Jeannette Tam, Managing Associate—Hong Kong Employment Practice, Bird and Bird
Some rules can make employment law Hong Kong somewhat complex. Breaches of the Employment Ordinance (EO) are, in most cases, a criminal offence, with liability extending to managers and directors.
Jeannette Tam, Managing Associate—Hong Kong Employment Practice, Bird and Bird pointed out that statutory entitlements—annual leave, statutory holidays, sick leave, maternity and paternity leave, and even payment in lieu of notice, severance and long service payments, have to be calculated based on Daily Average Wages (DAW). Wages are not just salary, but include allowances paid in cash, contractual commission and certain overtime payments.
Tam also reminded any ’13th month salary’ is not actually salary—it is an end of year payment governed by separate provisions under the EO. The EO has specific rules that prescribe the timing and payment of any end of year payment/contractual annual bonus. To get around that, the bonus can be clearly drafted as discretionary —although courts may still deem it a contractual bonus if in practice it is treated as so. Even if it is truly discretionary, the employer must still show it has not exercised the discretion irrationally or perversely.
Deduction from Wages is limited to nine circumstances under the EO, so employers that offer any one-off payments that are expected to be clawed back will have difficulties deducting from wages. Employers can consider drafting the payments to reflect a permitted deduction or provide for repayment.
Further, to avoid these one-off payments artificially inflating the DAW, the payment can be deemed to be a payment that accrues and vests over a period of time. Likewise in relation to allowances and reimbursements, it may be better for the employer to provide the benefits in kind.
In relation to annual leave, Tam stated that for those wanting to provide additional annual leave as a benefit, it must be distinguished from the statutory minimum to avoid it being restricted under the same rules.
Paul Arkwright
Publisher
