Maintaining payroll processing with lots of care and attention is a complex task. Every business is striving hard to deal with complex payroll tasks efficiently and without any mistakes. With a well-established system in place, the payroll is organised and structured in Hong Kong businesses. Mostly, in businesses in Hong Kong, fines against compliance and penalties for discontented employees.
In this blog, we emphasise the mistakes that happen during payroll processing.
Unleash the guidelines to dive into payroll processing mistakes with Hong Kong businesses and streamline them effectively.
What is Payroll?
Payroll is the amount or compensation provided to the employees as a benefit on a routine monthly or weekly basis. Commonly, small-scale businesses do payroll for their accounting or human resources departments. Along with the standard pay scale, some variables like overtime pay and sick pay are the major additional expenses of the firm. Thereby, deducting it from the gross income reduces the taxable income.
Read More: Know More About HR and the Payroll Process in HK
How Should Salary Tax Calculated in HK for Employees of Different Pay Scales?
Based on the pay scale, the deductions can be varied. The income taxes can be deducted in a range of 2% to a maximum of 17% within their wages to the employees. And allowances of 15% on net income after deductions. (source)
Taxable Income Over Wages
- Allowances
- Bonuses
- Commissions
- Salaries, and;
- Company Benefits
The different tax categories in the Hong Kong Special Administrative Region (SAR) can be as follows:-
- Profit Tax for business profits.
- Salaries Tax for employment income, pensions, office income, etc.
- Properties Tax for rental income for property
Despite this, tax dividends, capital gains, or interests for individuals are not offered in Hong Kong. Salary tax liability is not determined solely by an individual’s residency status unless related to a tax treaty.
Social Insurance
The mandatory provident fund (MPF), which is the retirement scheme, is one of the mandatory social insurance in HK. The insurance is paid on a mandatory form by employees over 18 and under 65 with exemptions. An employer must follow all MPF-related legal obligations under the HK government.

Mistakes to avoid in payroll processing in Hong Kong
False Classification of Employees
Misclassification of employees is a common problem in most organisations. Hong Kong labor laws usually distinguish employees into different divisions-─full-time, contract-based, part-time and fixed-term (permanent). These kinds of misclassifications lead to benefits, taxes, and labour laws. Legal Liability and monetary defects can affect these misclassifications.
Non-compliance with Basic Pay Regulations
Most countries have adopted a necessity in getting the minimum pay in the world, but it is statutory in Hong Kong. Based on the current status in Hong Kong, it is referred to as HKD 40 per hour as the minimum wage. Any company that intricates in the materiality of its use triggers the action of penalties offering equal to the company’s reputation.
Issues against overtime pay
Furthermore, the company should calculate overtime allowances using the benchmark provided by the Hong Kong Employment Ordinance. However, if a company plans to overestimate or underestimate manpower, it may result in complaints and legal cases. Companies ensure that overtime payroll calculations and hours are correct.
Mistakes In the MPF (Mandatory Provident Fund) Calculation
Employers in Hong Kong must provide the MPF deductions at the right time without fail. Paying late will lead to fines and penalties from the department concerned within the laws and conflicts.
Incorrect salary tax withholdings
It must correctly monitor the salary tax deprivation. Moreover, the employer must deduct the tax within each bracket based on the employee’s salary. If any errors happen in tax withholdings by the employers, it will impact the employees’ ability to apply penalties to the Hong Kong government.
Delay in On-time payroll processing
The employer is liable for the employee’s wages if payroll is not paid on time. According to Employment Ordinance of Hong Kong if the employer wilfully or without any reasonable excuse, delays the wages then he is liable to prosecution upon conviction, above all, with paying penalties and imprisonment.
Absence of Record Keeping
It is mandatory to keep payroll-related records with employers in Hong Kong. Employers must legally keep salary records, MPF contributions, and other pay slip-related items for at least seven years. However, it is essential to these documents for compliance-related activities such as auditing.
Eliminating Employee Benefits
The management of the organisation must allocate all the employee benefits to the employees. The company can allocate employee expenses such as allowances, health insurance, bonuses, etc. based on the policy. If any processing disruptions can result in underpayment or overpayment, that affects the employees and legal conformity.
Mishandling of Termination Pay
During the termination of an employee, the employer shall pay all the termination payments, except for severance payment, to the employee as soon as practicable. Also, in any case, not later than seven days after the date of termination or expiry of the contract. According to Hong Kong, any failure of the attempt to calculate the due amount and wages can result in legal confrontations and penalties.
Outdated payroll systems
Hong Kong continuously declares changes in its rules and regulations. As a result, employers need to update their employees regularly with the current legislation from the IRD. Handling outdated payroll systems can increase errors and miscalculations.
Ending Notes
Managing payroll is a detail-oriented task and complex that demands and meets unique legal requirements with accuracy and compliance. That’s why it’s important to opt for the right payroll system that leverages technology. Over time, Hong Kong’s regulations and taxation have frequently changed. You must update payroll based on the changes. With outdated systems, it is impossible and can result in errors and miscalculations. Although, InfoTech Payroll Software can save time and cost-effectively use and solve problems and enhance productivity. With its automated payroll processing in accordance with the tax compliance changes in HK, the organisation can effectively manage the business.
Hope you received an informed insight!
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