This article is a practical guide about your human resources-related obligations as a director of a Hong Kong startup.
The government websites can be confusing as they provide abundant information that cover any type of business. This article is meant to summarize only the obligations relevant for startups and provides a series of templates that can help you keeping your records organized.
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If there is one government obligation you better take seriously, it is that all your employees must have a valid work permit before starting employment.
The case of Stephen Lee at the Sha Tin court in June highlights this point very well. Lee is a snooker star who used to be number 5 in the world. He was accused of teaching without a work permit at the Hong Kong billiards hall a few days after arriving in Hong Kong on a visitor visa. Because this represents a breach of his conditions of stay under the Immigration Ordinance, he came dangerously close to facing a sentence of 2 years’ imprisonment.
The Immigration Department is stringent and doesn’t make exceptions. It even precisely describes the penalties if an employer employs a person not lawfully employable:
The employer is liable to a maximum fine of HKD 350,000 and three years’ imprisonment.
Source: Immigration Department website
Now, let’s have a look at the different visa cases you might encounter:
- Permanent resident or citizen: this is the easiest case given that the person is entitled to work in Hong Kong without further actions needed from your side.
- Dependent visa: This case is also good because the person is entitled to work, as long as her/his spouse is entitled to work. However, I noticed on several occasions there is a preference for being independent, and these employees will ask you to sponsor their own work visa.
- IANG visa: Non-local students who have received a degree from a Hong Kong institution are allowed to work one full year with this visa. It is very useful as it allows the person to start the employment right away and gives you time to apply for a work visa.
- Work visa: This is the most common case I have faced. The work visa is tied to a specific employer and is not transferable. Here we have 3 scenarios:
- New employment visa application: By far the most difficult case. This applies if you want to hire an overseas employee who will move to Hong Kong for the job. The person must have good educational qualifications and a professional background relevant for the job. The process takes 2 to 3 months to complete. If you are an early-stage startup (i.e. no audit report filed yet), you will need to be part of a recognized incubator or accelerator program to be able to sponsor the visa. Otherwise the chances of approval are very slim.
- Change of employment: The employee was previously employed by another company and wants to switch to your startup. This change must be approved by the Immigration Department and takes 4 to 6 weeks to complete. Upon approval, the employee must activate the visa by re-entering Hong Kong. Only when this is done can employment start.
- Employment visa renewal: The employee can apply for renewal 1 month before expiration of the work visa. The application will be considered only if the employee continues to meet the work permit eligibility criteria and the startup has a credible profile.
The Hong Kong labor department requires employees and employers to make regular mandatory contributions calculated at 5% of the employee’s relevant income to an MPF scheme, subject to the minimum and maximum relevant income levels. For a monthly-paid employee, the minimum and maximum relevant income levels are HKD 7.1K and HKD 30K respectively. This means there is no difference in the mandatory contribution between for an employee with a monthly salary of 30K and one with 100K. In both cases the contribution will be HKD 1.5K employee side and HKD 1.5K employer side, adding up to HKD 3K.
As a startup founder and employer, you are responsible to deduct the employee-side contribution from the employee’s salary and make the payment together with the employer-side contribution to the MPF trustee on or before the 10th of the payroll’s subsequent month (or the next working day if the 10th is a weekend or public holiday). Any late payment will be subject to a penalty of 10% of the outstanding amount.
It is to note that employees enjoy an initial contribution holiday, which means that for the first month of employment they are not subject to a mandatory contribution and therefore receive their salary in full.
Below is an example of the mandatory payments for an employee starting employment on July 1st, 2018, with a base salary of HKD 20,000.
|Payroll Period||Employee Contributions||Employer Contributions||Transfer to Employee||Transfer to MPF Trustee|
If the employment does not start on the 1st day of the month, you are required to do a pro-rata payment according to the number of days the person is employed during that calendar month.
From my experience, employees do not expect the employer to make voluntary contributions. Hence, there is no value in offering such benefits.
A few words about MPF trustees. Handling MPF is a profitable business for financial companies in Hong Kong. There are many options out there, but to avoid a scam I would recommend selecting one of the 16 approved by the government. The list is available here.
For an objective rating of each trustee, you can download summarized reports on this website.
Employers must provide each employee with a monthly payroll slip showing the required details, including the amount of the employee’s relevant income and the amounts of both employer-side and employee-side MPF contributions.
I notice that many companies ignore this obligation. This is unprofessional and gives employees the feeling of not being taken care of. Just issue the payroll slips every month and you will avoid unnecessary trouble.
Also, I would highly recommend making the salary payments at the end of each payroll month. Although the labor department allows companies to wait until the 7th of the subsequent month, this should be taken as a grace period as it gives unnecessary anxiety to your employees.
The payroll slip template is part of the download package above.
As an employer, you are required to inform the Inland Revenue Department (IRD) about any substantial change in the status of your workforce.
- For newly hired employees, you have to submit the form IR56E per mail or via Electronic Filing of Employer’s Return within 3 months.
- For terminated employees, you must submit the form IR56F one month before the date of termination. If you cannot foresee a termination happening that far in advance, submit the form as soon as you can and record the reason for the delay.
Additionally, at the end of every tax period (i.e. in early May), you are supposed to break down the income subject to salary taxes for each employee and provide her or him a summary for individual tax return filing.
The payroll summary template is part of the download package above.
Expense Report for Reimbursement
For the purpose of proper bookkeeping, you should provide an expense report template to your employees to document any business expense that needs to be reimbursed.
Also, make sure to keep the original copy of every receipt as these will be requested by the auditor.
The expenses report template is part of the download package above.
Your human resource-related obligations as a startup director are limited to verifying that every employee is entitled to work in Hong Kong, making monthly MPF payments and releasing the payroll slips, and keeping the IRD updated about changes in employment status.
Although the number of tasks is small, it is important to take them seriously and ensure on-time completion.