Call Us +852 3956 3112 WhatsApp Us (+852) 9654 5078

8 Tips on Managing Your Payroll Effectively

By FastLane Team, July 28, 2022 (10 mins)

What is Payroll?


Payroll is the procedure of paying staff so that the employer must handle payroll on a regular basis to verify that employees are paid. The process consists of calculating the employees’ earnings and excluding deductions like taxes. Payroll might be a difficult subject but knowing each component of payroll can help you better comprehend the process.

 

What you will learn:

1. What are the essential payroll components?

2. What are the steps of processing payroll?

3. What are the tips on managing your payroll effectively?

4. What are the benefits of payroll outsourcing?

5. What are the 5 tips on helping you to choose your payroll service provider?

6. How can Fastlane help?

 

8 Tips on Managing Your Payroll Effectivey | Payroll | FastLane

.

What are the essential payroll components?


Payroll processing consists of three main categories: 

 

Employee Information

In order to hire and pay employees, you will need the employee’s essential information, such as employee personal information like their name, address and Hong Kong ID or passport number.

 

Salaries and wages

Salaried workers are paid a certain amount monthly, whereas hourly employees are paid an hourly rate. A pay stub for an employee might show the following items:

Icon 1

Gross Pay


  • Total amount an employee gets paid before the employer subtracts mandatory contributions and tax deductions
  • Includes base salary plus any paid leave or other benefits e.g. medical insurance, overtime pay, special & housing allowance

 

Icon 2

Employee Time


  • The number of hours an employee worked in a pay period
  • Most firms only keep track of the time spent by hourly employees 
  • Some keep track of the time spent by salaried workers in instances like overtime

 

Icon 3

Overtime Pay


  • Overtime pay rate applies to hours an employee works that’s over their expected hours
  • Employees who work 40+ hours in Hong Kong are entitled to overtime pay
  • Some firms compensate employees for working over 40 hours a week while others do not
Icon 4

Net Pay

 


  • The remainder after all deductions are taken hence the amount that employees receive on their payday
Icon 5

Additional Income

 


  • Employees e.g. service workers and salespeople may earn additional money in the form of tips, commissions on sales, and bonuses
Icon 6

Benefits Contributions &

Reimbursements


  • Typical benefits include health insurance, MPF retirement plans, and paid time off
  • All of the above are provided in Hong Kong
  • Only MPF retirement plan contribution is deducted from the employee’s pay

Deductions

The earnings of an employee may be reduced to any amount, and common deductions include:

Payroll Taxes

  • There are no payroll taxes in Hong Kong
  • May have income level tax rates,
  • Tax rate: can be as low as 2% & as high as 17% depending on your earnings.

Payroll Withholdings

  • Deductions are expenses that can be subtracted from your total income.
  • Example: Income and unemployment taxes
  • Must be paid depending on where you live 

Wage Garnishments

  • As a result of a court order or civil matter e.g. consumer debt or bankruptcy payments, child support or alimony payments & student loan repayments
  • Limited to a specific percentage of an employee’s total income (determined by the government)

Benefits Deductions

  • Include health insurance premiums, life insurance or other fringe benefits
  • Must be paid to employees in return for a service or coverage
  • Employers & workers pay a portion of the monthly cost of pension plans like MPF management in Hong Kong

8 Tips on Managing Your Payroll Effectivey | Payroll | FastLane

.

What are the steps of processing payroll?


There are 6 steps of processing payroll:

  1. Track time
  2. Calculate Employees’ Gross Wages
  3. Subtract taxes and other deductions
  4. Pay Employees
  5. File and Deposit Taxes
  6. Keep Records
Icon 1

Track Time

 


  • Tell you how much an employee is owed
  • Employees’ time consists of regular hours worked, paid time off (e.g. vacations or holidays) & extra hours worked
  • Use time sheets to list their time off & hours employees worked during the pay period
Icon 2

Calculate Employees’

Gross Wages


  • Salaried workers’ gross wages = Yearly salary / No. of pay periods in a year 
  • Hourly-paid worker’s gross wages = Hourly rate of pay x No. of hours worked
  • Additional compensation e.g. tips, commissions or bonuses.

 

Icon 3

Subtract Taxes & Other

deductions


  • Pre-tax deductions: Check before computing taxable income & subtract from employee’s gross salary
  • Post-tax expenses deductions: Withhold them after calculating payroll taxes.
  • Taxes: No income tax is withheld through payroll in Hong Kong
  • Employee is responsible for filing their annual tax return & paying it directly to IRD

 

Icon 4

Pay Employees


  • Net pay or take-home pay after all deductions, e.g. taxes, have been made
  • Pay after checking the accuracy of the information & calculations
  • Pay via methods e.g. direct bank transfer, pay cheques, cash
  • Provide paper or digital pay stubs.
Icon 5

File and Deposit Taxes


  • Employers in HK are not required by law to withhold tax from employees
  • Exemption applies for termination & if the employee intends to leave HK for more than one month after termination
  • Employers & employees are required to pay 5% of the employee’s monthly salary into the MPF 
Icon 6

Keep Records


  • IRD (Inland Revenue Department) requires you to keep detailed records
  • E.g. Keep employment tax and payroll records for at least 7 years for tax purposes

8 tips on managing your payroll effectively


  • Create a payroll calendar

Payroll calendars have several advantages, including informing employees when they will be paid and assisting your payroll staff with scheduling and executing payroll activities. Xero hk will help you set up a payroll calendar after you’ve established your pay schedule, which will also notify you to allow enough time to complete the payroll procedure for a few days. This reduces employee confusion about when they will get paid and how long their paychecks will last.

