Originally published 6 July 2010

Keywords: trade unions, minimum wage, contract of employment, Employment Ordinance (Payment of Wages),

The trade unions have finally won their decades-long battle to introduce minimum wage legislation to Hong Kong. Ignoring for a second the debate of whether a minimum wage is good or bad for Hong Kong and whether such legislation creates or reduces poverty, the one thing we know for sure is that it will impose obligations on employers. This paper outlines those obligations and highlights potential pitfalls.

In considering this paper, the reader should note that the legislation is not yet finalised and, indeed, the wording for certain provisions has not even been presented to the legislature. As such, there are areas (e.g. the meaning of "student intern" and the treatment of commissions) where the position remains slightly uncertain.

The fundamental requirement of the Minimum Wage Legislation is that every employee in Hong Kong will be entitled to be paid an amount not less than the "minimum wage".

The "minimum wage" for an employee is determined by multiplying the number of "hours worked" in a wage period by the prescribed minimum hourly wage rate.

The requirement to pay at least a minimum wage is deemed to be included in every contract of employment. Therefore, any failure by an employer to pay the minimum wage is a breach of contract and may also result in prosecution for breach of section 23 of the Employment Ordinance (Payment of Wages). A breach of section 23 is an offence which is punishable by a fine of up to HK$350,000 and three years in prison.

The Key Elements

From the formula set out above, it is clear that the key elements in complying with the minimum wage obligations are:

  • determining the amount of the wages actually paid to an employee in a wage period,
  • identifying the number of hours worked by an employees in a wage period, and
  • the minimum hourly wage rate.

"WAGES ACTUALLY PAID"

The term "wages" has the same meaning as in the Employment Ordinance. As such it is very broad, but excludes most kinds of annual bonus (including 13th month bonuses).

The legislation contains specific provisions dealing with the payment of wages in advance or in arrears as well as, perhaps strangely, payments for time not worked by an employee. The final legislation will also dictate how commissions are treated.

Key point: Make sure your contracts are clear about how wages are paid and for what work they are paid. Also consider whether it is appropriate to restructure your bonus provisions so that they can be included as "wages".

"HOURS WORKED"

At its most basic level, the number of hours to be taken into consideration in a wage period will include the following:

  • time spent by an employee at his or her place of employment "in accordance with his contract of employment or with the agreement or at the direction of the employer", and
  • time spent travelling in connection with his or her employment (other than from and to home).

Whilst the definition may appear simple, it is full of danger. For example, what about meal breaks (especially meal breaks taken at work)? What about situations where an employee is on call? What about the situation where an employee works from home or has a sales job which does not necessitate the employee to report to an office? What about where an employee is on an overseas trip?

There are numerous different permutations and possibilities for working structures. Every employer must identify areas which are unclear in their own systems and try to clarify what are and what are not "hours worked"

Key point: Make sure there is no doubt about when an employee is required to be at work. If employees typically stay at their work premises beyond their contractual hours, then consider whether they should be expressly told that they are not required to stay unless instructed by written direction.

"MINIMUM HOURLY WAGE RATE"

This is currently being debated by the Provisional Minimum Wage Commission. The PMWC is obliged by law to balance the sustainability of Hong Kong's growth and competitiveness, the aim of "minimising the loss of low-paid jobs" whilst also "forestalling excessively low wages".

We await details of the figure in due course. In the meantime, we will enjoy the substantial lobbying currently taking place by interested parties!

Who is Exempted?

The Minimum Wage Legislation does not apply to contractors (i.e. persons employed under a contract for service as opposed to a contract of service). It also does not apply to persons excluded from coverage of the Employment Ordinance.

Perhaps more importantly, the legislation does not cover those domestic workers who live free of charge in the household in which they work. It also does not cover "student interns". It is anticipated that a "student intern" will mean:

  • a Hong Kong resident (wherever studying) or any person studying at a Hong Kong tertiary institution who is aged under 26 and who works for less than 60 days, and
  • a Hong Kong resident studying at a tertiary institution anywhere in the world where the internship forms part of that tertiary education course.

Retention of Records

Every employer will be obliged to retain for at least six months records of the amount of time worked by any employee covered by the Minimum Wage Legislation. This obligation is likely to be expressed so as not to apply to employees who are paid in excess of a certain amount per month (for whom the minimum wage is an irrelevance).

Whilst the obligation is only to keep such records for six months, in reality they should be kept for six years as this is the limitation period for a breach of contract claim.

Key point: Complying with this obligation may well require employees to log-in and log-out of work.

What Next?

The Minimum Wage Legislation is not quite finalised. As such, it may change slightly. However, the bones of the legislation will remain as set out above. The key for employers is to recognise that it will be in force soon (probably sometime in the first half of 2011) and to perform a quick audit of contracts and working arrangements to identify any problems they may encounter in complying with the legislation.

Learn more about our Hong Kong office and Employment & Benefits practice.

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