A Harbour of Change, Always Within Reach

Hong Kong offers a straightforward employment landscape with minimal statutory requirements, no payroll tax, and no mandatory social security for expatriates. Its strategic location, bilingual workforce, and simple tax system make it an attractive entry point into Asia. Through our EOR services, you can hire talent in Hong Kong quickly while staying compliant with local employment ordinances.

Social Insurances

Employers in Hong Kong are required to contribute to the Mandatory Provident Fund (MPF), a compulsory retirement savings scheme. MPF contributions apply to employees aged 18 to 64 who have been employed continuously for 60 days or more. Both the employer and the employee must each contribute 5% of the employee’s relevant income, subject to minimum and maximum income levels (currently set at HK$7,100 and HK$30,000 per month, respectively).

Exemptions may apply to specific employee categories, such as expatriates who work in Hong Kong for less than 13 months or are covered by an overseas retirement scheme. Employers are responsible for selecting an appropriate MPF scheme and ensuring that contributions are made accurately and in compliance with the Mandatory Provident Fund Schemes Ordinance (MPFSO).

Types of Contracts

Under Hong Kong employment law, both oral and written contracts are legally valid. However, if an employee is employed for a continuous period of more than one month and works at least 18 hours per week, the employer is required to provide a written statement of employment terms if requested by the employee. This statement must include key terms such as wages, wage period, notice period, and entitlement to holidays and leave.

Although oral agreements are permissible, providing a written employment contract is considered best practice to avoid disputes. Employers who fail to provide a written statement upon request may be subject to penalties under the Employment Ordinance.

Working Hours

Hong Kong does not have a statutory standard for working hours, nor is there a legal maximum limit on the number of working hours per day or week. As such, working hours are typically determined by the terms of the employment contract.

It is considered best practice for employers to clearly define working hours in the contract, including arrangements for rest days, meal breaks, and overtime pay where applicable. Although there is no legal obligation to provide overtime pay unless stipulated in the employment agreement, many employers follow internal policies or industry norms.

Employees are still entitled to protections under the Employment Ordinance, regardless of the length or nature of their employment contract. These protections include rest days, paid annual leave, sick leave, and statutory holidays, among others.

Bonuses

Bonuses are not mandatory under Hong Kong law. However, it is common practice in many industries to provide a “13th month salary” or “end-of-year payment”, particularly in line with market customs similar to those in China and Singapore.

If an end-of-year payment is stipulated in the employment contract or established through company policy, it is governed by the Employment Ordinance. Under the Ordinance, such a payment is treated as a contractual entitlement. If the employee has been employed for not less than three months during the bonus year and is not terminated summarily or resigned voluntarily without notice, the employer is required to provide a pro rata payment of the end-of-year bonus upon termination.

Employers should ensure that the terms and conditions related to any bonus payments are clearly outlined in the employment contract to ensure compliance and avoid disputes.

Average Daily Wage

According to Hong Kong’s Employment (Amendment) Ordinance 2007, payments for annual leave and other statutory entitlements (e.g., maternity and sickness leave) are calculated based on the average daily wages earned over a 12-month period immediately preceding the leave or payment.

This method applies to all employees, regardless of how they are paid (monthly, daily, hourly, etc.).
The 12-month average daily wage is used to calculate the following statutory entitlements:

• Holiday pay
• Annual leave pay
• Sickness allowance and related provisions
• Maternity leave pay and related provisions
• Reimbursement under the Maternity Leave
• Pay Scheme
• Paternity leave pay
• End of year payment
• Payment in lieu of notice
• Further sum for non-compliance with an order of reinstatement or re-engagement after an unreasonable and unlawful dismissal

To ensure fair compensation, certain periods where the employee was not paid full wages are excluded from the calculation. This includes:
Statutory leave periods:

• Statutory holidays
• Annual leave
• Maternity leave
• Paternity leave
• Sick leave
• Rest days

Other excluded periods:

• Sick leave due to work injuries (as provided under the Employees’ Compensation Ordinance)
• Unpaid leave taken with the employer’s agreement
• Normal working days where the employee was not provided with work by the employer

These exclusions prevent the average from being unfairly lowered due to periods without full pay.

Sick Leave

Employees are entitled to paid statutory sick leave starting from their first day of employment. To qualify, the employee must take at least 4 consecutive sick days and present a valid medical certificate (or equivalent proof).

Entitlement accrues at a rate of 2 paid sick days per month during the first 12 months, increasing to 4 paid sick days per month thereafter, up to a maximum of 120 days in total.