 

  • Allow your HR staff to attend payroll training

Even though human resource professionals’ main expertise is in recruitment and employee records management, processing payroll is still an element they will be involved in during their training process hence why it’s a good idea to organise payroll training sessions for your HR staff.

 

Some benefits payroll training provides are…

  • Improves collaboration among HR and payroll departments & shares their known knowledge
  • Reducing manual/double work: Save time & paper
  • Provides a more coherent team: HR staff has an understanding of the payroll team’s procedures and is more attentive to the completion time
  • Prevents conflict: Avoid misunderstandings between HR and payroll staff & provide employees with a better understanding of employment policies.

 

HR team’s deeper understanding of payroll regulations might assist to relieve some of the payroll pressure when interacting with employees hence improving staff interactions and boosting the overall mood of the office.

8 Tips on Managing Your Payroll Effectivey | Payroll | FastLane

 

  • Be aware of any updates on tax obligations/reporting requirements

Employers must stay on top of their tax obligations as well as any modifications in reporting requirements. Changes may be caused for a variety of reasons, including company relocation, employee relocation and the use of remote employees. When this happens, it’s the employer’s duty to gather and update the information required to compute payroll and tax correctly.

 

In Hong Kong, companies need to report remuneration paid to employees by submitting an annual employer’s return form (either the BIR56A form, which is a cover letter for all the IR56B forms an employer has to submit, or the IR56B form, which is the form you have to submit to the IRD within the 1 month from the date of issue of BIR56A). The two forms are typically sent to the employer on the first working day of April.

 

  • Automate your payroll process

It’s simple to make errors in a manually administered payroll procedure, especially for a growing business with an increasing number of employees. Automating your payroll procedure might be advantageous to stay up with time-consuming tasks, which is why software like Xero accounting software might help you manage your employee payroll, benefits, third-party apps, and more in one place.

 

  • Observe transparency in your payroll process

Employee misunderstanding might occur if a business is unclear or does not provide its workers with a clear and sufficient compensation policy. A completely transparent payroll policy may be used to address a variety of payroll issues, such as underpaid taxes or employee misclassifications.  A transparent payroll policy should provide key information such as how the payroll process works, company procedure for handling payroll mistakes, employee reporting responsibilities and how salaries and employees are determined, etc. It’s also critical to keep the employee handbook up to date and make sure it’s accessible to everyone.

8 Tips on Managing Your Payroll Effectivey | Payroll | FastLane

 

  • Document your payroll process

Documenting your payroll procedure is one of the most crucial phases in controlling your payroll process since this helps to analyse your payroll procedure and the identification of its weak spots. Once you’ve established a payroll procedure that works best for your company, make a note of it and pass it along with the payroll crew to help ensure each payroll employee knows their position.

 

Maintaining a consistent payroll processing manual is beneficial since it covers all of the payroll procedures and reporting and checks handling process. Document the procedures for printing and submitting payroll registers and tax reports, as well as the individuals to whom you will be distributing paychecks and pay stubs.

 

  • Audit your payroll process

It’s also important to make sure that all elements of the overall payroll process are always audited. When you discover a complaint, it’s a strong indication that your annual audit should be conducted more frequently. Automated systems can also be affected by errors like incorrectly recording a new employee’s tax status (married vs single) or entering previous pay rates.

 

Things to consider to ensure an effective audit include:

  • Verify and reconcile the accounting, payroll, and cash records to ensure that dollar values match across all documents.
  • Installing a check-in system and/or biometric sign-in hardware so you can automatically record when an employee checks in for work
  • Utilising plugins or add-ons to ensure payroll software is fully integrated with your time and attendance system

 

When employees express concerns about or struggle to comply with payroll rules, it’s time to evaluate your policies for accuracy and clarity. Employees should understand why completing tasks, like timesheet submission or timecard, is key in the payroll process.

 

  • Outsource your payroll tasks

It’s critical for firms to be able to pay staff promptly and correctly to avoid problems related to staffing. This might be stressful for a growing business in which activities such as payroll take longer hence it may be a good idea to consider a payroll outsourcing option. Payroll software is responsible for managing the system and processing every payroll plus the calculation of paychecks and taxes are done automatically and filed on your behalf.

If you want to take a more hands-off approach, utilising a professional employer organisation (PEO), instead of doing it all yourself, may be a better alternative since they operate as your company’s employer for payroll and tax purposes so they handle the majority of your HR and payroll responsibilities.

