A Glance at PEO in
Employers are required to contribute to Mandatory Provident Fund (MPF), a social security fund for their employees in Hong Kong. Depending on the job scope, the idenity of the employee, even the industry and sector, the employee may qualify for different schemes out of the multiple the system provides. Our PEO services help you to skip pass the trouble of having to careful ensure that the employee is covered under the right MPF for them, and all you need to deal with is the precise invoice we will prepare for you when it comes to payrolling day.
Types of Contracts
Both oral and written contracts are valid in Hong Kong’s employment laws. For written contracts, the employer is required to provide the employee a copy of the contract for reference and retention purposes. As for oral contracts, the employee is still allowed to request for one in written form before entering employment, thus the employer will still have to provide one, or they may face prosecution and subsequently fines. Our PEO services can help you establish employment contracts, hassle-free.
Employee benefits are a major consideration for an employee to join your team. In addition to contributing to MPF, employers should also consider providing a wider variety of benefits, such as health insurance that covers outpatient visits, accident costs, maternity expenses and more. Benefits that expands beyond healthcare, such as an additional pension scheme, will never be unwelcomed. With the provision of these benefits, working for your company will become an attractive prospect to more people, enticing higher quality talents.
While Hong Kong generally has no statutory standard working hour system, as well as no statutory maximum number of working hours, it is generally advisable that a set number of hours is included in clear and concise terms in the employment contract, along with provisions of overtime pay if needed. The employee is also under the protection of the Employment Ordinance Act regardless of the actual contract the employee signs with the employer, and hence the employee should still receive regular protection and coverage such as entitlement to paid annual leaves, medical leaves etc. With our PEO services, we can help you clearly lay out working hours that bring the best outcomes for both you and your employee to be.
While not compulsory by law, Hong Kong is similar to China and Singapore where there is the practice of giving the “13th month bonus”, or also known as “end of year payment”. In bonus schemes laid out by the employer, bonuses that are given on an annual basis will be considered as an “end of year” payment under the Employment Ordinance, thus the employee also receives protection under Hong Kong labor law. In the case that a bonus falls under the “end of year payment”, if the employee has worked for three or more months in the year and is not terminated summarily or by way of resignation, the employer will have to ensure that a pro rata payment is paid out out to the employee. Link Compliance can handle all of the hassle that comes with situations like this, leaving your business to continue running smoothly.
Setting up a physical office in Hong Kong may be expensive — renting a physical office space, hiring additional staff for upkeeping, all add on to costs. Hong Kong labor laws are flexible enough to allow an employee to work from anywhere, provided that it is stated clearly in the employment contract. With the on-going covid-19 situation as well as the nature of PEO services, working from home is a work arrangement strongly supported by our PEO services too. Through Link Compliance, employers and employees unlock flexible work arrangements, thus increasing satisfaction levels for both employers and employees.
Employment Laws and Regulations
According to Hong Kong’s Employment (Amendment) Ordinance 2007, Annual leave (and other statutory leave e.g. maternity, sickness) pay in Hong Kong is calculated from the average daily wages earned by an employee over a 12-month period. This is applicable to all employees regardless of how they are paid (monthly, daily etc.).
The 12 months Average 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 of Maternity Leave Pay Scheme
- Paternity leave pay
- End of year payment
- Payment in lieu of notice
- Further sum for non-compliance of an order of reinstatement or re-engagement for unreasonable and unlawful dismissal
However, it excludes wages from holidays, paid leaves etc. In order to avoid deflating the amount due for the statutory entitlement, periods where the employee is not paid the full wages or any wages should be excluded. These are the following statutory leave periods excluded:
- Statutory holiday
- Annual leave
- Maternity leave
- Paternity leave
- Sick days
- Rest days
- Sick leave due to work injuries as provided under the Employees’ Compensation Ordinance
- Leave taken with the agreement of the employer (unpaid leave)
- A normal working day where the employee is not provided with work by the employer
Employers must track and remunerate different categories of absence days such as holidays, annual leave, sickness and maternity leave. Employees are entitled to be paid statutory sick leave if sick leave is taken for 4 consecutive days or more, at a rate of 4/5 of the employee’s daily average wage.
