Payroll is where generic accounting software quietly fails HK SMEs. A global system will calculate “pay minus deductions” just fine. What it won’t do is get the 713-day averaging right, produce the HSBC autopay file in the exact format the bank expects, or generate the IR56B the way the IRD wants it filed.
This guide walks through the payroll features that actually matter in HK — the ones that save you hours every month and keep you out of trouble with the MPFA and IRD — and separates the must-haves from the nice-to-haves.
Why HK Payroll Is Its Own Thing
Three layers of HK-specific rules stack on top of the basic “calculate net pay” logic:
- MPF (Mandatory Provident Fund). Employer and employee each contribute 5% of relevant income, subject to a monthly cap (HK$1,500 at HK$30,000 income ceiling). Contributions for part-timers have their own 60-day exemption rule. MPF has to be calculated correctly and remitted to your scheme trustee every month.
- Employment Ordinance 713-day averaging. Statutory holiday pay, annual leave pay, sickness allowance, severance and long service payments are all calculated on the average daily wage over the 12 months preceding. A bonus paid in September affects the holiday pay calculated in October.
- IRD reporting. You file an annual Employer’s Return (BIR56A) with a separate IR56B for each employee. New joiners (IR56E), leavers (IR56F), and departures from HK (IR56G) each have their own timing rules.
Global payroll modules usually handle the arithmetic but miss the HK-specific rules. The result is either monthly hand-overrides (time-expensive) or compliance errors (risk-expensive).
MPF Calculation Mechanics
Sounds simple — 5% of relevant income — but the edges are where software earns its keep:
- Monthly cap application. Contributions cap at HK$1,500 per side on the HK$30,000 ceiling. Bonuses pushing someone over the cap in one month need correct handling.
- New-joiner 30-day exemption. No mandatory contributions for the first 30 days of employment (above-18s). Software should auto-skip.
- Part-timer 60-day exemption. Employees working under 60 days are exempt — unless they end up working longer, in which case retrospective contributions are due.
- Over-65 and under-18 rules. Employer contributions only, no employee side.
- Voluntary contributions. Employer or employee top-ups, which still need to be recorded and accrued correctly.
Good HK-aware software has all of this as configurable defaults. You shouldn’t be manually adjusting contributions every month.
The 713-Day Averaging Rule
This is the single most common payroll compliance error in HK SMEs. Section 2 of the Employment Ordinance (as amended in 2007 and commonly called “713”) requires that statutory holiday pay, annual leave pay, sickness allowance, maternity/paternity pay, and end-of-employment payments be calculated on the 12-month average daily wage, including all commissions and bonuses, with exclusions for periods of no-pay or abnormally low pay.
What software has to do right:
- Track every payment over a rolling 12 months.
- Exclude “abnormal” periods per the EO definition.
- Recalculate the average daily wage dynamically whenever a qualifying event occurs (a public holiday in the next month, an annual leave request).
- Flag discrepancies between what the system calculates and what was paid.
Getting this wrong quietly underpays staff. It often surfaces in a Labour Tribunal complaint years later — with back-pay and penalties.
Autopay .txt File Generation
HSBC, Hang Seng, Bank of China (HK), DBS and Standard Chartered all accept bulk autopay via a specific text-file format. The spec differs between banks and has specific rules on character length, padding, trailer records, and file naming. Typing 40 salary transfers manually is not a plan; uploading the bank’s autopay file is.
What to check: does the software generate the exact .txt format your bank expects, for your bank? “Autopay ready” is not specific enough. Ask for a sample file and test it in the bank’s sandbox before you commit.
IR56-Series Forms and Employer’s Return
The annual BIR56A arrives from the IRD in early April. You have one month to file. Attached is an IR56B for every employee who earned over the threshold (HK$132,000 for 2025/26, subject to change).
Software should:
- Generate IR56B for each employee in the IRD’s prescribed format (PDF or e-filing XML).
- Pre-populate IR56E for new joiners (due within 3 months of commencement).
- Pre-populate IR56F/IR56G for leavers (IR56G especially matters when someone leaves HK permanently — the employer must withhold salary until the IRD clears them).
- Track the correct reporting period — IRD uses 1 April to 31 March, which may differ from your fiscal year.
If the system makes you retype employee information onto PDF forms, it’s not ready for HK.
Payslips That Pass Inspection
The Employment Ordinance requires that wage records cover at least 12 months and show the basis of calculation. MPF contributions — both sides — must be shown to the employee. In practice, payslips that hold up include:
- Pay period, pay date.
- Basic pay, overtime, commissions, bonuses, allowances (each on its own line).
- MPF employee contribution.
- Other deductions (income tax withholding is rare in HK unless IR56G is active).
- Net pay.
- Employer MPF contribution shown separately (not deducted from net pay, but displayed).
- Year-to-date totals.
- Bilingual (EN + TC) if you have mixed-language staff.
Part-Time and Day-Rate Workers
F&B, retail and event businesses rely on part-time and day-rate staff. The accounting side has to handle:
- The 60-day MPF rule and what happens when it’s crossed retrospectively.
- Day-rate or hourly pay with automatic integration from a time-tracking app or POS.
- Multi-rate roles — weekend rate, holiday rate, overtime rate.
- Tips or service charge allocation — common in restaurants.
For shift-heavy HK businesses — restaurants especially — see our restaurant accounting software guide for the full picture of payroll + MPF + tipping flow.
Integration With Accounting vs Standalone Payroll
You can run payroll in a dedicated module (Workstem, Talenox, BIPO) and feed a monthly journal entry into your accounting system. Or you can run payroll inside accounting software that has HK payroll built in. Trade-offs:
- Standalone payroll — usually more HK-native, better mobile experience for staff, per-head pricing adds up.
- Integrated payroll — one system to maintain, MPF and wages accrue directly to the GL, no month-end sync risk.
For very small teams (under 10), integrated is almost always the better answer. For teams above 30 or with complex rostering, a dedicated payroll tool starts to earn its cost.
What to Look For — The Checklist
- Full HK MPF rules — monthly cap, 30-day new-joiner exemption, 60-day part-timer rule, age bands.
- 713-day averaging with dynamic recalculation.
- Bank-specific autopay file output — confirmed for your bank.
- IR56 form generation — B, E, F, G — in the IRD’s prescribed format.
- Bilingual payslips (EN + TC).
- Integration with leave and attendance, at least via import.
- Employer’s Return (BIR56A) workflow.
- Year-over-year data retention — 713 needs 12 months of history to calculate today’s average. Giga Accounting’s 10 GB no-purge storage matters here too.
If you’re deciding between software-based payroll and handing the whole function to a service, pair this article with our companion payroll outsourcing and MPF compliance guide.
Set Your Payroll Up Once, Properly
Giga Accounting by 凌峰會計 ships with HK-native payroll built in — MPF auto-calculation, 713 averaging, autopay file output for the main HK banks, and the IR56 form generators the IRD expects. Payroll journals post straight to the GL, so month-end closes faster and the audit trail is clean.
For a walkthrough tailored to your headcount and industry, have a look at our bookkeeping and accounting services or check our company setup accounting checklist if you’re configuring payroll from day one.
