Crucial tasks that HR departments must apply to current staff and new recruits to remain compliant with new Minimum Wage Ordinance (MWO) coming into effect in Hong Kong on 1 May 2011.
The statutory minimum wage comes into force in Hong Kong, for the first time, on 1 May 2011. These critical changes to the labour laws—which initially set minimum wages at HKD 28 per hour—are likely to have a dramatic effect on how businesses operate. In order to remain compliant, avoid fines and avert potential legal action, it is vital that HR departments address these changes before the MWO comes into effect.
At HR Magazine’s January 2011 conference Jennifer Van Dale, Partner, Baker & McKenzie, provided an update on the recent legal changes regarding staff employment contracts and the implications for HR when taking on new recruits and important record keeping requirements.
Minimum Wage Ordinance
Van Dale pointed out that the MWO is a major change to the legislation and means that the total wages that an employee receives in any one wage period divided by the hours that he or she works in that wage period has to be greater than or equal to HKD 28 per hour.
Key implications of the MWO for HR include:
- Record keeping—need to keep track of hours worked for employees earning less than HKD 11,500 per month
- Variable income— may need to revise remuneration structures for employees whose income is mostly variable
- Place of work—need to count travel time to a location that is not the usual place of work as hours worked
- Bankers taking home millions—still not earning minimum wage
While many companies do not believe these changes will affect their workforce—as they do not have any minimum-wage employees, Van Dale issued a word of caution to HR, citing an example of a private banker who was remunerated entirely on a commission basis. Although his total commissions were substantial, because they fluctuated substantially from month to month, there were some months when he still did not get the minimum wage despite earning millions overall during the year.
Hours actually worked
The new record keeping requirements require that employers keep a record of hours worked for anyone earning less than HKD 11,500 per month. Breaking down this obligation, it means that employers will need to keep track of:
- employee time that is spent at work; and
- whether the employer has agreed that the employee can be there; or
- whether the employer has directed them to be there.
Van Dale emphasised that identifying when an employee is ‘authorised’ to work is an absolute critical issue given a typical workforce pattern in Hong Kong where employees arrive at work before 9 am but do not start work immediately, or do not leave when the official office hours end but instead continue to work, have a break, e.g. to eat with colleagues or socialise before finishing their work at 7.30 pm. If managers or supervisors know that someone is coming in early or everyone is staying late and do not object, even though staff are not technically ‘working’ the entire time, it may still count as hours worked if the employees show that they are staying in the workplace with the agreement of the employer.
Van Dale reported that the Labour Department has stated that it is of the view that these difficulties are not a legal issue, even though they are in legislation; rather they view it as a ‘workplace relations issue’. The message they are trying to send out is that employers need to discuss this with employees and then establish a policy that states they are welcome to stay after hours, but that it will not count as hours worked.
Van Dale agrees that this is ideally resolved through communication, but notes that criminal penalties can be imposed for breach of the MWO and therefore this is very much a legal issue. She also noted that she has had frank discussions with the Labour Department about the specific issue around before and after-hours work patterns, because in her view it puts pressure on employers to force their employees to finish all work before they can socialise—rather than take a break at the end of the day and then resume and complete their work—or alternatively to not allow employees to work past standard office hours. This, Van Dale suggests, is likely to make workplace relations more strained.
Travel time
Another important record keeping aspect related to hours worked includes travel time. If an employee goes to a place that is ‘not the usual place of work’ such as to a customer’s office —that still counts as hours worked, Van Dale warned. One solution she advised for HR is to include a statement in the contract that explains the usual place of work is ‘the office, or any of the clients’ and customers’ offices’, in this case travel time may not necessarily need to be counted as hours worked. Business travel outside Hong Kong will also count as hours worked, although most people who need to travel abroad will be paid in excess of the minimum wage so this is less likely to be an issue.
In order to remain compliant for record keeping related to travel time, she said:
- Audit the ‘usual place(s) of work’
- Assess whether the’ usual place(s) of work’ are accurately reflected in the contract
- Implement a system to track travelling employees to determine where they usually work
Coping with variable incomes
Many employees have variable incomes that fluctuate such as high commissions and low base salaries, and in order to remain compliant with the new ordinance, it is important that the compensation averages out to at least the minimum wage in each wage period. Employers should also pay close attention to this variable as it may happen both in between, and during any given wage period.
Van Dale explained that one option would be to have one wage period for monthly salary and then a separate wage period for variable compensation. Alternatively, HR could amend commission plans so they include advanced payments—so payroll can be adjusted to ensure the employee remains above the HKD 28 threshold during all periods. The legislation does not permit employers to count payments for hours not worked as wages, but the Labour Department indicates that an exception may be possible in these kinds of cases. The Labour Department is working on guidance for employers and Van Dale anticipates that when the MWO comes into force in May, employers will have a better idea of the best way to ensure compliance.
In order to comply with those earning variable income, Van Dale advised:
- Identify employees whose income is highly variable and whose regular income is near, or below, the HKD 28 per working hour threshold
- Assess whether changes to the remuneration structure are necessary, such as commission paid in instalments and/or adjustment of base salary
- Implement systems to detect instances of underpayment so they can be promptly rectified
Non-compliance penalties
Van Dale said that she has seen a crackdown on employers who have not yet complied with changes to wage rules implemented in 2007, as well as an increase in Labour Department inspections of wage-related records among her clients. She cautioned HR that nowadays if the Labour Department receives a wage-related complaint, they will most likely investigate the employer. Penalties for not complying with minimum wage include a HKD 350,000 fine and three years’ imprisonment. Failure to comply with record keeping requirements renders employers liable to a fine of HKD 10,000 per offence. If ‘offence’ is interpreted as per employee, this could amount to a substantial sum in organisations with a large number of employees. She also cautioned that if a company’s payroll department is overseas, then most likely they will not be compliant with these new regulations and will need to be educated.
Payroll audit
Van Dale advised HR to immediately update contracts, and review policies addressing the issues of employees being in the office when they are not working, travel time and overtime. To understand whether contracts and policies need to be updated, she advised companies to conduct the audit immediately in regard to record keeping identifying:
- employees currently earning less than HKD 11,500 per month;
- employees with fluctuating wages; and
- factors to include in a comprehensive travel policy that are relevant for your organisation.
Paul Arkwright
Publisher
