Quirk in minimum wage law means HK$28 is really HK$44

PUBLISHED : Thursday, 28 October, 2010, 12:00am
UPDATED : Thursday, 28 October, 2010, 12:00am

At some point in the next few weeks the government is likely to announce that Hong Kong's minimum wage due to come into effect next year will be HK$28, or perhaps even HK$29, an hour.

Inevitably the news will prompt some grumbling from the city's employers about how the new minimum is so high it will eat into their profit margins and force job losses. No doubt trade union leaders will complain that HK$28 an hour is far too low to provide Hong Kong's workers with a decent living wage.

And that, you might think, will be that, at least until the first review period comes around when we will have to go through the whole argument all over again.

But not so fast. Thanks to an overlooked quirk in the wording of the ordinance, a statutory minimum wage of HK$28 means employers will actually have to pay most of their workers at least HK$44 an hour, and possibly even HK$118 depending on exactly how the legislation is interpreted.

The quirk arises because relatively few Hong Kong workers are actually paid an hourly wage. The majority earn a monthly salary instead.

Both workers and employers might assume that that salary is paid in remuneration for a certain number of hours worked - say eight hours a day for five days a week.

But that assumption cuts no ice with the government. According to the Minimum Wage Ordinance, 'a payment made to an employee in any wage period for any time that is not hours worked by the employee must not be counted as part of the wages payable'.

That might sound like legal gobbledegook, but it has some startling implications. According to principles outlined by the Labour Department, to calculate whether a monthly salary meets the required minimum wage, the salary should be apportioned across all the days of the month, including weekends, and then discounted by the number of days not worked.

So for example, an employer might pay a worker HK$6,000 a month for working eight hours a day five days a week, which equals 176 hours in a month with 22 working days. The employer will be happy he is paying comfortably above the minimum wage, because HK$6,000 divided by 176 hours equals HK$34 an hour.

But the employer would be wrong. According to the Labour Department's methods, in a 30-day month, the employer would only be paying a daily wage of HK$200, which for an eight-hour day would equate to an hourly wage of just HK$25: well below the expected HK$28 statutory minimum. The employer would be breaking the law.

That might sound screwy. But the principle that a monthly salary covers the whole month not just days actually worked is already well established by legal precedents covering cases where statutory holidays fall on a Saturday (if it wasn't, your employer would have to pay you extra every time there was a public holiday on a Saturday).

In fact, according to Duncan Abate and Hong Tran at legal firm Mayer Brown JSM things are even more complicated than that.

That's because if our worker takes an hour-long lunch break each day, his lunch breaks may also count as 'time that is not hours worked' under the ordinance, and therefore must be discounted in the same way as weekends. As a result, while the boss might think he is paying his worker HK$34 an hour, under the minimum wage law he would actually be paying only HK$22.22.

In other words, to be confident of meeting the requirements of the law, an employer would have to pay his workers a monthly salary of at least HK$7,812, which is equivalent to more than HK$44 for each hour actually worked. That would require hefty pay rises for more than half a million Hong Kong workers, and would put the city's minimum wage on a par with the purchasing power of Canada's.

Even then the law's requirements may not be met. After all, if the Labour Department insists salaries must be discounted for weekends and lunch-breaks, then by the same reasoning it would make sense to discount monthly salaries for weekday hours spent sleeping, shopping and sitting at home playing video games - in fact for all of the 24-hour day not actually spent working.

In that case to be sure of meeting the statutory minimum wage an employer would have to pay each of his workers at least HK$20,832 a month. That's equivalent to more than HK$118 an hour - more than workers get in Luxembourg.

Of course in reality employers will not raise salaries to comply with the quirk in the minimum wage law's wording. Instead, they will force workers to accept new contracts specifying the working hours for which they are to be paid, which is sure to be an expensive and divisive process.

There are other problems with the minimum wage law as it stands. Calculating overtime payments becomes insanely complicated. And to comply with the new rules employers will be obliged to keep a detailed log of the hours employees actually work, a task many are likely to shuffle off on to their unfortunate workers by requiring them to complete a daunting mountain of paperwork whenever they work any hours beyond those in their new contracts.

In short, Hong Kong's minimum wage legislation is a real dog's dinner of a law, full of unforeseen shortcomings that are sure to prove expensive for employers and are highly likely to disadvantage the very employees the law was intended to benefit. What a snarl-up.