Hong Kong Employment and Payroll Compliance: Employer Duties Under Cap 57 and MPF

Hong Kong Employment and Payroll Compliance Guide for Employers

Three statutes frame every employer’s obligations in Hong Kong: the Employment Ordinance (Cap. 57), the Mandatory Provident Fund Schemes Ordinance, and the Employees’ Compensation Ordinance (Cap. 282). The continuous contract rule determines who falls inside that framework. The abolition of MPF offsetting on 1 May 2025 rewrites what employers owe at the end of the relationship. Get both right and the rest follows.

Hong Kong Employer Obligations

The Employment Ordinance (Cap. 57) applies to every employee engaged under a contract of employment, with limited exceptions. The Labour Department enforces it. Non-compliance means fines, compensation orders, or prosecution.

The continuous contract is the gateway. An employee who works for the same employer for four weeks or more, putting in at least 18 hours each week, is under a continuous contract. Practitioners call this the 4-18 rule. Determine whether each employee meets the threshold from day one. Continuous contract status unlocks rest days, paid annual leave, sickness allowance, severance payment and long service payment.

Employers must also comply with the Mandatory Provident Fund Schemes Ordinance and the Employees’ Compensation Ordinance (Cap. 282). These three statutes together define the core obligations.

The Employment Ordinance does not cover certain categories. Self-employed persons who genuinely carry on business on their own account fall outside it. Family members who live in the same dwelling as the employer are also excluded, as are registered apprentices under the Apprenticeship Ordinance (Cap. 47) to the extent their apprenticeship contract governs the matter. Overseas employees working outside Hong Kong are not covered unless the contract expressly provides for Hong Kong law. Misclassifying a worker as self-employed when the relationship is in fact one of employment exposes the employer to back-pay claims, MPF arrears, and prosecution.

Hong Kong Payroll Requirements

Keep wage and employment records for each employee for at least six months after termination. Payslips must show the wage period, basic pay, overtime pay, allowances, deductions, and net amount paid. The Labour Department inspects records.

Pay wages within seven days of the wage period ending. Section 32 of the Employment Ordinance restricts deductions tightly. You may deduct income tax, MPF contributions, and amounts the employee has authorised in writing for a specific purpose. Cash shortages and stock losses cannot be deducted unless the employee signed a written agreement to that effect.

Late payment of wages attracts interest at a rate set by the Chief Justice. An employer who wilfully and without reasonable excuse fails to pay wages on time commits an offence and is liable to a fine and imprisonment. The employee may also treat the contract as repudiated and claim termination payments.

Report employee wages to the Inland Revenue Department on the annual employer’s return, forms BIR56A and IR56B. File within one month of the tax year end, by 30 April. The return must cover every employee, including part-time staff and directors. The Inland Revenue Department uses the return to issue tax demands to employees. Late filing attracts penalties. When an employee leaves Hong Kong permanently, file form IR56G and withhold any final payment for one month or until the tax clearance is received, whichever is earlier.

Hong Kong Employment Law Compliance

Rest days, statutory holidays, annual leave, sickness allowance, maternity leave, paternity leave, and termination protections all flow from the Employment Ordinance. Apply them in full.

Rest days are one in every seven-day period. The employer schedules them. Statutory holidays number 12 specified days. Employees under a continuous contract receive paid statutory holidays. Annual leave begins at seven days for the first year of continuous employment and rises to a maximum of 14 days after nine years. Sickness allowance pays at four-fifths of normal wages once the employee has accumulated sufficient paid sickness days.

Maternity leave runs for 14 weeks. The employee must have been employed under a continuous contract for at least 40 weeks before the expected date of confinement. Paternity leave is five days, available to fathers employed under a continuous contract. Both are paid at four-fifths of normal wages, subject to a daily cap. An employer who dismisses a pregnant employee from the date a medical certificate confirms pregnancy until the end of maternity leave commits an offence unless the dismissal is for a reason unrelated to the pregnancy and the employer proves it.

Termination under a continuous contract requires the notice period stated in the contract or the Employment Ordinance. Payment in lieu of notice is permitted. Summary dismissal without notice is allowed only for gross misconduct. Severance payment and long service payment are separate entitlements, each with its own eligibility criteria and calculation method.

MPF and Insurance Obligations

Employer and employee each contribute 5% of the employee’s relevant income to the MPF. Where monthly relevant income falls below HK$7,100, the employee contributes nothing but the employer still pays. Contributions cap at monthly relevant income of HK$30,000. The maximum mandatory contribution is therefore HK$1,500 from each side per month.

Enrol a new employee in an MPF scheme within 60 days of employment starting. The Mandatory Provident Fund Schemes Authority (MPFA) administers the system. Register for the eMPF platform to manage contributions and scheme administration.

The 60-day enrolment window applies to regular employees. For casual employees in the construction or catering industries, enrolment must occur on the first day of employment if the employee works for a single day. The employer must also provide the employee with a written statement of enrolment particulars. Late enrolment attracts a surcharge and may lead to prosecution. An employer who fails to make contributions on time must pay a surcharge of 5% of the default amount, and the MPFA may pursue a civil claim.

Employees’ compensation insurance is compulsory. Every employer must hold a policy under the Employees’ Compensation Ordinance (Cap. 282), regardless of headcount or employment length. The policy must cover liability for work-related injuries and occupational diseases. Failure to insure carries a maximum fine of HK$100,000 and imprisonment for six months. The employer must display a notice of insurance in a conspicuous place at the workplace. An employer who fails to report a work accident to the Commissioner for Labour within 14 days commits an offence and may be fined.

Abolition of MPF Offsetting

Offsetting ended on 1 May 2025. Employers may no longer use accrued benefits from mandatory MPF contributions to offset severance payment or long service payment. The abolition has no retrospective effect. For employees whose employment began before 1 May 2025, accrued benefits from mandatory contributions may still offset the portion of severance or long service payment calculated on years of service before that date.

Accrued benefits from voluntary contributions, and gratuities based on length of service, remain available for offsetting. A Government subsidy scheme shares employers’ severance and long service payment costs for service on or after 1 May 2025. The subsidy covers up to 50% of the relevant payment, subject to a cap per employee. Employers must apply to the scheme within three months of the termination date. Review existing employment contracts and MPF scheme arrangements now.

Statutory Entitlements Overview

End-of-Year Payment

An end-of-year payment, the thirteenth month, is not mandatory unless the employment contract expressly provides for it. If the contract states the employee is entitled to it, pay it. Where an employee leaves before the payment date, the Employment Ordinance allows the employer to deduct a proportionate amount, but only if the contract permits that deduction. The deduction is calculated by reference to the period the employee did not work in the payment year. If the contract is silent on both the entitlement and the deduction, the employer cannot withhold any part of the payment.