minimum-payroll-hong-kong

Minimum Wage Ordinance

The Employment Ordinance provides the basic protection to employee as well as the definition of basic terms and condition in an employment involving employer and employee in Hong Kong. The major provisions of the Minimum Wage Ordinance are aligned as closely as possible with those of the Employment Ordinance to ensure consistency and effective enforcement, avoid confusion to employers and employees and minimize the compliance cost for employers. We suggest you reading Employment Ordinance in advance.

The concept of legislation of SMW is simple – to legally require all employees to sell their labour not less than the amount of SMW and force all employers to pay wages to their employees not less than the amount of SMW.  However, Hong Kong is a free market, and businesses here are dynamic, both employers and employees have been buying and selling the labour in unlimited form of employment among them, SMW calculations must be simple to understand for both employers and employees.

The Ordinance answers it by requiring the minimum wages payable to an employee is counted in hourly rate of hour worked. Effective on 1 May 2015, the rate is $32.5 per hour, the monetary cap on the obligation of employers keeping records of the total number of hours worked by employees is $13,300 per month.

Who is protected by SMW in Hong Kong?

SMW applies to ALL employees, no matter they are employed under any kind of wage payment period:

  • monthly-rated,
  • weekly-rated,
  • daily-rated,
  • hourly-rated, OR
  • piece-rated

and, duration of employment contract:

  • permanent,
  • casual,
  • full-time,
  • part-time, OR
  • other employees

and, regardless of whether or not they are employed under a continuous contract as defined in the Employment Ordinance (i.e. en employee is deemed to be under continuous contract of employment who he has been employed continuously by the same employer for four weeks or more, with at least 18 hours worked in each week.).

However, SMW cannot apply to the employee that are not covered under Employment Ordinance as well as live-in domestic worker who live in their employing household free of charge and student interns / work experience student who work during a period of exempt student employment.

In brief, it affects all of the entrepreneur going to relocate to Hong Kong no matter he is an employee or employer.

Employee with Disabilities

SMW also applies to employees with disabilities and able-bodied employees alike. The employees with disabilities voluntarily take part in a productivity assessment to determine whether they should be remunerated at not lower than the SMW level or at a rate commensurate with their productivity for striking a balance between their wage protection and employment opportunities.

How is Minimum Wage computed?

The underlying calculation of minimum wage is simple as following:

Statutory Minimum Wages = “total number of hours worked by the employee” in the wage period × Statutory Minimum Wage rate (SMW rate)

Wages payable to an employee regardless of any wage period shall not be less than the amount of Minimum Wage.

Although the SMW is calculated by the “hours worked”,  employers are NOT required to pay wages for every single employee’s hour worked and NOT to adopt wages rating to hourly-rated in employment contract.

SMW Ordinance only requires the minimum wages payable to an employee must not be less than the SMW rate on average for the total number of hours worked within that wages period.

In other words, the underlying principle of SMW Ordinance is the wages floor to protect employees. So long as an employee receive wages within any wages period which is not less the the SMW rate on average for the total number of hours worked, the payment method is not a matter and the employer is free from the obligation of The Ordinance.

To count the hours worked for computing minimum wage payable to en employee, it must include the following:

  • any time when the employee is, in accordance with the contract of employment or with the agreement or at the direction of the employer;
  • in attendance at a place of employment, irrespective of whether he is provided with work or training at that time;
  • traveling in connection with his employment, excluding traveling (in either direction) between his place of residence and his place of employment (However, traveling between his place of employment that is outside Hong Kong and his usual place of residence AND that between his unusual place of employment and his usual place of residence are included for counting.);
  • any time as hours worked by the employee under the employment contract or agreement with the employer.

The calculation of minimum wage should be based on the actual number of hours worked including any part of an hour, any part of an hour are not required to be rounded up to one whole hour in counting hours worked for computing minimum wage.

Should meal break counted as hours worked for computing of SMW?

