to manage their payroll,” he says. “You will need to submit regular forms to governments and agencies, and someone will need to interpret what you’re signing off.”
How to prepare for the future of payroll
Companies wanting to succeed in an increasingly competitive and complicated Hong Kong market must take swift action to futureproof their payroll systems.
According to Ken, C-suite executives can enhance the adaptability and effectiveness of their payroll function by embracing new technologies.
“Technology evolves very fast and will evolve further, bringing improvements in speed, efficiency and accuracy to the payroll process – which was historically very clunky to manage,” he says.
The benefits of modern payroll systems are numerous, with the latest cloud-based human resource management systems (HRMS) enabling leaders to:
Discover premium payroll services in Hong Kong
BoardRoom has been helping businesses thrive for more than 50 years. Our experienced teams are known for their ability to handle complex problems with speed, professionalism and skill, as well as their attention to detail and dedication to exceptional customer care.
These qualities, along with our innovative HRMS offering, Ignite, have helped make BoardRoom one of the most highly sought-after payroll firms in the Asia-Pacific region.
With local offices in five different geographies, and a strong global network of trusted business partners, we possess the knowledge and resources to expertly manage the payroll of organisations of all sizes, from growing SMEs to sprawling multi-country corporations.
Contact BoardRoom today to find out how we can help your company maintain strict payroll compliance as it expands.
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