8 Tips on Managing Your Payroll Effectivey | Payroll | FastLane

.

What are the benefits of payroll outsourcing?


Outsourcing payroll duties can bring a lot of benefits to the company such as:

Budget saving

  • Save your money
  • Avoiding the cost of an employee’s salary and labour hours spent on payroll-related activities e.g. computing paychecks at intervals, printing & signing

Easy management from overseas

  • Easy to conduct overseas money transfers in the form of payroll payments
  • Accurate & effective payroll administration
  • Accurate & thorough financial reports
  • Perform payroll payments analysis

Time-saving

  • Payroll processing is time-consuming 
  • Outsourcing payroll can free up your time
  • HR or accounting staff can focus on more important tasks 

Sufficient expertise and experience

  • Payroll administration is complicated & time-consuming, especially if the firm is large
  • Handled by a group of professionals can satisfy your HR and payroll needs

 

8 Tips on Managing Your Payroll Effectivey | Payroll | FastLane

 

.

5 tips for choosing your payroll service provider


  • Timing of payroll conversion

It’s crucial to get the new payroll system up and running at the right time, which means making sure you don’t put it off too long. Delaying it any longer could jeopardise any year-end processing that must be done. Working with an experienced and knowledgeable provider who understands your needs. They should be involved in every stage of the process.

 

  • Data integration capabilities

Payroll providers generally provide software that may link existing data with an online payroll system and assist in keeping data current and up to date, minimising paperwork, and eliminating duplicate data entry.

Software is key for payroll services because it allows you to save all sorts of employee paperwork, keep track of personnel changes such as benefits and raises, and keep track of employee anniversaries to schedule performance evaluations.

 

  • Payroll tax compliance management

Since payroll tax calculation is difficult, it’s essential to find a payroll service provider that understands and follows tax laws and updates so that you can be certain of security, accuracy, and compliance.

An experienced and competent payroll service provider should be able to assist you in ensuring that your taxes are accurate, that you pay them on time, that tax filings and payments are handled, and that you complete year-end tax returns.

 

  • Data conversion

It’s critical to validate your data and remove any incorrect or out-of-date information before switching over to the new payroll program in order for the conversion to be successful. Transferring data successfully provides a number of benefits, including reducing payroll mistakes, eliminating duplicate data entry and outdated information, and highlighting company trends and metrics.

It’s important to discover a payroll service provider that can help your business enroll in benefits and suit your HR requirements, such as annual leave, holiday policies, working conditions, and so on. A payroll service provider should meet your company’s demands while also being appropriate for your organisation’s structure. Look for a firm that has experience with all sorts of company demands, which will be advantageous to you in terms of fewer errors and making the whole process efficient and straightforward.

 

  • Customer Support

The last important consideration is excellent client service, which is significant to customer happiness. Since you‘re entrusting them with such a huge responsibility of the company, and the payroll services being an ongoing process and crucial to companies, it’s essential that they’ll be available and in touch regularly.

Employee turnover is a cost of doing business. As businesses expand, so do their demands, especially payrolls, which is why it’s critical that they have the expertise and are equipped to meet any specific requirements. The supplier should be accessible, helpful, adaptable, and able to help you with future requirements, needs, and circumstances that will inevitably occur in businesses.

8 Tips on Managing Your Payroll Effectivey | Payroll | FastLane

.

How can Fastlane help?


Fastlane is a company that specialises in HR process improvement using cloud-based solutions and the assistance of our experts and appropriate payroll programs.

As one of the Xero Platinum Partners, FastLane uses Xero accounting software, which is one of the most key cloud-based solutions, to provide a precise and efficient payroll service. It allows you to generate payslips, and produce batch payments to make it easier to pay staff and manage wage-related expenses, all while remaining fully compliant with the local regulations. Xero also has features like new Payroll Admin Permission, which ensures that only users with this feature can use these features and view sensitive employee data. Xero also offers excellent add-ons to assist you with concerns like tax calculations and leave deductions. Visit www.xero.com to explore how Xero hk can benefit your business.

 

Image Right
Image Top

As one of the Xero Platinum Partners, FastLane uses Xero accounting software, which is one of the most key cloud-based solutions, to provide a precise and efficient payroll service. It allows you to generate payslips, and produce batch payments to make it easier to pay staff and manage wage-related expenses, all while remaining fully compliant with the local regulations. Xero also has features like new Payroll Admin Permission, which ensures that only users with this feature can use these features and view sensitive employee data. Xero also offers excellent add-ons to assist you with concerns like tax calculations and leave deductions. Visit www.xero.com to explore how Xero hk can benefit your business.

 

We are also partners of Deel, which provides a worldwide payroll service that allows businesses to hire people from 150 countries. They also have a tech-enabled self-service system that lets the company find and employ independent contractors or full-time employees from 150+ countries in only a few minutes, with 8,000+ customers ranging from small businesses to publicly listed companies around the world. 

To know more about our payroll services and what we can provide via key features like Deel and Xero hk, why not get in touch with our professional advisor by dropping an email or arranging an appointment with us.



Related Articles