Salary Increment Letter (Hong Kong)

A Salary Increment Letter in Hong Kong states formally the matter at hand and what the writer asks the recipient to do.

Under the Employment Ordinance (Cap. 57), wages must be paid as agreed between the parties under Section 7. A salary increment letter creates clear, written evidence of the agreed new salary and its effective date, protecting both the employer and the employee against later disputes about the applicable salary rate for any given pay period. Such disputes, if unresolved, may be referred to the Labour Tribunal — which has jurisdiction to hear claims for unpaid wages and unlawful wage deductions under Cap. 57. Unlawful deduction of wages (paying an employee less than the contractually agreed amount) is a criminal offence under Section 32 of Cap. 57 carrying a fine and potential imprisonment for the responsible officer.

From a contract law perspective, a salary increase represents a variation to the employment contract. Under Hong Kong contract law, a contractual variation requires fresh consideration from both parties. Courts in Hong Kong have consistently held that the employee's continued employment following clear notification of the pay increase constitutes sufficient consideration for the contractual variation. A salary increment letter signed by both parties — particularly one countersigned by the employee as an acknowledgement — provides the clearest possible documentary evidence of the binding contractual variation and avoids any argument about whether the increase was definitively agreed.

The letter triggers adjustments to MPF contributions under the Mandatory Provident Fund Schemes Ordinance (Cap. 485). Both employer and employee contribute 5% of the employee's relevant income (effectively monthly wages) per month, subject to a maximum monthly relevant income cap of HK$30,000 — meaning neither party contributes more than HK$1,500 per month regardless of the actual salary. Where an employee's salary is below HK$7,100 per month, only the employer contributes. When salary increases, the employer must notify the MPF trustee and update payroll to reflect the revised contribution amounts from the effective date specified in the increment letter.

For payroll, audit, and regulatory compliance purposes, the salary increment letter forms part of the employee's permanent personnel file. The Inland Revenue Department (IRD) requires employers to accurately report each employee's salary in the annual employer's return (Form BIR56A) and individual employee statement (Form IR56B) under the Inland Revenue Ordinance (Cap. 112). A signed salary increment letter with a clear effective date supports accurate IRD salaries tax reporting and provides an audit trail if the IRD queries any discrepancy between reported salaries and MPF contribution records. Download this Salary Increment Letter template free on forms-legal.com in PDF or Word format.

For employees on fixed-term employment contracts rather than open-ended contracts, a salary increment letter that takes effect before the fixed term expires operates as a variation of the existing fixed-term contract. Both parties should confirm the letter is clear about whether the new salary applies only for the remainder of the current fixed term or whether it forms the basis for any renewal. Under the Employment Ordinance (Cap. 57), continuous service is calculated across renewed fixed-term contracts where the employee remains employed without a break — a key consideration for long service payment and severance pay entitlements that can be affected by how salary increases are documented across multiple contract terms.

A Salary Increment Letter (Hong Kong) is needed whenever an employer agrees to increase an employee's salary, regardless of the reason for the increase. Several common circumstances require this document to protect both parties' interests and maintain accurate payroll and statutory records.

Annual pay reviews are the most common trigger for a salary increment letter. Many Hong Kong employers conduct annual salary reviews aligned with the calendar year or the company's financial year, taking into account the Consumer Price Index published by the Census and Statistics Department, market pay benchmarking surveys published by the Hong Kong Institute of Human Resource Management (HKIHRM) and international compensation consultants, and the employer's own financial performance and individual employee performance ratings. The increment letter confirms the agreed outcome of the review — the new salary amount, effective date, and any performance context — creating a clear written record that protects both the employer and employee against later disputes.

Promotion-related salary adjustments require a salary increment letter whenever an employee is promoted to a higher grade or role, even if a completely new employment contract is not being issued. The letter documents the salary change associated with the promotion, establishes the new MPF contribution base, and serves as the written evidence of the contractual variation to the employment contract. For promotions involving significant changes to duties and reporting lines, a more thorough contract amendment or new employment contract may also be appropriate.

