The method of calculating the salary of employees taking vacation time has always been the most frequently asked question by employers. How exactly does the Employment Ordinance describe the situation so that employees on either a fixed salary system or a commission system can enjoy a fair salary calculation method? Then we will come to understand what the “713” regulation is, which also establishes the calculation method of “12-month average salary”:
The source of the “713” regulation
In 1968, the Hong Kong government enacted the Employment Ordinance. As the main local employment-related legislation, the ordinance is amended from time to time in response to market changes. Among them, the Employment (Amendment) Ordinance 2007 is the most classic. It is also known as the “713” Ordinance because it came into effect on July 13.
As a term in the industry, the regulations with numbers as abbreviations are also the aforementioned “418” regulations (the definition of “continuous employment contracts”).
What exactly is the “713” regulation?
The Employment (Amendment) Ordinance 2007 (the “713” Ordinance) is very representative, and the purpose of the Ordinance is to ensure that “wages” as defined in the Employment Ordinance are included;
After the Ordinance comes into effect, it is stipulated that all relevant statutory rights and interests paid to employees, including monthly salary, daily salary, annual leave, maternity leave, sickness allowance, year-end payment, payment in lieu of notice, etc., must be calculated based on their 12-month average salary, and there are certain These periods “do not count” (detailed in the following paragraph.)
How is the “average salary in the past 12 months” calculated?
In the past, many companies have their own calculation methods when calculating “salary”, which may be calculated by dividing the monthly salary by the working days per month, or directly dividing it by 30 days. The regulation has been implemented for nearly 10 years, and the salary requirements of the regulation have also been adapted by many companies, and the calculation is much easier than before.
If the salary is fixed, basically the “713” regulation has little impact. However, it can be difficult to understand a commission-based/combined commission-based employment relationship. The commission system used to motivate employees in the past has lost its purpose.
Therefore, when calculating holiday pay, the employee’s “average salary for the past 12 months” should be calculated (for less than 12 months, the shorter period will be used).
For example, if employee A is paid a fixed monthly salary of $20,000, then his “12-month average daily salary” will be $20,000 X 12 / 365 = HK$657;
If Employee B is paid on a commission basis, it should be calculated by dividing his salary (including commission) for the past 12 months by 365 days. Assuming an annual salary of $300,000, his average daily salary will be HK$821.
The clause also states that when calculating the “average salary of the past 12 months”, periods and wages that are “not included” should be excluded.
The simplest example is paying sick/maternity leave etc. Since the salary is only paid ⅘, the employer should exclude the salary for this period from the 12 months.
Taking the above example of employee A again, if he takes a total of 5 days of paid sick leave in the year, he should deduct $657 X 5 days X ⅘ = $2,628 when calculating the “average salary in the past 12 months”;
And his “average salary in the past 12 months” will become ($240,000 – 2,628)/(365 – 5) = HK$659.
Other possible similar situations such as:
• statutory holidays;
• maternity leave;
• paternity leave;
• sick days;
• Sick leave for work injury;
• leave, etc. agreed to by the employer;