Hong Kong runs one of the simplest payroll systems in Asia. There is no withholding tax and one mandatory contribution scheme. What employers still have to get right is MPF, the annual reporting cycle, and two recent changes: the end of MPF offsetting and a minimum wage that now moves every year. This guide sets out the current position and the ways to run payroll, whether you use your own entity or outsource it to AYP.
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Running payroll in Hong Kong is lighter work than almost anywhere else in the region. There is no monthly tax withholding, no social insurance stack, and one contribution scheme to administer. The obligations that do exist are unforgiving on timing rather than complexity, and two of them changed recently in ways that raise employer cost.
This guide covers what employers are legally required to do: MPF contributions and limits, salaries tax and how it is actually collected, the minimum wage, the employer reporting forms, and the ways to run payroll once you have staff on the ground. It sits alongside AYP's wider APAC payroll services and the full payroll country guides.
The table below is the quick reference most employers need.
Three bodies set the rules. The Inland Revenue Department administers salaries tax and the employer reporting forms. The Mandatory Provident Fund Schemes Authority regulates MPF. The Labour Department oversees the Employment Ordinance, including the minimum wage, holidays and termination payments.
Payroll is processed monthly and paid in Hong Kong Dollars, with wages due within seven days of the end of the wage period. The tax year runs from 1 April to 31 March, which is worth noting because it does not line up with the calendar year used for most other things.
The defining feature is that Hong Kong has no pay-as-you-earn system. Employers do not deduct salaries tax from monthly pay. Instead they report each employee's earnings to the IRD once a year, the IRD assesses the employee, and the employee pays directly. That makes monthly payroll simple and the annual reporting cycle the part that matters.
The Mandatory Provident Fund is the only compulsory contribution in Hong Kong payroll. It covers employees aged 18 to 64 who have been employed for 60 days or more, and both sides contribute 5% of the employee's relevant income.
Relevant income is defined broadly and includes salary, wages, leave pay, commission, bonuses, overtime and most cash allowances. Two thresholds shape the calculation, and the lower one has a quirk worth knowing: an employee earning below the minimum level does not contribute, but the employer still pays its own 5%.
Contributions must reach the scheme trustee by the 10th day of the following month. The MPFA is currently reviewing these income levels and has proposed lifting the minimum to HK$10,500 and the maximum to HK$40,000, with a report due to government by mid-2026. If adopted, the maximum contribution would rise to HK$2,000 a month from each side, so it is worth watching rather than budgeting for yet.
This is the change that has increased employer cost most. Until 1 May 2025, employers could use the accrued benefits of their mandatory MPF contributions to offset severance payments and long service payments. From that date the offsetting arrangement was abolished for service on or after the transition date.
The change is not retrospective. For employees hired before 1 May 2025, employers can still offset the portion of severance or long service payment that relates to service before that date. Accrued benefits from voluntary contributions and contractual gratuities can also still be used. The government runs a subsidy scheme to share the added cost with employers over a 25 year period. The practical effect is that termination costs for long-serving staff now need to be provisioned rather than assumed to be covered by the MPF pot.
Employees are taxed on income arising in or derived from Hong Kong. The IRD calculates the bill two ways and charges whichever is lower: progressive rates on net chargeable income after allowances, or the standard rate on net income before allowances. The standard rate is two-tiered, at 15% on the first HK$5 million of net income and 16% above that.
The basic allowance is HK$132,000 for the 2025/26 year of assessment and rises to HK$145,000 for 2026/27, with further allowances available for dependants. Because there is no withholding, none of this touches monthly payroll. It matters for employee communication and for the employer reporting described below.
Since the IRD collects tax directly from employees, the employer's job is to tell the IRD what it paid and when people join or leave. There are four forms, and the deadlines on the departure form in particular carry real consequences.
The IR56G is the one to watch. When an employee is leaving Hong Kong for good, the employer must notify the IRD a month ahead and hold back any money owed to that person until the IRD issues a letter of release. Paying out a final salary before clearance makes the employer liable for the tax.