Market adjustment increases — where an employer increases an employee's salary outside the normal review cycle to retain a key employee whose market value has increased significantly — should be confirmed in a salary increment letter immediately. Without written confirmation, there can be ambiguity about whether the increase was definitively agreed or remains subject to further negotiation, and the employer's payroll obligations remain uncertain.

Increases resulting from collective bargaining, union negotiations, or industry-wide pay adjustments should be documented by individual salary increment letters to each affected employee, even where a general announcement has been made. The individual letter creates the personal contractual record and notifies the MPF trustee and IRD correctly for each employee's specific new salary.

Salary adjustments following a change in working hours, pattern, or scope of responsibilities — for example, where a part-time employee moves to full-time employment, where an employee takes on additional responsibilities attracting a contractual supplement, or where an employee's role is expanded following a colleague's departure — require a salary increment letter to document the revised terms clearly. This prevents future disputes about whether the increase was temporary or permanent.

HR departments should issue the increment letter before the new salary takes effect — ideally at least one full payroll cycle in advance — to allow the payroll team to update the payroll system, notify the MPF trustee of the change in relevant income, and support accurate IRD reporting on the annual employer's return.

A well-drafted Salary Increment Letter for Hong Kong should include the following elements to properly document the pay increase, comply with the Employment Ordinance (Cap. 57) and Mandatory Provident Fund Schemes Ordinance (Cap. 485), and create a legally effective variation to the employment contract.

Employee identification: Full legal name as it appears on the HKID, HKID number (last four digits are sufficient for privacy — full number is not required in the letter), current job title and grade, department, and employee number — all matching the employer's HR system and payroll records exactly. Any discrepancy between the letter and the payroll records can cause confusion in MPF trustee notifications and IRD reporting.

Current salary: The employee's existing monthly salary in HKD, stated as a specific amount to provide an unambiguous baseline from which the increment is calculated. This avoids any dispute about whether the new salary represents an increase over the correct base.

New salary: The increased monthly salary in HKD, stated as a fixed monthly amount — not just as a percentage — because the fixed amount is the figure that governs the employment contract variation, the MPF relevant income calculation, and the IRD salaries tax assessment. Express the increment amount (the difference) and the percentage increase as additional context for the employee's records.

Effective date: The specific calendar date from which the new salary applies — typically the first day of a calendar month aligned with the employer's payroll cycle. The effective date must be stated precisely. Ambiguity about the effective date creates disputes about back-pay obligations if the letter is issued after the intended effective date.

MPF contribution adjustment notification: A statement that the employer will notify the MPF trustee of the change in the employee's relevant income and update both the employee's and employer's mandatory contribution amounts from the effective date, in compliance with the Mandatory Provident Fund Schemes Ordinance (Cap. 485). The standard mandatory contribution rate is 5% of relevant income for both parties, subject to the HK$30,000 monthly relevant income cap (HK$1,500 maximum contribution each). Where the salary increase moves the employee above or below the HK$7,100 lower threshold, the employee contribution obligation changes accordingly.

Basis for the increment: A brief, specific statement of the reason for the increase — annual performance review, promotion to a higher grade, market adjustment to match benchmarked salary data, or exceptional performance recognition. This context is important for the employee's understanding and for the employer's HR records as evidence of the business justification for the increase.

IRD reporting note: A brief statement that the employer will update the employee's salary record for IRD annual employer's return (Form BIR56A) and individual employee statement (Form IR56B) purposes, confirming accurate salaries tax reporting under the Inland Revenue Ordinance (Cap. 112).

Acknowledgement and countersignature: A countersignature block for the employee to sign and return, confirming acceptance of the new salary and effective date. A countersigned increment letter is the strongest evidence of a binding contractual variation and is recommended by the Labour Department's Code of Practice on Employment Records as established procedures. The signed original should be filed in the employee's personnel file, with a copy given to the employee.

Issuing authority: The full name, job title, and handwritten signature of the authorised HR director, managing director, or other management representative issuing the letter, the company's full legal name, and the date of the letter. Download this Salary Increment Letter template free from forms-legal.com in PDF or Word format.