Minimum Wages Ordinance has only provision to determine whether any time of employees’ labour should be counted as hours worked for SMW calculation but it lacks specific provision to define meal break. Moreover, Employment Ordinance also lacks provision on definition of meal break as well as whether meal break is paid or not.

Therefore, Employers and employees should judge if the time of the meal break falls under the circumstances of hours worked as specified in The Ordinance.

For example, if the employees are requested stay in their place of employment during their meal break under the intention and direction of their employers, the time should be counted as hour worked according to The Ordinance.

Again, if the employee contact has already provided that meal break is counted as paid working hour, then such time must also be taken into account in computing minimum wage.

How is wages payable to an employee calculated?

The definition of wages is clearly prescribed by Employment Ordinance, the employer should exclude the following wages items from the calculation of wages payable to an employee:

  • gratuity payable on completion or termination of a contract of employment.
  • commission, attendance allowance or attendance bonus which is of a gratuitous nature or is payable only at the discretion of the employer;
  • end of year payment, or annual bonus which is of a gratuitous nature or is payable only at the discretion of the employer;
  • the value of any accommodation, education, food, fuel, water, light or medical care provided by the employer;
  • employer’s contribution to any retirement scheme;

For calculation under Minimum Wages Ordinance only, a wages payable to employee is not the same as the actual wages earned by employee under the provision of Employment Ordinance.

For example, neither Employment Ordinance nor Minimum Wages Ordinance does not have provision of whether meal break and rest day are paid or not (which are up to the provision in specific employment contract), since both rest day and meal break usually does not fall on the circumstances of hour worked, in the condition that both of them are stated as paid in the contract, wages payable is calculated by deducting the wages paid for them (wages earned for meal break or rest day) from the actual wages earned.

What should be done when employee’s Wages Payable is less than Minimum Wages?

First of all, Minimum Wages Ordinance disallow any provision of an employment contract to reduce any right, benefit or protection conferred on the employee by the Minimum Wage Ordinance. In other words, an employer and an employee are prohibited from being agree between themselves that the employee is to be paid less than the SMW.

According to the Minimum Wage Ordinance, if wages payable to the employee in respect of the wage period are less than minimum wage, he is entitled to be paid the difference (i.e. additional remuneration) in accordance with the Minimum Wage Ordinance so that his wages will not be less than wages at the SMW rate. The contract of employment of the employee must be taken to provide that the employee is entitled to additional remuneration in respect of that wage period.

How is the payment of additional remuneration?

Regulated by the Minimum Wages Ordinance, employers cannot deduct the amount of additional remuneration paid from employees’ wages of subsequent wage periods. Moreover, employers cannot pay the amount of additional remuneration in form any end of year payment, bounce / gratitude payment in which their employers has discretion on these payments.

The law to pay additional remuneration is simple – if the amount of wages payable to an employee within a wages period falls below the minimum wages, employer must paid the difference in same wages period.

What is the employer’s obligation of keeping employee’s records of the total number of hours worked?

The wage and employment records kept by an employer under the Employment Ordinance should include the total number of hours (including any part of an hour) worked by the employee in a wage period if:

  • SMW applies to the employee; AND
  • wages payable in respect of that wage period are less than $12,300 per month

Employers and employees should keep proper records in relation to attendance, hours worked, wages, etc. to safeguard their respective rights and benefits and help avoid unnecessary disputes.

What is the offense and penalties under Minimum Wages Ordinance?

Failure to pay minimum wage amounts (including additional remuneration) to a breach of the wage provisions under the Employment Ordinance. According to the Employment Ordinance, an employer who willfully and without reasonable excuse fails to pay wages to an employee when it becomes due is liable to prosecution and, upon conviction,

  • to a fine of $350,000; AND
  • to imprisonment for 3 years

Working Example 1 – Meal break and Rest day

This example will illustrate the effect on wages payable and thus additional remuneration when meal break and rest day are paid or not.

