The Protection of Wages on Insolvency Ordinance was recently amended to increase the maximum amount of ex-gratia payment which could be paid to an employee under the Protection of Wages on Insolvency Fund (the "Insolvency Fund") in respect of statutory severance payment owed by their employer in the event the employer has become insolvent.
This marks a significant step forward in bolstering the protection afforded to employees in Hong Kong in the event of their employers becoming insolvent.
This article provides a summary of the amendment.
What is the Protection of Wages on Insolvency Fund?
The Protection of Wages on Insolvency Fund was established in 1985 with the primary objective of providing timely financial relief to employees who are owed payment for certain statutory entitlements in the event their employers have become insolvent.
Employees of employers that have become insolvent may apply to the Wage Security Division of the Labour Department for an ex-gratia payment from the Insolvency Fund in respect of outstanding wages, wages in lieu of notice, payment for untaken annual leave, payment for untaken statutory holidays and/or statutory severance payment owed by their employer. The maximum amount of ex-gratia payment which could be granted by the Insolvency Fund varies depending on the type of payment owed.
The change
In 2022, the maximum amount of ex-gratia payment which could be paid to an employee under the Insolvency Fund in respect of outstanding statutory severance payments was doubled from HK$50,000 plus 50 percent of any entitlement owed in excess of the cap, to HK$100,000 plus 50 percent of any entitlement owed in excess of the cap. While this provided some relief, for those employees who have a longer length of service, there is often still a significant gap between the amount of ex-gratia payment received from the Fund and the actual amount of statutory severance payment owed by the employer.
On 20 March 2025, the Legislative Council passed a resolution to further double the maximum amount of ex-gratia payment which could be granted by the Insolvency Fund in respect of outstanding statutory severance payments to HK$200,000 plus 50 percent of any entitlement owed in excess of the capped amount. The monetary caps for ex-gratia payment in respect of the other types of statutory payments owed, however, remain unchanged.
The amendment took effect on 21 March 2025, and applies to outstanding statutory severance payments where liability for payment arises on or after such date.
What does this change mean?
1. Enhanced Financial Security for Employees: The enhanced cap provides greater financial security to employees, as employees are more likely to be able to recover a larger portion of their statutory severance payments through the ex-gratia payment. This should help alleviate some of the financial pressure faced by employees during periods of unemployment.
2.Strengthened Labour Protection: The amendment, which strives to ensure that outstanding statutory entitlements are more adequately covered by the Insolvency Fund, underscores the Hong Kong Government's commitment to strengthen employee protection in Hong Kong. In particular, it was one of the policy initiatives in "The Chief Executive's 2024 Policy Address" to bolster support to employees.
Concluding comments
As discussed, the recent amendment is only in relation to the maximum amount of ex-gratia payment which could be paid in respect of outstanding statutory severance payment. Thus, employers and employees should stay close to any potential developments regarding the monetary caps for ex-gratia payments in relation to the other types of statutory entitlements covered by the Insolvency Fund.
While applications for payment of ex-gratia payment from the Insolvency Fund is handled by the Wage Security Division of Labour Department, it is still important for employers to familiarise themselves with the protection afforded to employees under the Protection of Wages on Insolvency Ordinance and the process for making an application for ex-gratia payment so that in the event the need arises, employers could guide employees on where to seek assistance and strive to support employees to the best of their ability during challenging times for both parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