The statutory minimum wage rose from HK$42.10 to HK$43.10 an hour on 1 May 2026. This was the first increase under a new annual review mechanism that replaced the previous two-yearly cycle, with the Minimum Wage Commission now applying a formula based on inflation and real economic growth. At the same time, the monthly cap above which employers no longer need to record employees' total hours worked rose from HK$17,200 to HK$17,600.
Hong Kong does not set a general statutory limit on working hours. Leave entitlements come from the Employment Ordinance.
Hong Kong payroll goes wrong in a small number of predictable ways.
The first is assuming there is nothing to do because there is no withholding. The reporting obligations are real, and the IR56G in particular can leave the employer holding an employee's tax bill if final pay is released too early.
The second is the end of MPF offsetting. Employers who built their termination cost assumptions before May 2025 are carrying a liability they used to be able to net off, and it grows with each year of service after the transition date.
The third is the definition of relevant income for MPF. It is wider than basic salary, taking in bonuses, commission, overtime and most cash allowances, so calculating MPF on base pay alone understates the contribution.
The fourth is the pace of the minimum wage now that reviews happen annually rather than every two years. A rate that used to hold for 24 months now moves each May.
Once you have people to pay, there are three practical ways to handle Hong Kong payroll, and the right one depends on whether you already have a local entity and how many staff you expect to hire.
Hong Kong is straightforward enough that some companies keep payroll in-house from the start. The case for outsourcing is usually about the reporting calendar and MPF administration rather than the calculations themselves.
If you have not set up a Hong Kong entity yet, or you want to hire before you do, an Employer of Record lets you employ staff compliantly without your own local company. That is a broader hiring decision than payroll alone, so it is covered separately in AYP's Employer of Record Hong Kong service and the guide to hiring in Hong Kong. For a comparison of running payroll internally against outsourcing it, AYP's team has written on in-house versus outsourced payroll.
AYP handles Hong Kong payroll for companies that would rather not manage the MPF and IRD cycle themselves. The platform calculates MPF against the correct relevant income, remits to the trustee by the 10th, prepares the IR56 series on schedule, tracks severance and long service payment liability now that offsetting has ended, and issues payslips. Pricing is a predictable monthly fee, set out on the pricing page.
The same team supports payroll across 18 Asian markets, so a company using Hong Kong as a regional base keeps one provider rather than stitching together local vendors. To see how it maps to your headcount, speak to the AYP team. Employers new to the process can also read AYP's note on the common payroll mistakes businesses make.
Both employer and employee contribute 5% of the employee's relevant income. Contributions are capped at monthly relevant income of HK$30,000, so the maximum is HK$1,500 a month from each side. Employees earning below HK$7,100 a month do not contribute, but the employer still pays its 5%.
No. Hong Kong has no pay-as-you-earn system. Employers do not deduct salaries tax from monthly pay. They report earnings to the Inland Revenue Department using the IR56 forms, and employees are assessed and pay directly. The exception is an employee leaving Hong Kong, where the employer must withhold final payments until the IRD grants clearance.
The statutory minimum wage is HK$43.10 an hour from 1 May 2026, up from HK$42.10. This was the first rise under a new annual review mechanism, so the rate now changes every year rather than every two years.
Not for service on or after 1 May 2025. The offsetting arrangement was abolished from that date, so mandatory MPF contributions can no longer be used against severance or long service payments for the period after it. Offsetting still applies to the portion of service before the transition date, and to voluntary contributions and contractual gratuities.
Not directly through a standard payroll provider, which needs an entity to enrol employees in an MPF scheme and file employer returns. Employers who want to hire and pay staff before incorporating typically use an Employer of Record instead.
By leveraging AYP’s expertise, businesses can simplify their Hong Kong payroll management and avoid compliance pitfalls. Contact us today to learn how our outsource payroll services can support your operations!