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Issue Date: Author: Issue Ref:

17 May 2011 Sanjna Melwani PUB2011/05

THE MINIMUM WAGE ORDINANCE (the "MWO")

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This Ordinance was passed by the Legislative Council on July 17 2010 and gazetted on the 23 of the same month. It came into force on 1 May 2011. The purpose of the MWO is to provide a statutory minimum wage ("SMW") to all relevant employees based on the prescribed minimum hourly wage rate and the hours which they have worked in the relevant wage period. It is a complex legislation which we will break down into sections for ease of understanding: 1. Review Process

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2. Who Is Covered?

Persons Covered by MWO Apart from a few exceptions, the MWO applies to: All employees (even if only part-time or casual) regardless of whether they are employed under a ,,continuous contract within the meaning of the Employment Ordinance. Also included are employees with a disability holding a valid registration card issued by the Central Registry for Rehabilitation (but a reduced minimum wage may be agreed subject to the provisions of the MWO)

Persons Not Covered by MWO Employees expressly exempted from the MWO include: live-in domestic helpers student interns work experience students during a period of exempt student employment (under 26 years old at beginning of employment and maximum employment period 59 days)

Also, the MWO does not extend to: non-employees, such as contractors/selfemployed persons

3. Computation Per the MWO, "the minimum wage for an employee for a wage period is the amount derived by multiplying the total number of hours (including any part of an hour) worked by the employee in the wage period by the minimum hourly wage rate" ­ currently HKD28 First, consideration is given to wage period: unless the contrary is proven (e.g. weekly, daily or piece-rate), the wage period shall be one month. Next, consideration is given to how to arrive at hours worked: hours worked include any time when the employee is, in accordance with the contract of employment or with the agreement or at the direction of the employer: in attendance at a place of employment, irrespective of whether he is provided with work or training at that time; or travelling in connection with his employment, excluding travelling between his place of residence and his place of employment, other than a place of employment that is outside Hong Kong and is not his usual place of employment. Depending on the arrangements entered into with an individual employee, a place of employment could potentially include time spent working at home. If an employees employment contract is drafted in a way that includes meal breaks or on-call/standby as hours worked by an employee, or the employee is otherwise required to remain in attendance at a place of employment during his or her meal break or oncall/standby period (whether or not the employee is provided with work), such time will need to be included as hours worked. The hours of work are not limited to the hours specified in an employees contract of employment and include additional hours worked with the agreement of the employee or at the direction of the employer. As such, record keeping may be triggered as further discussed in point 5 below.

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After considering the above, TO DETERMINE IF YOUR COMPANY is compliant with the MWO, the following calculation may be made as follows:

Refer to Appendix I for simple calculations).

* Wages has the same meaning as in the Employment Ordinance which includes:

All remuneration Earnings Allowances (including travelling allowances and attendance allowances) Attendance bonus Commission - the MWO specifically stipulates that with the prior agreement of the employee, any commission paid after the first 7 days of a wage period (but before 7 days immediately after the subsequent wage period) may be counted as part of the wages of the wage period when the commission is paid irrespective of when the relevant work is done Overtime pay which is of a constant character or the monthly average of the overtime pay over a period of 12 months (or over shorter period of employment) is equivalent to or exceeds 20% of an employee's average monthly wages during the same period

** There are 12 statutory holidays per year in Hong Kong. *** Statutory paid annual leave is 7 days per completed year of service under a continuous contract (continuous contract of employment means an employment contract under which an employee works continuously for the same employer for 4 weeks or more, with at least 18 hours in each week). Entitlement increases depending on the number of years of service. 4. Penalty Employees must not be paid below the SMW rate on average for the total number of hours worked. If wages payable are less than the SMW, the employee is entitled to payment of the differential. Failure to pay minimum wage amounts renders an employer liable to a fine of HKD350,000 and imprisonment for 3 years. The MWO stipulates that any provision of a contract of employment that purports to extinguish or reduce any right, benefit or protection conferred on the employee by the MWO is void. Therefore, all relevant employers must comply with the MWO notwithstanding any agreement with the employee which is contrary to the MWO.

