This section covers the minimum statutory entitlements of employees under the Employment Ordinance ("EO"). The EO prescribes certain basic rights and protection for all employees and is applicable to every employee engaged under a contract of employment in Hong Kong with only a few minor exceptions.

Employers should be aware of the relevant provisions in the EO to ensure their employment contracts and practices are consistent with the legislation.

Wages

n        There is currently no minimum wage prescribed by statute although draft legislation mandating a minimum wage is being considered by the Legislative Council and it is anticipated that a minimum wage will become a reality in 2011.

Hours

n        Except in relation to the employment of young persons employed in industrial undertakings where special regulations apply, there are no statutory provisions that prescribe maximum working hours. The EO does, however, provide that in addition to paid statutory  holidays, an employee is entitled to not less than 1 rest day in every period of 7 days.

Benefits and entitlements

n        Many EO benefits are determined by reference to an employee's Average Daily Wage. The Average Daily Wage of an employee is calculated by the following formula:

(W – L Wages) ÷ (365 – L)

where ‘W’ is the wages earned by the employee in the preceding 12 months (or the shorter period if the employee has been employed for a period of less than 12 months);

‘L’ is the relevant periods of leave on which ‘full wages’ were not paid; and

‘L Wages’ is the amount of ‘wages’ paid on those ‘L’ days.

n          Where it is ‘impracticable’ to calculate the Average Daily Wage of an employee then the amount may be calculated by reference to the wages earned by a person who was employed in the same trade or occupation and at the same work in the same district during the relevant 12-month period.

Annual leave

n        Employees are entitled to a minimum of 7 to 14 days statutory annual leave for each period of 12 months’ employment, calculated on the basis of length of service. Statutory annual leave can be taken in the year following that in which it accrues. Employers are entitled to determine when annual leave is to be taken by giving 14 days’ notice in writing to the employee. 

n        Employees may choose to accept payment in lieu of the part of his statutory annual leave entitlement which exceeds 10 days from the previous leave year. The payment received by employees by way of holiday pay is a sum equal to the Average Daily Wage of the employee. Subject to individual company policy, employees may elect to carry forward all untaken annual leave in excess of the statutory portion to the next leave year.

n        The EO only regulates statutory annual leave and not an employee's contractual annual leave (i.e., annual leave entitlement in excess of the statutory entitlement above). It is silent on whether statutory or contractual annual leave is to be taken first. As good practice, employers should stipulate in the contract of employment that annual leave shall be taken from statutory/contractual entitlements first.

Maternity leave

n        Female employees, provided they have at least 40 weeks continuous employment with their employer, are entitled to paid maternity leave of 10 weeks or as provided by the terms of the employer, whichever is more favourable. Maternity leave pay is paid at the rate of 4/5ths of the employee's Average Daily Wage.

Sickness leave

n        Employees are entitled to paid sick leave at the rate of 4/5ths of Average Daily Wage. Entitlement to sickness leave may be accumulated at the rate of 2 paid sickness days for each completed month of employment during the first 12 months of employment and at the rate of 4 paid sickness days for each month thereafter, up to a maximum of 120 paid sickness days. The entitlement to sickness pay only applies, however, to periods of absence due to sickness of not less than 4 consecutive days.

Termination

Termination by notice

n        The employer or the employee may terminate the services of an employee on probation without notice during the first month and by not less than 7 days’ notice thereafter.

n        In all other cases, the employee is entitled to:

�            not less than 1 month’s notice of termination where the contract is deemed to be for 1 month renewable from month to month under the EO and does not otherwise provide for the length of notice required to terminate the contract; or

�            7 days or the agreed period, whichever is the longer, where the contract is for 1 month renewable from month to month and the length of notice of termination is provided for in the contract; or

�            in every other case, the agreed period, but not less than 7 days in the case of a continuous contract. A continuous contract is a contract of employment where an employee has been employed by the same employer for a period of 4 or more weeks, working at least 18 hours a week.

Termination by payment in lieu of notice

n        An employment contract may also be terminated without notice by either party agreeing to pay to the other a sum equal to the Average Daily Wage the employee would have earned during the requisite period of notice.

Employees’ entitlements on termination

Accrued wages and unused annual leave

n        All outstanding wages and payments in respect of accrued but unused annual leave (only statutory leave, unless the contract specifies otherwise) up to the time of termination are payable.

End of year payments

n        Where the employees are contractually entitled to an annual bonus, they will be entitled to a proportional payment thereof in respect of the year in which they are dismissed, unless the bonus is payable solely at the discretion of the employer or they have not been employed for a continuous period of 3 months or more in the payment period.

n        If an end of year payment is not specified in the employment contract, a sum equal to the proportionate amount of the Average Monthly Wage (determined broadly in the same manner as Average Daily Wage) of the employee will be awarded.

Severance pay

n        An employee who has been employed under a continuous contract for not less than 24 months is entitled to severance pay if he is dismissed by reason of redundancy or if the employee is laid off.

n        The amount of severance pay is 2/3rds of 1 month’s pay for each year of employment or 2/3rds of HK$22,500, whichever is the less, subject to a maximum payment not exceeding HK$390,000. The amount of any contractual gratuity based on length of service is deductible from the amount of severance pay entitlement. In addition, that part of a retirement scheme payment that is due to the employer’s contributions may be deducted from the amount of the severance pay.

Long service pay

n        An employee who has been employed under a continuous contract for not less than 5 years is entitled to long service pay on dismissal.

n        The amount of long service pay is calculated by reference to the same formula as for severance pay. The maximum entitlement shall not exceed HK$390,000. The amount of any contractual gratuity based on length of service is deductible from the amount of long service entitlement. In addition, that part of a retirement scheme payment that is due to the employer’s contributions may be deducted from the amount of long service payment.

n        The right to severance pay and the right to long service pay are mutually exclusive. Severance pay is relevant to a redundancy situation whereas long service pay is intended to reward employees who are dismissed in a non-redundancy situation for their long service.