How to hire employees through an Employer of Record in Hong Kong

Hong Kong, famed as an international business hub, entices many foreign companies with its robust economy, strategic location, and favorable business environment. Known for its laissez-faire trade policy, low taxation, and well-established legal system, Hong Kong serves as a compelling destination for businesses looking to expand globally. However, when hiring in this Special Administrative Region, it's crucial to comprehend the unique employment landscape. Employers need to navigate diverse aspects such as employment laws, cultural norms, and complex administrative processes.

An Employer of Record (EOR) presents a valuable solution to these challenges. EORs are a conduit to seamless global expansion, enabling businesses to onboard new hires in Hong Kong while ensuring adherence to local laws and practices. They eliminate the need for setting up a legal entity, handling employment contracts, tax, and payroll, thereby simplifying the hiring process and ensuring a compliant, effective onboarding experience for new employees. This guide will explore how to utilize an Employer of Record when hiring employees in Hong Kong, ensuring an understanding of the critical factors to consider.

Step #1: Decide between a Hong Kong Employer of Record (EOR) and a legal entity

When expanding into Hong Kong, companies often face the decision between hiring employees through an EOR or setting up their own legal entity. The choice largely depends on the company's resources, size, and scaling plans.

Employer of Record (EOR)

• Implementation: Hiring through an EOR is typically faster and more straightforward. The EOR takes care of legal, HR, and administrative processes, enabling companies to kickstart operations without the need for a physical presence.
• Cost: EOR services come at a cost, but it is often less than establishing and maintaining a legal entity, especially when considering hidden expenses like legal advice and annual auditing.
• Hiring and compliance: The EOR manages hiring, ensuring full compliance with Hong Kong's labor laws. It also simplifies the visa and work permit process for foreign workers.
• Payroll and benefits: EORs handle payroll and benefits, including contributions to the Mandatory Provident Fund (MPF), Hong Kong's compulsory pension scheme.

Legal Entity

• Implementation: Establishing a legal entity is more complex and time-consuming. It involves numerous legal procedures, including company registration with the Companies Registry, opening a corporate bank account, and securing necessary licenses and permits.
• Cost: The upfront costs for setting up a legal entity can be high, including registration fees and ongoing maintenance costs.
• Hiring and compliance: When hiring through a legal entity, companies must ensure compliance with local labor laws, a task that can be daunting without local expertise.
• Payroll and benefits: Companies must navigate Hong Kong's payroll regulations and contribute to the MPF, which can be complex without a thorough understanding of the local system.

Pros and cons of EORs vs. setting up a legal entity 

Choosing an EOR generally offers faster entry, ease of operation, and compliance assurance, making it ideal for businesses seeking to test the market or with a lean operation in Hong Kong. However, if the company plans to have a substantial long-term presence, the benefits of a legal entity, including complete control and potential tax advantages, may outweigh the convenience of an EOR.

While lunar new year celebrations or sharing a dim sum lunch on the first day might be a delightful cultural experience for new hires, the underlying bureaucratic processes of hiring in Hong Kong can prove to be a challenge. The choice between an EOR and a legal entity depends on how your company weighs these aspects and the resources it's willing to dedicate to its Hong Kong venture.

Step #2: How to choose the best EOR for your business

Before you choose a platform, you should consider the services you will need, and how much you plan to grow your global hiring presence.

• Is the EOR active in the countries in which you need to hire? The first, and perhaps most obvious consideration when choosing an EOR for global expansion.
• Does the EOR own its own entities in the countries it services? If the EOR does not own the entities, it means they are partnering with a local or third-party provider.
• How does the EOR protect your sensitive and confidential information? It is vital that your EOR has the appropriate data protections in place, as well as secure technology that eliminates potential disclosures of private information.
• Does the EOR offer automated solutions? You may want to look for an EOR that automates the busy work like onboarding and benefits enrollment and other common HR and IT tasks.
• What is the EOR’s support model? It’s essential that your EOR has support staff that are both easy to contact and experts in the regulations of the countries in which you are hiring.

Get the full checklist in our guide: What is an EOR?

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Step #3: How to hire and onboard your Hong Kong employees

Hiring and onboarding employees in Hong Kong requires careful adherence to local laws and an understanding of cultural nuances. Here's an overview of how to navigate the process:

• Drafting a job offer: A job offer usually outlines the basic terms of employment, including position, salary, start date, and probationary period. In Hong Kong, it's common to offer compensation packages that include health insurance and contributions to the Mandatory Provident Fund (MPF), a compulsory saving scheme for retirement.
• Employment contract: The Employment Ordinance in Hong Kong requires an employment contract (or employment agreement) to be in place. This contract should detail working hours, leave entitlements, and termination conditions, among other aspects. Keep in mind that any terms less favorable than those stipulated in the Employment Ordinance are unenforceable.
• Visa and work permits: For non-residents, a valid work visa is necessary to work in Hong Kong. An application for an Employment Visa should be sponsored by the employer (either your legal entity or your EOR) and submitted to the Immigration Department. This process usually takes four to six weeks.
• Onboarding: A robust onboarding process can set the tone for a new hire's experience. Consider the following:
  • First-day orientation: Prepare an orientation that introduces the new employee to the team and the company's values. It's customary in Hong Kong to greet new team members with a welcoming ceremony.
  • HR policies and labor laws: Inform your new hire about important HR policies, labor laws, and their rights under the Employment Ordinance. This can include information on working hours, rest days, and public holidays like the Lunar New Year and Chung Yeung Festival.
  • Workplace tools and resources: Equip your new hire with the necessary tools, resources, and contacts to perform their job effectively.
  • Mentor or buddy system: Assigning a buddy or mentor can help the new hire navigate the company culture and procedures.
• Payroll setup: Register your new hire with the Inland Revenue Department (IRD) for income tax purposes, and set up their payroll. Don't forget to arrange for their Mandatory Provident Fund (MPF) contributions, which should be made within the first 60 days of employment.

Onboarding a new employee in Hong Kong involves not only understanding the legal requirements but also appreciating local cultural practices. Whether it's sharing mooncakes during the Mid-Autumn Festival or understanding the importance of the "lai see" red envelope tradition during Chinese New Year, these nuances can help forge strong bonds with your new team members and ensure a successful onboarding process.

Step #4: Run Payroll

Running payroll in Hong Kong involves several mandatory components that an Employer of Record will cover. First, you need to calculate the gross salary of your employees. From this amount, you deduct mandatory contributions to the MPF, Hong Kong's retirement benefits scheme. The contribution rate is currently 5% of an employee's relevant income, capped at HKD 1,500 per month.

You also need to account for any income tax or salaries tax that may be applicable based on the employee's salary and personal allowance. Finally, you must prepare and distribute payslips to your employees, which outline these deductions and the net salary paid. Note that the use of Hong Kong dollars (HKD) is standard for payroll in the region.

Running payroll in Hong Kong requires a thorough understanding of local labor laws and tax obligations to ensure compliance and avoid potential penalties. An EOR service provider can navigate these complexities for you, ensuring a smooth payroll process.