The Employment (Amendment) Bill 2006 (the "Bill") was gazetted on 8 December 2006 and was read in the Legislation Council for the first time on 20 December 2006. The Bill proposes that commission be expressly included in the calculation of certain statutory payments under the Employment Ordinance (“EO”). In this article, we discuss the specific amendments proposed to be made, the reasons for the proposed changes and the relevant impacts of these changes on employers and employees.
Background
The Legislative Council Brief in relation to the Bill provides that the original intention behind the EO was to include contractual commission as part of "wages", however such commissions are designated or calculated. This is to ensure that an employee take home the same amount of money whilst enjoying his/her statutory entitlements such as statutory holiday or annual leave.
Despite the original intention of the EO, at the end of February 2006, the Court of Final Appeal case of Lisbeth Enterprises Limited (trading as Philip Wain) v. Mandy Luk held that, apart (perhaps) from the contractual commission which accrued and calculated on a daily basis in amount varying from day to day, no commission is to be included in the calculation of holiday pay and annual leave pay. This is because the EO uses the words "commission which would have earned" rather than "commission which might have earned", which, the Court of Appeal, indicated that there must be some form of certainty in the amount of the commission for it to be included as wages.
Whilst respecting the decision of the court, the Government considers that the ruling of the Lisbeth case did not fully reflect its policy intention. The Government accordingly considers that it is necessary to amend the EO.
The Proposed Amendments
The Bill proposes changes with respect to the modes of calculating (i) payment in lieu of notice, (ii) damages for wrongful termination of contract, (iii) end of year payment, (iv) maternity leave pay, (v) damages for wrongful termination of an employee’s contract during her pregnancy, (vi) sickness allowance, (vii) damages for wrongful termination of an employee’s contract on a sickness day taken by him, (viii) holiday pay, and (ix) annual leave pay.
Under the Bill, it is proposed that the above entitlements will be calculated by reference to monthly average or daily average of the wages earned by the employee. By doing so, it is hoped that the commission (which is currently defined as part of wages) would be counted as part of wages for the purpose of calculating various entitlements under the EO.
The monthly/daily average wages are calculated on the basis of a 12-month moving average earned by the employee (or such shorter period if the employee has been employed for less than 12 months) immediately before the specified date.
For example, in determining contractual year-end payment, under the Bill, a full month’s wages shall be calculated as follows:
Monthly salary HK$
January to June 10,000
July to September 15,000
October to December 20,000
Provided that the year-end bonus shall become due to the employee on 31 December, the full month’s wages shall be HK$13,750 (HK$165,000/12).
In addition, in calculating the monthly/daily average wages, if the period covers any period which no full wages are given to the employee as a result of any leave taken under the EO or the Employees' Compensation Ordinance or with agreement or by reason of the employee not being provided by his employer with work on any normal working day, that period is to be disregarded for the purpose of calculating wages.
If it is not practical to calculate the daily/monthly average of the wages earned by an employee, the amount may be calculated by reference to the wages earned by a person who was employed in the same trade or occupation and at the same work in the same district during the period of 12 months immediately before the specified date.
The monthly average of the wages earned by the employee is used in determining the employee’s entitlement under the following areas:
i. payment in lieu of notice and damages for wrongful termination where the notice period is expressed in months;
ii. a full month’s wages with respect to year end payment.
The daily average of the wages earned by the employee is used in determining the employee’s entitlement under the following areas:
i. Maternity Leave Payment;
ii. payment in lieu of notice and damages for wrongful termination where the notice period is expressed in days or weeks;
iii. damages for wrongful termination of an employee’s contract on a sickness day taken by him;
iv. sickness allowances;
v. rate of holiday pay;
vi. rate of annual leave pay.
The Bill also seeks to clarify that where pursuant to the employment contract, a sum of money is paid to an employee in respect of a period of maternity leave, a sickness day, a holiday or a day of annual leave, the related maternity leave pay, sickness allowance, holiday pay or annual leave pay payable under the EO is to be reduced by the contract sum.
Impact on Employers and Employees
The Bill provides a mode of calculating payment of the statutory entitlements provided above on the basis of 12-month moving average.
For employees whose wages include a relatively large proportion of commission, the new method will benefit the employees as it ensures that the commissions received by them will also be included in calculating their statutory entitlements. The period of 12 months is also considered as reasonable as it encompasses a full business cycle comprising both the peak and slack seasons.
However, for employees who receive fixed monthly wages without commission payment, the amendments may lead to their statutory entitlements being less than the amounts they would have otherwise received if the EO is not amended. This may happen if they receive a pay rise shortly before their taking of maternity leave, sick leave or other leave, as the come may be.
Take maternity leave pay for an example, in the EO, the current maternity leave pay is calculated at four-fifths of the prevailing monthly rate of pay of the employee. If the employee receives a pay rise before the maternity leave, the maternity leave pay will be at four-fifths of the increased monthly salary. However, under the Bill the maternity leave pay is calculated on the basis of 12-month average, which is based partly on the monthly salary before the pay-rise.
In addition, it is not clear in calculating the daily average of the wages, whether rest days or only working days should be used as a basis.
There is also a provision in the Bill that in case it is impracticable to calculate the monthly/daily average wages, the amount may be calculated by reference to the wages earned by a person who was employed in the same trade or occupation and at the same work in the same district during the period of 12 months immediately before the due day. Yet, it is not sure how effective this provision is and whether this provides useful guidelines in calculating the average wages or adds more confusion.
One thing for sure, employers will need to review and, where appropriate, reconsider the remuneration packages offered to their employees having regard to the financial and administrative burden imposed by the proposed amendments. |