For a business to run smoothly, the payroll process must be streamlined and error-free. It is easy to streamline and optimize your payroll and other back-office processes within your SMB. Did you know that this can improve your cash flow?
Although payroll involves money paid out by an organization, it is viewed as distinct from accounts payable because it involves both expenses and liabilities.
Although payroll is separate from accounts payable, you can use payroll to boost your cash flow just as you can by streamlining your accounts payable process. If you need further advice from a trusted accountant in Hong Kong on improving your payroll process, have a chat with us. Otherwise, do read on for our top 5 tips to handle your business’s payroll accurately and efficiently.
Be Aware of The Payroll Processing Procedures in Hong Kong
With a relatively simple payroll system and business-friendly tax policies, it is unsurprising that many businesses are looking to expand to Hong Kong. However, to make sure that you get to enjoy the maximum benefit and steer clear of penalties, it is important to have a good understanding of the subtle nuances of Hong Kong’s payroll legislation.
Familiarise yourself with Hong Kong’s payroll management so you can keep your payroll operations running smoothly. This is what you need to know:
Hong Kong’s Minimum Wage and Working Hours
As of 1 May 2015, Hong Kong’s statutory wage rate is HK$32.5 per hour. Working hours are generally from Monday to Friday, 9 a.m. - 6 p.m. While there are no regulations on maximum working hours, young persons in industrial settings are an exception. A young person is defined as someone who is over the age of 15 but under the age of 18 and is restricted to eight working hours a day from 7 a.m. to 7 p.m. in a 48-hour week.
Hong Kong does not have any law that requires overtime payment. Extra overtime pay can be detailed in the employment contract for clarity.
Companies are required to report all staff remuneration on an annual basis. This means that you will have to submit an employer’s return (forms IR568 and BIR56A) to the Inland Revenue Department (IRD), declaring your employee’s salary tax, otherwise known as income tax.
In addition, you will also have to declare all new employment, terminations, death and long-term annual leave through forms IR56E, IR56F and IR56G respectively. Salary tax is imposed at a progressive 2 to 17% rate on your staff’s net pay. Your staff may also opt to pay a flat 15%, but the onus of filing an annual declaration and making direct payment to IRD falls on you. In the event of employee termination, you will have to declare through form IR56F within a month to the IRD, so that your employee can receive a letter of release to be free from debts that could be paid to the state through social contributions or tax.
Mandatory Social Contributions
As an employer, you will have to make social contributions to your employee’s Mandatory Provident Fund (MPF). The MPF was launched in 2000 as Hong Kong´s employment-based retirement protection system and is a mandatory contribution for both the employee and employer.
Both the employer and employee must each contribute at least 5% of the latter’s salary to the employee’s MPF account. The minimum monthly income with mandatory social contributions imposed is HKD 7,100 up to a maximum monthly income of HKD 30,000, and the highest compulsory contribution for each employer and employee is HKD 1,500 a month.
Under the Employment Ordinance, an employee is entitled to rest days, paid public holidays, and paid annual leave. An employee is granted seven days of paid annual leave following 12 months of service under a continuous contract, and the number of leave is increased in accordance to the completed length of service period, ranging from seven days for the first two years, up to 14 days per year for the employee’s ninth year and onwards. Your employee’s annual leave is compensated at 100% of salary.
Record Your Payroll Processing Procedures
Documenting your payroll process is an important step in managing payroll. With every step of the payroll processing procedure being recorded, you can then easily analyse, audit and identify weak spots in the process. After you have come up with a payroll process that is most ideal for your business, record the steps and disseminate them to your payroll employees to make sure that they are aware of their respective roles in the procedure.
Maintain a standard operating procedure for your payroll processing, detailing all the steps in payroll processing, such as the reporting and check handling procedures. It will also be advantageous for you to include instructions on manual ways to process payroll when emergencies arise.
Create a Payroll Calendar
A payroll calendar details the start and end dates of pay periods including pay dates.
Creating a payroll calendar in place can help your employees have a better understanding of when they will get their wages. Furthermore, your payroll staff can also refer to this payroll calendar for assistance with the execution of payroll tasks and planning. To create your payroll calendar, simply choose from the available templates online, make your spreadsheet or use an Office Suite program.
Before you start making your payroll calendar, here are some tips to bear in mind:
- Use a regular calendar to act as your guide for certain periods in the year that you may require more time for payroll processing
- Differentiate important dates using colours. These dates include early time card deadlines as a result of a holiday
- Distribute a copy of the payroll calendar to your managers and supervisors so they can share it with their respective employees.
Additionally, your payroll calendar should reflect all fiscal year pay dates for easy payment processing and reduce your employee’s confusion on when they will be paid. After you have made your calendar template, don’t forget to save it on your hard disk for updating when there are changes.
Embrace Automation in Payroll
Thanks to modern technology, you can take your pick from the available tools to manage your payroll processing procedures in a smoother manner. With a wide range of payroll management software in the market, you can opt for one that is most ideal to help you optimise your payroll functions.
Processing payroll requires a lot of money and time. When this function is executed manually, it is susceptible to human errors and can result in severe penalties. However, investing in a payroll software can help you automate the entire payroll process. These softwares can even factor in tax calculations, generate employees’ payslips, adhere to local legislation and provide you with up-to-date information for end-of-year tax returns. Remember to streamline your payroll management process by using the latest software for higher accuracy. Check this list of Top 6 Free Payroll Calculators and choose software suitable to your needs.
Outsource Your Payroll Tasks
Running your own business is certainly a feat — it is always challenging to handle everything from marketing to payroll management. However, you don’t have to grapple with everything on your own! Consider outsourcing to payroll service providers like Osome, who will take care of all your payroll needs.
Osome takes the routine off your hands — you get an Accountant and Corporate Secretary who learn the nature of your business. They know what to file, which reliefs you’re entitled to, and handle the documents. Just message your question in a chat, they respond daily and answer to the point.
You grow your business, we’ll do the rest. Let our accounting experts in Hong Kong streamline your cash flow so that you can get a hold on payroll, invoices, reports, and taxes. We even have accountants who specialise in e-commerce too. Talk to us today!