Paying wages is not only a bank transfer. You also have to handle MPF. One mistake here means you pay too little or too much.
Three figures per pay run
| Item | How to calculate | Who pays |
|---|---|---|
| Employee contribution | 5% of relevant income | Deducted from wages |
| Employer contribution | 5% of relevant income | Paid by the company |
| Net pay | Wages − employee contribution | Paid to the employee |
Total company cost = wages + employer contribution. Many owners forget this line.
Two key figures
Minimum income level: HK$7,100 per month. Below this, the employee does not contribute. The employer still contributes 5%. There is no minimum for the employer.
Maximum income level: HK$30,000 per month. Income above this is capped at 30,000. Each side pays at most HK$1,500.
Two worked examples
Example 1: monthly wages HK$18,000
- Employee: 18,000 × 5% = 900
- Employer: 18,000 × 5% = 900
- Net pay: 18,000 − 900 = 17,100
- Total company cost: 18,000 + 900 = 18,900
Example 2: monthly wages HK$5,000 (part-time)
- Employee: 0 (below 7,100, exempt)
- Employer: 5,000 × 5% = 250
- Net pay: 5,000
- Total company cost: 5,250
Special rule for a new employee's first month
The employee is exempt for the first 30 days and for the first incomplete wage period. This exemption applies to the employee only. The employer contributes from day one.
So a new hire may receive full wages in month one, while the company still pays the employer contribution.
Three common mistakes
1. Treating the employer contribution as a deduction
The employer contribution is a company cost. It must not be deducted from wages. If you deduct it, you underpay the employee.
2. Forgetting the cap
For an employee paid HK$40,000, the employee contribution is 1,500, not 2,000.
3. Mixing wages and contribution in one entry
Record two entries: wages, and the MPF contribution. You will need them separately when you reconcile.