Member Article

The Employment Ordinance of Hong Kong is the main legislation prescribing the minimum rights, benefits and protection for employers and employees in Hong Kong. Under the ordinance, the employer and the employee cannot contract out of the minimum rights, benefits and protection given to the respective parties by the ordinance.

WHO DOES THE ORDINANCE APPLY TO?
The ordinance applies to every employee engaged under a contract of employment in Hong Kong with only limited exceptions. These exceptions include:
• employees who are family members living with the employers;
• certain employees working outside of Hong Kong; and
• apprentices.
Whether an employment relationship exists is a matter of fact.

MINIMUM PROTECTION
All employees covered by the ordinance, irrespective of their hours of work, are entitled to basic protection under the ordinance including (but not limited to) payment of wages, restrictions on wage deductions and the granting of statutory holidays.
Employees who are employed under a continuous employment contract are further entitled to benefits such as rest days, paid annual leave, sickness allowance, severance payment and long service payment.

CONTINUOUS EMPLOYMENT
Under the First Schedule of the ordinance, an employee is deemed to have been continuously employed if he/she has been employed under a contract of employment for a period of four or more weeks, each week working for no less than 18 hours. Certain breaks such as maternity leave and sickness days are deemed not to interrupt the continuity of employment.

EMPLOYEE PROTECTION/BENEFITS
Employees employed under a continuous contract are entitled to the following:
Rest Days
Employees are entitled to not less than one rest day every seven days. These rest days shall be appointed by the employer which may be granted on a regular or irregular basis.
Annual Leave
Employees are entitled to paid annual leave ranging from a minimum of seven days to a maximum of 14 days depending on their length of service. The daily rate of annual leave pay is a sum equivalent to the daily average of the wages earned by the employee.
Maternity Leave and Pay
All female employees are entitled to maternity leave of 10 weeks and those who have been employed under a continuous contract for a minimum qualifying period are entitled to be paid during maternity leave. A pregnant employee may decide to commence her maternity leave from two to four weeks before the expected date of confinement, with the agreement of her employer. Maternity leave pay is currently paid at the rate of four-fifths of the daily average wages earned by the female employee.
Sickness Allowance
Employees are currently entitled to paid sickness leave at the rate of four-fifths of their daily average wages. Sickness days accrue at the rate of two paid sickness days for each completed month of employment during the first 12 months of employment and four paid sickness days for each month of employment thereafter, up to a maximum of 120 paid sickness days. The entitlement to sickness pay applies only if the sickness leave taken is not less than four consecutive days.
Severance Payment
An employee who has been employed under a continuous contract for 24 months or more and is dismissed by reason of redundancy or lay-off is entitled to a severance payment. The amount of severance payment is two-thirds of the employee's last full month's wages or two-thirds of HK$22,500, whichever is less, for each year of service. The current maximum severance payment payable is HK$390,000. The amount of any gratuity or retirement scheme payment to the employee, based on length of service, is deductible from the amount of severance payment entitlement. In the case of a retirement scheme payment, only the employer's contributions (and interest thereon) may be deducted.
Long Service Payment
An employee who has been employed under a continuous contract for five years or more and is dismissed for any reason other than redundancy or misconduct, is entitled to a long service payment on termination of employment by the employer. An employee who has been paid a severance payment will not be entitled to a long service payment. The calculation of long service payment is the same as severance payment and is also subject to the same maximums as stated above. The amount of any gratuity and retirement scheme payment paid to the employee, based on length of service, is deductible from the amount of long service entitlement, as in the case of severance payment.
End of Year Payment
For every employment contract made after 27 June 1997, it is presumed that an annual payment or annual bonus (if provided) is not of a gratuitous nature and is not payable only at the discretion of the employer unless a written term or condition in the contract expresses intention to the contrary.
Prohibition to making deductions from wages
In general, employers are not allowed to make deductions from the wages of an employee. There are, however, a number of limited exceptions. These exceptions include deductions:
• for absence from work;
• for damages or loss of goods or equipment belonging to, or in the possession or control of, the employer or expressly entrusted to an employee for custody where such damage or loss is directly attributable to the employee's neglect or default;
• for meals supplied by the employer at the request of the employee;
• for accommodation provided by the employer and occupied by the employee or the family of the employee;
• for recovery of any advance or over-payment of wages made by the employer to the employee;
• for any loan owed by an employee;
• for any medical benefit scheme, superannuation scheme, retirement scheme or thrifty scheme of which the employee is a member;
• authorised by an enactment of law;
• approved by Commission for Labour; and
• in respect of any payment that an employee would be liable to pay for wrongfully terminating an employment contract.
All other deductions not listed above are unlawful. An employer who makes unlawful deductions commits a strict liability offence and will be liable to a fine and imprisonment for one year.
Definition of Wages
Wages under Hong Kong law means all remuneration, earnings, allowances, tips and service charges, however designated or calculated, payable to an employee in respect of work done or work to be done. Allowances including travelling allowances, attendance allowances, commission and overtime payment are within the definition, but the following are excluded:
• the value of any accommodation, education, food, fuel, light, medical care or water provided by the employer;
• any contribution paid by the employer on his own account to any retirement scheme;
• any commission which is of a gratuitous nature or which is payable only at the discretion of the employer;
• any attendance allowance or attendance bonus which is of a gratuitous nature or which is payable only at the discretion of the employer;
• any travelling allowance which is of a non-recurrent nature;
• any travelling allowance payable to the employee to defray actual expenses incurred by him by the nature of his employment;
• the value of any travelling concession;
• any sum payable to the employee to defray special expenses incurred by him by the nature of his employment;
• any end-of-year payment or any proportion thereof;
• any annual bonus which is payable by the employer at his/her discretion; and
• any gratuity payable on completion or termination of employment.
Overtime pay which is of a consistent character or the monthly average of which over the past 12 months is 20% or more of the average monthly wage of the employee during the same period should also be included in calculating wages.
Calculating the daily or monthly average wages earned
When calculating the various leave pay, the relevant time period used to determine the average daily wage is the 12 month period on or immediately before the date of commencement of the leave, depending on whichever is applicable.
Whenever the employer concerned has employed the employee for a period shorter than 12 months immediately before the date of commencement of leave, the shorter period is the relevant time period.
A simplified formula
In calculating the respective average wages, certain periods of time in which the employee was not paid full wages have to be disregarded and deducted from the relevant time period. Such periods would include, but are not limited to, maternity leave, holidays and annual leave taken by the employee (Disregarded Periods).
Accordingly, any amount of wages paid to the employee for Disregarded Periods (Disregarded Wages) should be deducted from the total amount of wages accrued to the employee. This deduction would result in the relevant amount (Relevant Amount) used in the calculation of the respective average wages.
The respective daily and monthly average wages of an employee is to be calculated as follows:
Daily average wage = Relevant Amount / ( 365 days - Disregarded Period )
Monthly average wage = Relevant Amount / ( 12 months - Disregarded Period )
In the event that the employee has been employed for less than 12 months, the period of 365 days and 12 months should be replaced with the shorter period of employment.