Background and assumptions:

  • SWM rate is $32.5 per hour
  • An employee is employed under a continuous employment contract with wages of monthly-rated:
    • actual monthly wages is HK$10,000
    • Regular rest day is granted on every Sunday
    • Working days is Monday to Saturday
    • Working hours is 9 a.m to 6 p.m. when meal break is 1 p.m. to 2 p.m. daily
  • In a wage period of 30 days without statutory holiday includes 4 rest days, the total hours worked of this employee in respect of the this wage period is 208 hours (i.e. 26 days x 8 hours)
  • Minimum Wages according to the total number of hours worked for this wage period is $6,760 (i.e. 208 total hours worked x $32.5 per hour SMW rates)
  • Whether Meal break and Rest day are paid or not is varying in the cases below.

Case 1: NO PAID Meal break and NO PAID Rest day

When wage earned by employee is solely contributed from hours worked,

Wages payable in this wage period regarding the hours worked: $10,000

Since the wages payable is greater than minimum wage ($10,000 > $6,6760), no additional remuneration is required.

Case 2: PAID Meal break and NO PAID Rest day

When wage earned by employee is NOT solely contributed from hours worked, and thus it also consist of wages paid for 26 days of daily meal breaks which should be deducted from wage payable,

Wages payable in this wage period regarding the hours worked: $8,889 = $10,000 – 26 days x ($10,000 / (26 days x 9-hours))

Since the wages payable is greater than minimum wage ($8,889 > $6,760), no additional remuneration is required.

Case 3: NO PAID Meal break and PAID Rest day

When wage earned by employee is NOT solely contributed from hours worked, and thus it also consist of wages paid for 4 rest days which should be deducted from wage payable,

Wages payable in this wage period regarding the hours worked: $8,667 = $10,000 – 4 days x ($10,000 / 30 days)

Since the wages payable is greater than minimum wage ($8,667 > $6,760), no additional remuneration is required.

Case 4: PAID Meal break and PAID Rest day

When wage earned by employee is NOT solely contributed from hours worked, and thus it also consist of wages paid for 26 days of daily meal breaks and 4 rest days which should be deducted from wage payable,

Wages payable in this wage period regarding the hours worked: $7,556 = $10,000 – 26 days x ($10,000 / (26 days x 9-hours)) – 4 days x ($10,000 / 30 days)

Since the wages payable is greater than minimum wage ($8,667 > $6,760), no additional remuneration is required.

Conclusion:

  • For entrepreneur setting up business in Hong Kong, the SMW rate is $30 can should have almost no affection into hiring employee in Hong Kong since offering employment remuneration of more than $13,300 per month can step away from calculation of SMW.
  • Under the Minimum Wage Ordinance, payment made to an employee for any time that is not hours worked must not be counted as part of the wages payable; whether meal break and rest day are counted as hours worked subjected to the mutual agreement of employment contract.
  • The monthly-rated employment contract adopts the calculation of wages paid to employee for meal break and rest day in a wage period by averaging out the hourly rate and the daily rate for calculation.

Working Example 2 – Commission payment

Given the unique nature of commission as part of the wages allowable by Employment Ordinance (The EO excepts commission which is of a gratuitous nature or which is payable only at the discretion of the employer), the Minimum Wage Ordinance stated the following circumstances for any commission must be counted as part of wages payable regardless when the work is done or the commission is otherwise payable under the contract of employment:

  • any commission paid with the prior agreement of the employee, AND
  • any commission paid any time after the first 7 calender days of a wage period but before the end of the 7th day immediately after that wage period.

We can understand the effect via the case as below:

Background and Assumption:

An employee’s wage period is a calendar month.

With the prior agreement of the employee, the employer pays him commission of $1,500 and $2,000 on 30 April and 6 June respectively.  The commission is originally payable in respect of the wage period of July.

Case 1: Wage payable in April

The commission of $1,500 paid on 30 April falling in the period of 8 April to 7 May is counted as wages payable in respect of April

Case 2: Wage payable in May

The commission of $2,000 paid on 6 June falling in the period of 8 May to 7 June is counted as wages payable in respect of May.

Conclusion:

Both commissions are not being regarded as wages payable in respect of July.