Running Payroll in Cayman Island: Employment Taxes & Setup

Payroll in Cayman Island is unusual compared with many countries because there is no personal income tax, but you still need to manage mandatory pension contributions, health insurance coverage, and statutory employment benefits through payroll. You are responsible for calculating employer and employee pension contributions, funding approved health insurance, tracking leave and overtime, and keeping accurate records for inspections by the Department of Labour and Pensions and the Health Insurance Commission. Non-compliance can trigger fines, back payments, and reputational damage with employees who rely on you for timely and accurate pay.

Your team must also respect local employment rules on pay frequency, written itemised pay statements, and record retention, which can vary depending on contract type and working hours. This guide walks you through how to structure payroll calculations, align payment dates, document contributions, and choose between running payroll via your own entity or through an Employer of Record. Where rules differ by sector or business size, you will see what to double-check in Cayman Islands legislation and with the relevant regulators.

Payroll Cycle in Cayman Island

The payroll cycle in Cayman Island is usually monthly, with employees being paid as stipulated in employment contract.

Minimum Wage

The current minimum hourly wage in the Cayman Islands (from 1 Jan 2026) is CI$8.75/hour.

While Cayman Island does not levy income tax on salaries, employers must still budget for payroll-related statutory costs such as mandatory pension, health insurance, and work permit fees for foreign staff. These obligations are enforced by agencies including the Department of Labour and Pensions, the Health Insurance Commission, and Workforce Opportunities & Residency Cayman, and failures can lead to penalties, surcharges, and even criminal liability for directors.

Mandatory Pension Contributions

Under the National Pensions Act, most employees between 18 and normal retirement age who work at least nine hours per week must be enrolled in an approved pension plan. The standard minimum contribution is 10% of pensionable earnings, split 5% from the employer and 5% from the employee, usually calculated on basic salary up to a statutory cap per year.

Employers must remit both portions to the pension provider, typically monthly, and keep evidence of timely payments for inspection by the Department of Labour and Pensions. Late or missing contributions can result in fines, orders to pay arrears with interest, and potential prosecution, so your payroll calendar should lock in pension cut-off dates and reconciliation checks.

Health Insurance Premiums

The Health Insurance Act requires employers to provide at least the Standard Health Insurance Contract for all eligible employees and their non-working dependants. In practice, health insurance premiums are shared, with employers commonly paying at least 50% of the premium and employees paying the balance through payroll deductions, although exact percentages depend on the chosen plan and insurer.

Premiums are usually paid monthly to the insurer, and you must ensure that employee contributions are deducted correctly and remitted on time to avoid coverage lapses. The Health Insurance Commission can impose penalties, require backdated coverage, and publish non-compliant employers, so your payroll process should tightly integrate with your benefits administration and insurer billing cycles.

Work Permit And Immigration-Related Fees

For non-Caymanian employees, employers must obtain work permits through Workforce Opportunities & Residency Cayman and pay associated government fees. These work permit fees are employer costs based on role, sector, and salary band, and can be substantial, often equating to several percent of annual compensation when annualised.

Although not a tax withheld from wages, these fees are a recurring payroll-related cost that should be factored into your total employment cost calculations and renewal calendar. Failure to maintain valid permits or pay renewal fees on time can lead to fines, cancellation of permits, and restrictions on hiring, so HR and payroll teams should coordinate closely on start dates, renewals, and budgeting.

Employees in Cayman Island are typically paid by electronic bank transfer in Cayman Islands dollars (KYD), although some employers support multi-currency accounts for cross-border staff. There is no universal statutory payday, but monthly or bi-weekly pay cycles are standard, and your chosen frequency must be clearly stated in the employment contract and applied consistently.

If you do not have a local entity, you can use an Employer of Record to hire and pay staff compliantly, or partner with a local payroll provider while you establish your own company. Payslips should clearly show gross pay, overtime, allowances, employee pension contributions, health insurance deductions, any other authorised deductions, and net pay, and you should retain payroll records for inspection by local authorities.

• Payment Method: Use electronic bank transfers in KYD to local bank accounts wherever possible for speed and traceability.
• Pay Frequency: Define monthly or bi-weekly pay cycles in contracts and keep cut-off dates stable for all employees on the same schedule.
• Payslip Content: Include gross earnings, itemised deductions for pension and health insurance, employer reference details, and net pay.
• Cross-Border Staff: For remote or foreign employees, coordinate FX conversions and bank details to avoid delays and shortfalls.
• No-Entity Hiring: Use an Employer of Record if you need to hire quickly without setting up a Cayman company.
• Approvals And Cut-Offs: Set internal deadlines for timesheets, overtime approvals, and benefit changes before each payroll run.
• Record Keeping: Store payroll reports, payslips, and remittance proofs securely for the periods required under Cayman Islands law.