TERMINATION
The employment of an employee on probation may be terminated by the employer or the employee without notice during the first month and with at least seven days' notice after the first month. In all other cases, unless summarily dismissed for good cause, the employee is entitled to:
• at least one month's notice of termination where the contract does not provide for the length of notice required to terminate the contract, or
• seven days or the agreed period, whichever is the longer, where the length of notice of termination is provided for in the contract.
Alternatively, a contract of employment can be terminated without notice by making a payment in lieu of notice equal to the amount of wages which would have accrued to the employee during the requisite period of notice.
Statutory restrictions on termination of employment contract
The ordinance provides that it is unlawful for an employer to dismiss an employee under the following circumstances:
• a female employee who has been confirmed pregnant and has served a notice of pregnancy (up till and including the day she is due to return to work on the expiry of her maternity leave or the date of cessation of pregnancy);
• an employee who is on a day in which a sickness allowance is paid;
• an employee by reason of his giving of evidence or information in any proceedings or inquiry;
• an employee for trade union membership and activities; or
• an injured employee before having entered into an agreement with the employee for employee's compensation or before the issue of a certificate of assessment.
Employers should also ensure that employees are terminated only for valid reasons as provided under the ordinance.
Termination payments
Termination payments may differ depending on the length of service and the reason for termination. These payments will usually include the following:
• outstanding wages;
• notice/wages in lieu of notice (if any);
• payment in lieu of any untaken annual leave, and any pro rata annual leave pay for the current leave year;
• any outstanding sum of end of year payment, and pro rata end of year payment for the current payment period (if any);
• where appropriate, long service payment or severance payment;
• other payments under the employment contract, such as gratuity, provident fund, etc.

OTHERS
Insurance Coverage
Employers are required to maintain insurance coverage in respect of employees employed in Hong Kong pursuant to the Employees Compensation Ordinance in respect of work-related injuries, but there is currently no statutory requirement to provide medical benefits.
MPF
The Mandatory Provident Fund Schemes Ordinance which commenced operation on 1 December 2000 requires both the employer and the employee to contribute 5% of the employee's salary into a mandatory provident fund scheme. The current maximum level of mandatory contribution required is HK$1,000 paid each month by both the employer and the employee. The employer and/or the employee may make additional voluntary contributions to the scheme if they wish.
Taxation
Employers are required to notify the Inland Revenue Department of the commencement and cessation of employment of its employees within a prescribed time.
Employment Visa
Every person who does not have a right of abode/unconditional stay in Hong Kong and wishes to enter Hong Kong for the purpose of employment is required to obtain an employment visa. Under the existing immigration policy, a person seeking to enter Hong Kong for the purpose of employment should possess a special skill, knowledge or experience of value to and which is not readily available in Hong Kong and that he/she is not filling a post which can be filled locally.
The employer will commit a serious criminal offence punishable by fine and imprisonment if it permits a person without an appropriate visa to be employed in Hong Kong.
Discrimination
The implementation of the Sex Discrimination Ordinance, Disability Discrimination Ordinance and the Family Status Discrimination Ordinance in Hong Kong makes any discrimination in the workplace by reason of a person's gender, marital status, pregnancy, disability or family status unlawful. These ordinances also make other forms of discrimination including victimisation, sexual harassment, disability harassment and vilification unlawful.
Currently, only discrimination as described above is unlawful. It is therefore strictly speaking not unlawful for an employer to discriminate on some other basis such as a person's age, physical appearance, height, race, educational attainment, political beliefs, or social skills. However, the Equal Opportunities Commission is seeking to make discrimination on some or all of these grounds unlawful.

OUR SERVICES
Our employment practice is designed to meet client needs at every stage of an employment relationship. Our practice group advises client on a range of legal matters including general employment issues, retirement schemes, MPF issues, discriminatory issues, data protection, labour disputes and litigation, immigration and executive transfers.
Whilst every effort has been made to ensure the accuracy of this publication, it is intended to provide general guidance and not definitive legal advice.