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5. Record Keeping The MWO imposes a record keeping requirement in relation to employees whose net wages in a month are less than HKD11,500. For employees whose working hours are monitored (for example, by an overtime system), it would be fairly simple to determine the hours worked. Otherwise, record keeping requirement may be triggered particularly for those employees who are required to perform additional hours necessary for the performance of the particular role or for employees contracted for specified working hours. 6. Implications In light of the above, it is imperative that all employers should aim to ensure that they are compliant with the MWO by 1 May 2011 in respect of the following: Implementing time sheet or other monitoring systems for borderline paid employees Addressing any ambiguities in the employment policy manuals/handbooks or employment contracts by way of amendment or addendum (generally, clarification should be given to employees on (i) what constitutes wages, (ii) what constitutes working hours including overtime excluding paid leave days, etc. but if possible, excluding meal time if the employee is not required to work during their meal hour).

The above, together with sample calculations from the Labour Department provided in Appendix I should give you a clearer overview of the points that should be covered to provide clarification to your employees as well as the steps you should follow to ensure your companys compliance with the MWO. If you would like to discuss this in more detail or require our assistance to review the current employment contracts or policies/handbooks and advise how this will affect your company, both qualitatively and quantitatively, as well as to advise if amendments or fresh documentation are required to ensure your companys compliance with the MWO (as well as detailed steps required to achieve this goal), please do not hesitate to approach any of the contacts below to arrange a preliminary meeting: CONTACTS

Corporate Secretarial Services Grace Siow Director Tel: (852) 2583 0633 Email: [email protected] Accounting Services Gloria Lee Manager Tel: (852) 2583 0678 Email: [email protected] Structuring Advisory Services Dorothy Ng Manager Tel: (852) 2583 1337 Email: [email protected] Human Resources Services Sanjna Melwani Senior Manager Tel: (852) 2583 0677 Email: [email protected]

OFFICES

Hong Kong: Room 2302, 23/F. Caroline Centre, Lee Gardens Two, 28 Yun Ping Road, Hong Kong Room 502, China Resources Building, No. 5001, East Shennan Road, Shenzhen, China Room 1105, Bund Center, 222 Yan An Road East, Shanghai, 200002, China Tel: +852 2583 0688 Fax: +852 2881 0328

Shenzhen: Shanghai:

Tel: +86 755 8266 8400 Tel: +86 21 6335 2211

Fax: +86 755 8266 8244 Fax: +86 21 6335 0601

Beijing:

Suite 1720, Sunflower Tower, 37 Maizidian Street, Beijing 100026, China

Tel: +86 10 8527 5777

Fax: +86 10 8527 5701

©Alphalink 2011

Appendix I

Labour Department Examples Example 1: An employee normally works up to 6:00 p.m. in accordance with his contract of employment. One day, he works overtime from 6:00 p.m. to 7:00 p.m. at the direction of the employer. This one-hour overtime is hour worked for computing the minimum wage. Example 2: An employee works in a company in Hong Kong. The time spent travelling between his home and his company is not hours worked for computing minimum wage. One day, at the direction of the employer, the employee travels from work to the clients office to deliver some documents and then returns to work. The time spent in travelling between the company and the clients office is hours worked for computing minimum wage. Example 3: Assuming (a) The following employment terms according to the contract of employment: Remuneration HKD7,000 per month with 4 paid rest days on Sundays Working hours: Monday to Saturday ­ 8 hours work per day plus 1-hour paid meal break daily The employee is entitled to overtime pay HKD35 per hour (b) In a wage period of 31 days, the total number of hours worked being 220 hours (27 days X 8 hours + 4 hours) Calculation (i) (ii)

Minimum wage according to the total number of hours worked for this month: HKD6,160 (220 hours X HKD28) Wages payable to the employee in respect of this month : HKD6,237 (HKD7,000+HKD35 X 4 ­ HKD903 rest day pay) *

