Money Matter

Calculation of wages

Article exclusively contributed by the
Labour Relations Promotion Unit of
the Labour Department

Ah-Ming worked as a lorry driver at a cargo transportation firm for almost a year. He had to drive between Hong Kong and the Mainland delivering goods to customers.

According to his employment contract, he was required to work for eight hours per day and his basic daily wages were calculated on the basis of eight working hours per day. However, Ah-Ming had to work for 10 hours a day on a regular basis. He was also paid for his overtime work. Nevertheless, for statutory holidays taken by him, his employer had only paid him at the rate of the basic wages, excluding the overtime payment.

One day, Ah-Ming had a traffic accident and the lorry was seriously damaged. Though Ah-Ming denied that the accident was his fault, his employer decided to dismiss him immediately without notice or payment in lieu of notice.

The employer asked Ah-Ming to sign a termination letter carrying a statement about the reason of his termination, saying that he was responsible for the accident. Ah-Ming found the wording of the letter unacceptable. He did not want to sign the letter for fear that it would affect his claims for wages in lieu of notice against the employer. However, the employer demanded that Ah-Ming sign the letter immediately or else no wages would be released. Ah-Ming declined the employer's demand, and the latter refused to clear Ah-Ming's wages.

A week later, Ah-Ming contacted the employer again. He asked the employer to settle his outstanding wages and outstanding statutory holiday pay, which should also include a sum equivalent to overtime payment. As for the dispute on wages in lieu of notice, Ah-Ming suggested to settle it at the Labour Department. The employer paid no heed to this request and insisted that Ah-Ming should sign the termination letter if he wished to obtain his wages. Hence, Ah-Ming approached the Labour Department for assistance.

Could the employer withhold Ah-Ming's wages?

It is the statutory obligation of employers to pay wages to their employees. Employers should not impose additional conditions, for instance, asking the employee to sign a termination letter which carries messages that are unacceptable to the employee, for payment of wages.

As stipulated in the Employment Ordinance (EO), wages should become due on the expiry of the last day of the wage period or the date of termination. In any other cases, wages should be paid no later than seven days after the end of the wage period or the date of termination. Even if it was justified to summarily dismiss Ah-Ming, the employer should have cleared his wages no matter whether he agreed to sign the termination letter or not. Hence, the employer had already violated the provisions of the EO by failing to clear Ah Ming's wages in arrears within seven days after the termination of his contract.

An employer who fails to pay wages to an employee when it becomes due is liable to prosecution and, upon conviction, to a fine of $200,000 and to imprisonment for one year. (Now revised: to a fine of $350,000 and to imprisonment for three years.) If Ah-Ming agrees to act as the prosecution witness, the Labour Department can take out prosecution against his employer.

Could the employer exclude the overtime payment when calculating Ah-Ming's statutory holiday pay?

Statutory holiday pay should be calculated according to the definition of wages stipulated under the EO. In accordance with the EO, 'wages' means all remuneration, earnings, allowances, tips and service charges, however designated or calculated, payable to an employee in respect of work done or work to be done. Overtime pay should also be included in calculating the 'wages' if:

- it is of a constant character; or
- its monthly average over the past 12 months is not less than 20 percent of the average monthly wages of the employee during the same period.

It is evident that the overtime payment for Ah-Ming is of a constant character. As a result, the overtime payment should also be included in calculating Ah-Ming's statutory holiday pay.

The above case only serves as an illustration of the provisions of the Employment Ordinance on payment of wages and statutory holiday pay. The Employment Ordinance, however, remains the sole authority for the provisions explained above and in case of dispute, the final decision rests with the court.

Q & A about payment of wages and statutory holidays
Q1 Are commissions, good attendance bonus and travelling allowance counted as part of the wages?
A1 Yes, they are.

Q2 Can annual leave be used to offset the notice period of termination?
A2 No. Annual leave cannot be used to offset the notice period of termination.

Q3 Are the statutory holidays with pay or without pay?
A3 An employee having been employed under a continuous contract for not less than three months is entitled to statutory holidays with pay.

Taken from Career Times 24 January 2003

(Last review date: 23 August 2013)

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

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