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Money Matter


Article exclusively contributed by Allen & Overy

To pay or not to pay

by Joyce Leung, senior associate, Allen & Overy

We previously considered the eligibility of Mr Chan's employees for an end-of-year payment at his failing merchandising company. In accordance with the Employment Ordinance (EO), Mr Chan was eventually ordered to distribute the end-of-year payment to eligible employees.

However, Mr Wong, who had resigned and left the company on 15 December 2006 after working for Mr Chan for 13 months, did not receive the end-of-year payment. Believing that he had completed a full bonus year and should be entitled to an end-of-year payment, he therefore confronted Mr Chan after consulting the EO.

The ordinance states that for an employee who has completed a full bonus year and whose employment terminates (regardless of the reason for termination) on the expiry of that bonus year, the end-of-year payment must be made not later than seven days after the last day of the bonus year.

The EO further states that for an employee who has completed a full bonus year and whose employment terminates (regardless the reason for termination) after the expiry of that bonus year, but before the end-of year-payment becomes due on the payment date specified in the employment contract, the end of year payment must be made not later than seven days after the specified payment date.

At this point, Mr Chan showed Mr Wong a memo, which had been signed by Mr Wong when he joined the company. The memo stated that the company's bonus year runs from

1 January to 31 December. Mr Wong joined the company on 1 November 2005. He had not worked a full bonus year by 15 December 2006, the last day of his employment.

Mr Chan also explained to Mr Wong that if an employee had not worked a full bonus year, there was no requirement for a prorated end-of-year payment if the employee resigned. A prorated end-of-year payment is only payable to an employee who has worked at least three months in a bonus year and whose employment continues after the bonus year, or whose employment is terminated other than by reason of resignation or summary dismissal. Mr Chan said that no end-of-year payment was therefore due to Mr Wong as he had resigned and not worked a full bonus year.

Mr Chan added that if Mr Wong had instead been dismissed (other than summary dismissal) by the company on 15 December 2006, the company would have been required to make a prorated end-of-year payment within seven days after the date of termination of employment, in accordance with the EO.

This was still not the last of the end-of-year payment queries. Another employee, Mrs Lam, who had worked at the company for seven months by 1 September 2007, approached Mr Chan to ask when she would be paid her first end-of-year payment.

The position is as follows: By the end of the 2007 bonus year (which ends on 31 December), Mrs Lam would not yet have completed a full bonus year, but she would have completed at least three months' service in that bonus year. If she continued to be employed after the expiry of the bonus year, a prorated end-of-year payment would have to be made to her not later than seven days after the specified date of payment under the employment contract. If no such date was specified, it would have to be paid not later than seven days after the last day of the bonus year, according to the EO.

If Mrs Lam is still working for Mr Chan's company after 31 December 2008, she will have completed the 2008 bonus year in full and she will be entitled to an end-of-year payment, which, according to the EO, should be made not later than seven days after the specified date of payment under the employment contract. If no such date is specified, the payment should be made not later than seven days after the last day of the bonus year.

Q&A on end-of-year payment
Q1 In determining whether a prorated end-of-year payment needs to be made on termination of employment, is the probationary period required to be counted?
A1 It is not required for a probationary period of three months or less to be counted.

Q2 If the employment contract provides that the amount of the end-of-year payment is calculated by reference to the employer's profits, but the amount of profits is not yet determined at the date of dismissal (other than a summary dismissal), is the employer required to make a prorated end of year payment?
A2 If the employee has worked not less than three months in the relevant bonus year, a prorated end-of-year payment is still required to be made, but it can be made at a date no later than seven days after the employer's profits are ascertained.

Q3 What if an employer fails to distribute an end-of-year payment?
A3 If an employer fails to make an end-of-year payment to an eligible employee, the employer will be liable for prosecution and, upon conviction, for a fine of HK$50,000.


Taken from Career Times 28 September 2007

(Last review date: 23 August 2013)


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

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