Employment in Hong Kong: Achieving Compliance and Efficiency in Employment Regulations

ADCO Law

The fundamental principle of employment law in Hong Kong lies in the distinction between independent contractors and employees. The importance of this distinction boils down to the application of Employment Ordinance Cap. 57 of the Laws of Hong Kong (“EO”) which provides broad protection and statutory rights to employees. On the other hand, independent contractors are perceived as “freelance” contractors subject to service contracts, for whom the EO does not apply.

Determining whether an individual is an employee or an independent contractor ultimately depends on the formulation of relationships between the parties as provided by the terms of the contract. The law emphasizes the terms and facts rather than the labeling of the contract. Fundamentally, the Court only considers the relevant factors including but not limited to the extent of control over workers, restrictions on workers, and/or remuneration or benefits received by workers, etc.

As the above distinction is subject to contractual agreement by the parties, this outlines the flexibility of working arrangements in Hong Kong. While the concept of independent contractor exists in Hong Kong, service providers/independent contractors can compromise on the terms of the contract to shape their relationship and determine the type of arrangements they intend to conduct. Ultimately, the law does not require the provision of services in Hong Kong to be limited to employment relationships only, instead allows parties to negotiate freely as to accommodate the various types of services to be provided in Hong Kong.

For employers, key terms that they may consider to include in employment contracts include but not limited to the following:

1. Term of commencement;
2. The position of the employee and his/her obligations and duties;
3. Probation period (if any);
4. Working hours and place of work;
5. Remuneration and benefits (e.g., Annual leave / Sickness Allowance / Maternity and Paternity Benefits / Bonus / End of year payment);
6. Mandatory Provident Fund Scheme;
7. Confidentiality;
8. Non-competition and non-solicitation;
9. Ownership of work and intellectual property rights; and
10. Termination and dismissal

Employers should be aware of the EO provisions when dismissing an employee. Employers should adhere to procedural requirements such as minimum notice periods for termination, termination with payment in lieu of notice, and circumstances where the employer or employee can terminate the contract without notice under summary dismissal. Most importantly is whether the employee is entitled to severance payment or long-term service payment.

To ensure that the above matters are taken into account by employers upon termination of an employment contract, relevant internal guidelines or legal training reflecting the EO provisions can be established, allowing relevant departments to take the EO provisions into account in case of empployment termination.

The employers should seek legal advice if necessary.

The employer is liable to pay severance payment when the employee (who has worked for not less than 24 months under a continuous contract) is (i) dismissed for reasons of redundancy or (ii) laid off.

An employee (who has worked for not less than 5 years under a continuous contract) is entitled to long-term service payments if the employee is (i) not dismissed for reasons of redundancy; (ii) medically diagnosed as permanently unfit for a particular type of work that the employer may require; or (iii) aged 65 or above and the employment contract is terminated.

The law outlines different formulas for different types of employees, i.e., Monthly-paid employees and Daily-rated/piece-rated employees and certain deducting factors to be taken into account when calculating the relevant payments.

Severance payment and long-term service payment are statutory rights of an employee, and the employer cannot structure the packages to contract out.

Under the EO, employers may face different sanctions or penalties depending on the offense committed. For instance, if an employer without reasonable excuse fails to provide rest days, holidays, or sick leave allowance as required by law, the employer shall be subject to a fine of HK$50,000. Further, an employer who wilfully and without reasonable excuse fails to pay wages or make payments on completion or termination in accordance with the EO, the employer shall be subject to a fine of HK$350,000 and imprisonment for 3 years.

The minimum wage under Minimum Wage Ordinance Cap. 608 has been increased to HK$40 per hour (came into effect on 1 May 2023). Further, the first weekday after Christmas Day is recently added as a statutory holiday from 2024 onwards thus totaling 14 days of statutory holiday. It is also expected that in 2026, 2028 and 2030, “Easter Monday”, “Good Friday”, and “the day following Good Friday” will be added as statutory holidays respectively.

As such, businesses should make sure that the salary stated in the employment contract is not below the minimum wage set by law, especially for part-time employees who work on an hourly-rate basis. Further, the employee’s statutory minimum entitlement to benefits under the law must be provided by the business.