Statutory sick leave entitlement accrues as follows:
2 paid sickness days for each completed month of employment during the first year of employment & 4 paid sickness days for each month thereafter (up to a maximum of 120 paid sickness days).
They are also not allowed to terminate said employee on their paid sick leave days else they will be subjected to prosecution or a fine of up to 100000HKD.
In Hong Kong, a contractual notice for termination is required for a minimum period of 7 days. However, it can be overlooked only if the dismissal is on the basis of serious misconduct.
Employers must notify the Inland Revenue Department (IRD) of a leaver one full month before an employee leaves the company and subsequently the country. If the employee is leaving Hong Kong, the employer must withhold final payment to the employee until tax clearance is received from the IRD. Also, while Hong Kong employees are required to file their own annual tax returns, every employer must also complete a formal annual return.
Payment in lieu of Notice
Hong Kong permits (by section 7(1A) Employment Ordinance) both employer and employee to terminate the employment by making a Payment in Lieu of Notice also known as PILON, irrespective of contrary provisions in the employment contract. For employees wishing to take up a more lucrative offer elsewhere (and often with a PILON funded by the new employer), this is attractive.
The amount of PILON payable is calculated by reference to the amount of wages the employee would have earned during the notice period.
An employee is eligible for statutory severance payment under the circumstances that:
- Has been in a continuous contract for at least 24 months
- Dismissed due to redundancy
- Employment expires with redundancy as reason and contract is not renewed
However, an employee will not be eligible for statutory severance payment if:
- The employer offers to renew the employment contract/re-engage the employee under a new contract at least seven days before the date of termination or expiry, but the employee unreasonably refuses the offer.
An employee who has been employed under a continuous contract for not less than five years will be entitled to a statutory long service payment if:
- The employment is terminated by the employer (except by reasons of redundancy or summary dismissal due to the employee’s serious misconduct)
- The fixed-term employment contract expires without being renewed by the employer
- The employee dies during employment
- The employee is permanently unfit for his or her present job and he or she resigns (verified by a certificate issued by a registered medical practitioner or a registered Chinese medicine practitioner)
- The employee is aged 65 or over and resigns on grounds of old age. Statutory long service pay is calculated using the same formula as for severance pay and an employee is entitled to either severance pay or long service pay, but not both.
The Hong Kong Government has designed a Mandatory Provident Fund (MPF) for its citizens, which is a compulsory saving scheme for the retired and ageing. This system is mandatory for all employees that enter an employment contract for 60 days and above, and both employers and employees will be obligated to make regular contributions of 5% of the employee’s income to the MPF scheme. This is subject to the minimum and maximum relevant income levels of HK7,100 and HK30,000.
Hong Kong’s Statutory Holidays
|New Year’s Day||2 Jan|
|The 2nd day of Lunar New Year||23 Jan|
|The 3rd day of Lunar New Year||24 Jan|
|The 4th day of Lunar New Year||25 Jan|
|Ching Ming Festival||5 Apr|
|Good Friday||7 Apr|
|The day following Good Friday||8 Apr|
|Easter Monday||10 Apr|
|Labor Day||1 May|
|The Birthday of the Buddha||26 May|
|Tuen Ng Festival||22 Jun|
|Hong Kong Special Administrative Region|
|The day following the Chinese Mid-Autumn Festival||30 Sep|
|The day following National Day||2 Oct|
|Chung Yeung Festival||23 Oct|
|Christmas Day||25 Dec|
|The first weekend after Christmas Day||26 Dec|
For more information
Taxation Policies in Hong Kong (English)
Employer’s Tax Duties in Hong Kong (English)
Income Tax in Hong Kong (English)
Statutory Holidays in Hong Kong (English) #1
Statutory Holidays in Hong Kong (English) #2