In this example, since (ii) is greater than (i), the employer is in compliance with the MWO. Thus the employee should be paid HKD6,237 in total. Example 4: Assuming (a) The following employment terms according to the contract of employment: Remuneration HKD250 per day with no paid rest days on Sundays Working hours: Monday to Saturday ­ 8 hours work per day plus 1-hour paid meal break daily (b) In a wage period of 31 days, the total number of hours worked being 216 hours (27 days X 8 hours) Calculation (i) (ii)

Minimum wage according to the total number of hours worked for this month: HKD6,048 (216 hours X HKD28) Wages payable to the employee in respect of this month : HKD6,750 (27 days X HKD250)

In this example, since (ii) is greater than (i), the employer is in compliance with the MWO. Thus the employee should be paid HKD6,750 in total. Example 5: Assuming (a) The following employment terms according to the contract of employment: Remuneration HKD100 per piece with no paid meal break, payable monthly and 55 pieces produced (b) The total number of hours worked are, say 200.5 hours Calculation (i) (ii)

Minimum wage according to the total number of hours worked for this month: HKD5,614 (200.5 hours X HKD28) Wages payable to the employee in respect of this month : HKD5,500 (55 X HKD100)

In this example, since (ii) is less than (i), apart from paying the monthly wage of HKD5,500, the employer also has to pay additional remuneration of HKD114 (HKD5,614-HKD5,500) to meet the minimum wage requirement. Thus the employee should be paid HKD5,614 in total. * HKD7000/31 days X 4 days ©Alphalink 2011

Example 6: Assuming (a) The following employment terms according to the contract of employment: Remuneration HKD5,000 per month with rest days on Sundays Working hours: Monday to Saturday ­ 8 hours work per day plus 1-hour meal break daily (b) In a wage period of 30 days (including 4 Sundays), the total number of hours worked being 208 hours (26 days X 8 hours) Scenario 1 - meal breaks and rest days without pay Calculation (i) Minimum wage according to the total number of hours worked for this month: HKD5,824 (208 hours X HKD28) (ii) Wages payable to the employee in respect of this month : HKD5,000 In this example, since (ii) is less than (i), apart from paying the monthly wage of HKD5,000, the employer also has to pay additional remuneration of HKD824 (HKD5,824-HKD5,000) to meet the minimum wage requirement. Thus the employee should be paid HKD5,824 in total. Scenario 2 - meal breaks with pay and rest days without pay Calculation (i) Minimum wage according to the total number of hours worked for this month: HKD5,824 (208 hours X HKD28) (ii) Wages payable to the employee in respect of this month : HKD4,444 (HKD5,000-HKD556meal * break pay) In this example, since (ii) is less than (i), apart from paying the employee monthly wage of HKD5,000, the employer also has to pay additional remuneration of HKD1,380 (HKD5,824-HKD4,444) to meet the minimum wage requirement. Thus the employee should be paid HKD6,380 in total. Scenario 3- meal breaks without pay and rest days with pay Calculation (i) (ii) Minimum wage according to the total number of hours worked for this month: HKD5,824 (208 hours X HKD28) Wages payable to the employee in respect of this month : HKD4,333 (HKD5,000-HKD667rest ** day pay) In this example, since (ii) is less than (i), apart from paying the monthly wage of HKD5,000, the employer also has to pay additional remuneration of HKD1,491 (HKD5,824-HKD4,333) to meet the minimum wage requirement. Thus the employee should be paid HKD6,491 in total. Scenario 4- both meal breaks and rest days paid Calculation (i) (ii) Minimum wage according to the total number of hours worked for this month: HKD5,824 (208 hours X HKD28) Wages payable to the employee in respect of this month : HKD3,852 (HKD5,000-HKD667rest ** day pay-HKD481*** meal break pay) In this example, since (ii) is less than (i), apart from paying the monthly wage of HKD5,000, the employer also has to pay additional remuneration of HKD1,972 (HKD5,824-HKD3,852) to meet the minimum wage requirement. Thus the employee should be paid HKD6,972 in total. * HKD5,000/26 days/9 hours per day X 26 days ** HKD5,000/30 days X 4 days *** [HKD5,000-HKD667]/26 days/9 hours per day X 26 days

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