In XYZ company the employment agreement provides that there is a 'double pay' payable before the Chinese New Year. The payment period refers to a 12-month period ending 31 December. It further states that any staff leaving before the payday of the double pay shall not be entitled to receive any double pay.
Daniel commenced his employment on 1 February, 2002 subject to a three-month probation period. On 30 November, the company terminated his contract by giving him one month's payment in lieu of notice, together with the wages owed to him and pay in lieu of his annual leave. Daniel argued with his boss that he should be entitled to pro-rata double pay. However, his boss refused to pay as Daniel was leaving the company before the end of December.
Is Daniel eligible to receive a pro-rata double pay?
End of year payment is commonly called 'double pay', '13th month payment' or 'year-end bonus' in Hong Kong. Unless it is stipulated in the employment agreement that the annual payment or bonus is of a discretionary nature, the annual bonus shall be considered as a contractual payment.
The payment period shall refer to the period specified in the employment agreement, for example, from 1 January to 31 December. Nevertheless, when there is no specified period in the employment agreement, it shall refer to the Chinese Lunar Year (from the first to the last day of the Lunar Year).
The amount of the end of year payment shall also refer to the amount stipulated in the employment agreement. It can be half-month's, one month's or two months' wages. However, if not specified, the amount shall be equivalent to a full month's wages.
The end of year payment shall become payable on the day stated in the employment agreement. When it is not expressed in the employment agreement, the end of year payment shall be paid on the last day of the payment period or within seven days after that day.
Under the Employment Ordinance, if the employee has been employed for not less than three months in the payment period, a proportional end of year payment is payable in the following situations:
- The employment contract is terminated by the company, other than summary dismissal in accordance with Section 9, during the payment period; or
- The employee is still being employed after the expiry of the payment period.
Nevertheless, during the first year of employment, when the employee is subject to a probation period, the period of the probation or a period of three months, whichever is shorter, shall be excluded in the calculation of the three-month requirement.
However, once the employee has satisfied the condition, the employment period shall include the probation period when calculating the proportional end of year payment.
In this scenario, Daniel was employed for 10 months, including a three-month probation period and was terminated by the company on 30 November.
Although he had not completed the whole payment period and left before the payday of the end of year payment, his boss is still liable to pay him a proportional end of year payment regardless of the eligibility rules set out in the employment agreement.
|Q & A about end of year payment|
|Q1 ||Amy had worked for her employer for three years, and she resigned on 1 November, by giving a one-month notice to her employer. Is she entitled to any proportional end of year payment, provided that the payment period shall refer to a year ending 31 December?|
|A1 ||If Amy resigns of her own accord during the payment period, she will not be entitled to any proportional end of year payment. |
|Q2 ||The payment period of double pay is from 1 January to 31 December, and is payable before the Chinese New Year. If a member of staff has been employed for the whole payment period, and yet he is summarily dismissed in early January in the following year, will he be still entitled to the double pay?|
|A2 ||If a member of staff has completed the whole payment period and he is still being employed after the expiry of the payment period, he will be entitled to the double pay although he is summarily dismissed after the expiry of the payment period. |
|Q3 ||Will a company's gratuity bonus fall into the definition of "end of year payment" in the Employment Ordinance?|
|A3 ||Under the Employment Ordinance, annual payment or annual bonus shall be considered as a contractual term in any employment contract made on or after 27 June 1997, unless there are written terms or conditions expressing the contrary. |
Although a bonus maybe labeled as gratuitous in the employment contract, the court may look at the substance of the payment and decide if it is contractual in nature. So gratuities may become end of year payment and hence bound by the Employment Ordinance. Therefore, companies must carefully differentiate the gratuities from contractual payment in practice.