Money Matter

Wage deduction: what are the legal limits?

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

Kelly is an assistant project manager of a construction company and she has to work on different construction sites. To facilitate communication, her employer provided her with a mobile phone. Kelly lost the mobile phone and her employer deducted $4,000 from her August salary as compensation. Kelly was really upset about this. Although she agrees that she is liable to compensate her employer, she is not convinced that she needs to pay that much for a used mobile. Besides, she prefers to pay the compensation by installments.

The employer insists that the deduction was made in accordance with the terms set out in the Employees' Handbook. Is it lawful for Kelly's employer to make such a wage deduction?

Under the Employment Ordinance, an employer is prohibited from deducting wages from his employees, except under the following circumstances:

1. deductions for absence from work. The sum to be deducted should be proportionate to the period of time the employee is absent from work;

2. deductions for damage to or loss of the employer's goods, equipment, or property by the employee's neglect or default. In any one case, the sum to be deducted shall be equivalent to the value of the damage or loss but not exceed $300. The total of such deductions shall not exceed one quarter of the wages payable to the employee in that wage period *;

3. deductions for the recovery of any advanced or over-paid wages to the employee. The total sum to be deducted shall not exceed one quarter of the wages payable to the employee in that wage period;

4. deductions of the value of food and accommodation the employer supplies to the employee;

5. deductions, at the written request of the employee, in respect of contributions to be paid by the employee through the employer for any medical scheme, superannuation scheme, retirement scheme or thrift scheme;

6. deductions, with the employee's written consent, for the recovery of any loan made to the employee;

7. deductions which are required or authorized under any enactment to be made from the wages of the employee.

The deduction made by Kelly's employer seems to fall within category 2. It is obvious that the employer has deducted too much from Kelly's salary and he should rectify the situation as soon as possible.

If the employer considers that the maximum amount of wages to be deducted (i.e. $300) is not sufficient to cover his loss, he should negotiate with Kelly in respect of the amount and ways of compensation. For instance, he could discuss with Kelly whether she could pay the employer an agreed sum by installments. If no agreement can be reached, the employer may consider pursuing his claim through other legal means e.g. lodging his claim at the Small Claims Tribunal against Kelly. Nevertheless, the employer should not deduct an amount more than $300 from Kelly's salary as compensation for the lost mobile.

An employer who makes an illegal deduction from the wages of an employee is liable to prosecution and, upon conviction, to a fine of $100,000 and to imprisonment for one year.

Editor's note:
* If an employee damages or loses the employer's goods, equipment or property several times in one wage period, the amount to be deducted shall be equivalent to the value of the damage or loss but not exceed the maximum amount of HK$300 per damage or loss and the total amount deducted cannot exceed one quarter of the employee's wages in the same wage period.

The above case only serves as an illustration of the provisions of the Employment Ordinance on wage deduction. 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 on wage deduction
Q1 Can an employer deduct the wages of his employee for the purpose of making the employer's contribution to the Mandatory Provident Fund Schemes?

A1 No, an employer is prohibited from deducting wages from his employee except under the circumstances as stipulated in the Employment Ordinance. It is an offence in law if an employer deducts his employee's wages for making his own contribution to the Mandatory Provident Fund Schemes. An offender is liable to prosecution and, upon conviction, to a fine of $100,000 and to one year imprisonment.

Q2 According to the Mandatory Provident Fund (MPF) Schemes Ordinance, an employer should deduct five per cent of an employee's income as the employee's MPF contribution. Moreover, the employer should, from his own funds, contribute an amount equal to five per cent of the employee's income to the Scheme. How can an employee know whether his employer has made contributions to the trustee after five per cent of his income has been deducted?

A2 The Mandatory Provident Fund Schemes Ordinance stipulates that an employer has to provide a monthly pay record to each of his employees within seven working days after contributions are made. The pay record should, among other things, contain information such as the employee's relevant income, the amount of contributions (both mandatory and voluntary) made by the employer and the employee and the date on which the contributions were paid. Apart from verifying the information on the pay record, an employee could check via the trustee's hotline or website to ascertain that his employer has paid the contributions on time and the contribution amounts are correct. Besides, the MPF trustee is required to provide an annual benefit statement to the employee within three months after the end of each scheme's financial year. The statement will show the amount of contributions made to the scheme during the year. Again, the employee could verify the information on the statement upon receipt.

Source : Labour Relations Promotion Unit of the Labour Department

Taken from Career Times 20 September 2002

(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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