Sick pay is calculated at 4/5 of the employee’s average daily wage (based on up to 12 months of previous earnings) and must be paid on the usual pay day.

Employers are legally prohibited from dismissing an employee while they are on statutory paid sick leave, except for cases of serious misconduct. Violations may result in legal action, including fines up to HK$100,000 and required compensation

Termination

In Hong Kong, termination of employment requires advance notice, with a minimum statutory notice period of 7 days, unless otherwise specified in the employment contract. However, this notice period may be waived in cases of summary dismissal due to serious misconduct, as permitted under the Employment Ordinance.

Employer Notification to Inland Revenue Department (IRD)

If an employee is leaving Hong Kong permanently, the employer is required to:

• Notify the Inland Revenue Department (IRD) at least one month before the employee’s expected departure date.
• Withhold all final payments (including salary, bonus, and other entitlements) until the employee has completed tax clearance with the IRD and received a Letter of Release.

Note: While employees are responsible for filing their own annual tax returns, employers must submit annual employer returns (Form IR56B) and departure returns (Form IR56G) to the IRD.

Payment in Lieu of Notice (PILON)

Under Section 7(1A) of the Employment Ordinance, either party—employer or employee—may terminate the employment without serving notice by making a Payment in Lieu of Notice (PILON), regardless of whether the contract allows for it.

PILON is commonly used, particularly when an employee is moving to a better opportunity and the new employer covers the payment.

The PILON amount is calculated based on the employee’s wages for the notice period that would have been required under the contract or statutory minimum, whichever is longer.

Severance Payment

An employee in Hong Kong is entitled to statutory severance payment if the following conditions are met:

• The employee has been employed under a continuous contract for at least 24 months, and
• The dismissal is due to redundancy, or
• The fixed-term contract expires and is not renewed due to redundancy, or
• The employee is retrenched.

Exclusion Clause:

An employee is not entitled to severance payment if:

• The employer offers to renew the contract or re-engage the employee under a new contract, and
• The offer is made at least seven days before the date of termination or contract expiry, and
• The employee unreasonably refuses the offer.

Calculation of Severance Payment

The amount of severance payment is calculated based on the following formula, subject to a maximum limit of HK$390,000:

(Last monthly wages × 2/3) × years of service

For daily-rated or piece-rated employees:
(Average daily wages × 2/3) × 365 × years of service ÷ 12

The calculation is based on the last full month’s wages or the average wages over the last 12 months, whichever is higher.

Long Service Payment

An employee who has been employed under a continuous contract for not less than five years is entitled to a statutory long service payment if:

• The employment is terminated by the employer, except in cases of redundancy or summary dismissal due to the employee’s serious misconduct;
• The fixed-term employment contract expires and is not renewed by the employer;
• The employee dies during employment;
• The employee becomes permanently unfit for their current job and resigns, supported by a medical certificate issued by a registered medical practitioner or a registered Chinese medicine practitioner;
• The employee is aged 65 or above and resigns on the grounds of old age.

Statutory long service payment is calculated using the same formula as severance payment. However, an employee is entitled to either severance payment or long service payment, but not both.

Mandatory Provident Fund (MPF)

The Mandatory Provident Fund (MPF) is a compulsory retirement savings scheme in Hong Kong. Employees who are employed under a continuous contract of 60 days or more are required to contribute to the MPF. Both employers and employees contribute 5% of the employee’s relevant income, subject to:

• Minimum income level: HK$7,100/month
• Maximum income level: HK$30,000/month

Contributions are made monthly and managed by approved MPF trustees. Exemptions may apply to certain expatriate employees and others under specific conditions.

Please Note:

• All employees are entitled to the above statutory holidays.
• If a statutory holiday falls on a rest day, the employer must grant:
  – A substituted holiday on the next working day that is not a statutory holiday, an alternative holiday, or another rest day.
• Employees employed under a continuous contract for not less than 3 months are entitled to holiday pay, which is calculated as:
  – Holiday Pay = Average Daily Wages over the preceding 12-month period.
• Employers must choose between granting Christmas Day (25 Dec) or Winter Solstice (21 Dec) as one of the statutory holidays.

Please find our Hong Kong (China) office address below:

Unit 2406B, 24/F, Low Block,
Grand Millennium Plaza,
181 Queen’s Road Central,
Sheung Wan, Hong Kong

Email: info@linkcompliance.com