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Money Matter


Article exclusively contributed by
Johnson Stokes & Master

Calculating wages in lieu of notice


The case of Li Heung Sang David v Compuware Asia Pacific Limited [HCA927/2000] is a helpful illustration of what components of an employee's remuneration package should be included in the calculation of wages to be paid in lieu of notice.

Mr Li was employed by Compuware until his contract was terminated by the company by the payment of six months' salary in lieu of notice. One aspect of the dispute was whether travel expenses, school fees, club membership fees and mobile phone charges, which Mr Li had been receiving, should be included in the calculation of wages in lieu.

In this respect, Section 2 of the Employment Ordinance (EO) defines "wages" to mean: "all remuneration, earnings, allowances including travelling allowances and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment, but does not include:-
(a) the value of any accommodation, education, food, fuel, light, medical care or water provided by the employer," [and the definition continues to list 10 other exclusions].

The Court noted that "special expenses incurred by Mr Li by the nature of his employment are specifically excluded" from the definition of "wages". That is why he could not claim his travel expenses (as opposed to a travel allowance) as part of his remuneration for the purpose of wages in lieu of notice.

The evidence before the Court was that Compuware had agreed to pay for Mr Li's son's school fees and his club membership subscription which were part of ongoing remuneration. Regarding the school fees, Compuware had expressly agreed with Mr Li that it would pay for his son's school fees instead of giving a salary increase. On this basis, the Court found that school fees and club membership subscriptions should be included in the calculation of wages in lieu.

The accommodation allowance was not excluded under Section 2(a) of the EO. This only excludes the "value of accommodation" provided by the employer (e.g. a flat provided by the employer) and not an actual allowance paid by the employer to the employee (i.e. there was no accommodation provided by the employer, only an allowance). Expenses for running a car and the travel allowance were also determined to fall within the meaning of "wages".

The Court did not specifically consider mobile phone charges. However, given the amount ultimately awarded to the employee, it can be assumed that these were also included in the calculation of the total.

Compuware's case shows how broad the definition of "wages" is in the EO and the types of payment included in calculating wages paid in lieu of notice. In short, any recurrent payments (whether they be "expenses", "allowance" or "salary") not incurred by the nature of the employment will be included.

Q & A on calculating wages in lieu of notice
Q1 Does the definition of "wages" under the EO include overtime pay, commission and tips received by the employee?
A1 "Wages" has a broad definition in the EO. It includes overtime pay, commission and tips received by an employee. The definition also includes earnings, allowances and attendance bonuses, if capable of being expressed in terms of money, for work done under a contract of employment.

Q2 When is payment of travel expenses to be included?
A2 Special expenses incurred by the nature of employment are specifically excluded from the definition of "wages" in the EO. However, the payment of a travel allowance on a recurrent basis (e.g. if an employer paid an annual travel allowance to expatriates as part of their remuneration) will be included in "wages".

Q3 What is the difference between the value of accommodation provided by an employer and an accommodation allowance for the purpose of calculating wages in lieu?
A3 The value of accommodation is specifically excluded from the definition of "wages" under the EO. It should be distinguished from a recurrent accommodation allowance paid to an employee to offset the costs of obtaining accommodation (regardless of whether the employee actually uses the allowance to offset the costs of obtaining accommodation). An accommodation allowance will be included in the calculation of wages in lieu.


Taken from Career Times 04 June 2004

(Last review date: 23 August 2013)


Disclaimer: The opinions expressed in this article are those of the contributor.

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