Getting payroll set up correctly in Cayman Island ensures you meet pension, health insurance, and employment law obligations from the first hire. Your approach will differ depending on whether you operate through your own local entity or rely on an Employer of Record to handle compliance on your behalf.

With a local entity, you are directly responsible for registering with pension and health insurers, selecting plans, and running payroll calculations and payments. Without an entity, an Employer of Record becomes the legal employer in Cayman Island, managing contracts, payroll, and statutory contributions while you direct day-to-day work.

• Incorporation Decision: Decide whether to establish a Cayman company or use an Employer of Record based on headcount, timeline, and long-term plans.
• Local Banking: Open a KYD business bank account to fund salaries, pension contributions, and insurance premiums.
• Pension Provider: Register with an approved pension plan and confirm contribution rules, caps, and remittance procedures.
• Health Insurance: Select an approved health insurer, agree employer and employee premium splits, and set up billing.
• Employment Contracts: Draft Cayman-compliant contracts covering pay frequency, benefits, overtime, and termination terms.
• Payroll System: Implement payroll software or a provider that can handle KYD, local benefits, and reporting requirements.
• Data Collection: Gather employee identification, bank details, immigration status, and dependent information for benefits.
• Policies And Approvals: Define internal workflows for timesheets, overtime, bonuses, and payroll change approvals.
• Compliance Calendar: Build a calendar for pension remittances, insurance payments, and work permit renewals.
• Audit Trail: Set up secure storage for contracts, payslips, and remittance confirmations to support inspections.

Example Of Salary Tax Calculation

Assume an employee earns a monthly gross salary of KYD 4,000 and is enrolled in a standard pension plan with a total 10% contribution split equally between employer and employee. There is no income tax, but you must calculate and deduct the 5% employee pension share and add the 5% employer share to your employment cost, alongside any agreed health insurance contributions.

In this example, the employee contributes KYD 200 (5% of KYD 4,000) via payroll deduction, and you contribute KYD 200 as the employer, for a total monthly pension contribution of KYD 400. Your total monthly employment cost will therefore be the KYD 4,000 salary plus KYD 200 employer pension and your share of health insurance premiums.

• Step 1 – Determine Pensionable Earnings: Confirm the portion of the KYD 4,000 salary that is pensionable under the plan rules and statutory caps.
• Step 2 – Calculate Employee Pension: Apply the 5% employee rate to pensionable earnings to get the deduction amount.
• Step 3 – Calculate Employer Pension: Apply the 5% employer rate to the same base to determine your contribution.
• Step 4 – Compute Net Pay: Subtract the employee pension and any health insurance deductions from gross salary to arrive at net pay.
• Step 5 – Remit Contributions: Pay both employer and employee pension amounts to the provider by the agreed monthly deadline.

Submitting Employee Tax In Cayman Island

Although there is no income tax filing through a tax authority, you must submit pension and health insurance contributions to approved providers and maintain documentation for regulators. Submissions are typically made via online portals or bank transfers using employer account numbers, employee identifiers, and the relevant payroll period references.

• Pension Remittance: Submit combined employer and employee pension contributions to the approved plan using the provider's reference format.
• Health Insurance Payment: Pay monthly health insurance premiums to the insurer, reconciling the invoice with your payroll records.
• Bank Transfers: Use corporate bank transfers with clear payment references for each payroll period and benefit type.
• Provider Portals: Upload contribution schedules and employee details through pension and insurer online portals where available.
• Third-Party Payroll: Allow your payroll provider or Employer of Record to file and remit on your behalf while you review reports and funding needs.

Payroll Tax Due Dates In Cayman Island

Understanding the tax obligations for both employers and employees is crucial when operating in Cayman Island's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in Cayman Island.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 7% – 15% on top of the employee salary in Cayman Island. The exact percentage depends on the pension plan, health insurance premiums, and any role-specific work permit fees that you absorb as part of total compensation.

Employee Payroll Tax Contributions

In Cayman Island, the typical estimation for employee payroll contributions cost is around 5%.

Individual Income Tax Contributions

Individuals in Cayman Island do not pay income tax on employment earnings, so there are no progressive income tax brackets to apply in payroll calculations. This simplifies net pay calculations, with the main statutory deductions being pension and health insurance contributions.

Pension in Cayman Island

Pension in Cayman Island is governed by the National Pensions Act, which generally requires a combined minimum 10% contribution on pensionable earnings, split equally between employer and employee, for eligible workers. Contributions must be remitted to an approved pension plan on a regular schedule, and employers are responsible for enrolment, accurate calculations, and maintaining records for regulatory inspections.