Employer Knowledge Guide (IR56)

Running a business, especially a small one, can often make employers feel burdened by the tasks and regulatory requirements of reporting to the government. This is particularly true for employment-related forms like IR56, which often require accounting and reporting procedures. However, these forms are more important than merely fulfilling legal obligations. Let's explore why employers need to implement these forms, how to do so, and the benefits it brings.

Application, Work, Looking for a Job

A small startup company, “ABC Tech,” is a rapidly growing business looking to strengthen its capabilities by hiring new employees. Although salaries and MPF were paid on time, they did not have a systematic structure for managing personnel and payroll processing. This led to poor record management of payment details, resulting in confusion over the amounts paid and increased misunderstandings and dissatisfaction among employees.

Due to these issues, "ABC Tech" faced legal problems. Employees expressed dissatisfaction with the unreported employment and inaccurate payroll system, leading to a high turnover rate. The company was fined for not properly fulfilling employment reporting. Consequently, the company had to deal with the collapse of its HR management system, lawsuits from departing employees, and significant damage to its external reputation.

A company secretary plays a crucial role in the smooth operation and legal compliance of a company. Without a competent company secretary, a company risks failing to meet legal requirements, which can result in fines and reputational damage. Additionally, the company secretary's role in facilitating effective communication between the board and shareholders is vital for maintaining trust and transparency.

Why? Why is Employment Reporting Important?

First, it is crucial to understand why it is necessary to implement document reporting such as the IR56 form.

• Legal Compliance Legal Compliance: Employers are required to report to the Hong Kong Inland Revenue Department when hiring new employees, when employees leave, and during employment. This is important to prevent fines and sanctions for regulatory violations and to protect the company’s reputation.
• Transparency of Information Transparency of Information: Transparency of information between employees and the company increases. Employees can accurately understand information about salaries and leave, which can prevent unnecessary legal conflicts between employees and the company in the future.
• Efficient Organizational Management Efficient Organizational Management: By implementing reporting documents, the company can efficiently manage the employment life cycle from hiring to departure.

How? How to Proceed?

Now that we understand the importance of complying with reporting documents and the potential harm of non-compliance as demonstrated by the example scenario, let's look at how to fill out and submit employment-related reporting documents, such as the IR56 form.

Gather Information

Information needed for each form should be gathered. Depending on the size of the company, you may need to cooperate with the accounting team or the HR team. If the basic information of the employees or the salary and payment details are not organized, it can take a long time to collect the information, so caution is needed.

• Each employee's HKID
• Each employee's employment contract
• Each employee's visa copy (only applicable if not a Hong Kong permanent resident/citizen)
• Each employee's residential address
• Each employee's marital status and spouse's Hong Kong ID number and English name if married
• Salary and MPF calculation details from April of each year to March of the following year
• Accommodation information if provided

What and When? What to Report and When?

After gathering the information, let’s find out what and when to report according to the employment life cycle.

1. Employment and Onboarding (IR56E Form) When hiring a new employee, submit the IR56E within 90 days from the employment start date. The employment reporting form includes basic information about the company and the employee as well as employment conditions. Reporting is required if the employee's salary is expected to exceed Hong Kong’s basic income tax allowance or if they are married. The determination of the reporting subject is not based on the employment contract, employment type (part-time or full-time), or employment period (less than 90 days). If you lack sufficient experience, it might be efficient to consult experts to avoid unnecessary time wastage and errors. Example Reporting Document: IR56E
2. Annually in April (IR56A & B Forms) At the end of March each year, gather information about the employees who worked from April of the previous year to March of the current year, and submit the IR56A & B forms in April. In addition to basic information about the company and employees, the forms should include details of salaries, bonuses, and accommodation provided over the year. Example Reporting Documents: IR56A & IR56B
3. Resignation (IR56F or IR56G Forms) Submit the IR56F form for employees staying in Hong Kong or the IR56G form for employees expected to leave Hong Kong one month before the employee’s resignation date. The resignation reporting form should include information from April to the resignation date. For employees expected to leave Hong Kong, the employee must visit the Inland Revenue Department with the completed IR56G form to obtain a tax clearance certificate and submit it to the company before the final salary payment. Korean companies often employ workers with work visas or working holiday visas. Employees with visas that have expiration dates are likely to be considered employees expected to leave Hong Kong, even if there is ample time remaining on their visas, so more meticulous handling is required. Example Reporting Documents: IR56F & IR56G

Conclusion

Employment-related reporting procedures using the IR56 forms might seem simple and unnecessary, but they are essential elements of business operation and can cause critical problems if forgotten or ignored. Therefore, fulfilling these reporting obligations is crucial for establishing a company's foundation and ensuring long-term success.

Olive & Vine provides various HR management services, including employment reporting. If you have any questions about this content or other corporate management in Hong Kong, please contact us at contact@oliveandvinehk.com or through the customer support section of our website.