An Overview Of The Minimum Wage Hong Kong

An Overview Of The Minimum Wage Hong Kong

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Hong Kong is more than just a world-class financial center, it is also one of the most expensive places to live. All workers in HK, and particularly those with low-income jobs, need a statutory minimum wage to ensure that they can afford the living costs.

The Minimum Wage Ordinance and Minimum Wage Commission set the minimum wage that an employed person in Hong Kong is supposed to receive and protects them against extremely low pay.

This is an ultimate guide to the minimum wage Hong Kong landscape. Go through to understand how to compute the earnings of your employee to comply with the minimum wage law in Hong Kong.

The Ideas And Concepts Behind Minimum Wage

Let’s begin with the basics before jumping into the topic of base salaries in Hong Kong.

Definition of Minimum Wage

The International Labour Organization characterizes minimum wage as the bottom level of income that a worker must receive for their work.

The minimum wage is determined by regulations/legal acts, a wage commission, or industrial and labor courts and tribunals. The collective agreement between unions and employers can also be the minimum wage paid in different workplaces.

An agreement of an advocate general does not limit the statutory minimum wages. The reduction of wages is prohibited so any such agreements are void.

Minimum Wage Policies: The Simplest Explanation

The primary aim is to protect workers from the tyranny of excessively low salaries. Fulfilling the statutory minimum wage also helps reduce inequality and the ability to fulfill the basic needs of life workers. From the perspective of defense economics, the statutory minimum wage is also rather seen as a tool to minimize social inequality. A minimum wage ensures productivity and the quality of working performance.

Minimal Salary System And Its Implementation In Different Countries

Most of the countries around the world apply minimum wages. One of the first countries to pass legislation was the United Kingdom and New Zealand. Countries may have a country-wide minimum rate for all workers and a variable rate instead of the same throughout the sector, geographical region, population, and company size.

Hong Kong’s National Minimum Wage Rate

There follows a brief outline of the Statutory Minimum Wage (SMW) system implemented in Hong Kong.

Hong Kong Minimum Wage Ordinance

Hong Kong Minimum Wage Ordinance is a law regulating the Hong Kong minimum wage. It applies to all employees, as well as their employers, but with the exclusions listed below.

Before the act of 1932, and the Trade Board Ordinance of 1940 that gave the power to the governor to set the minimum wages. But these legislations came with no proposal for minimum wage.

The Hong Kong government put up the Minimum Wage Provisional Commission in February 2009 as an effort to close the growing gap in wealth distribution. The Minimum Wage Ordinance being in the limelight for a long time eventually was approved in 2010 and came into effect in May 2011.

Eligibility and Exceptions

The minimum wage Hong Kong is payable to all workers, including those with disabilities, regardless of their: 

  • The Labour contract (labor contract, employment contract, whether it is permanent or temporary, continuous or casual, full-time or part-time)
  • It is imperative that the wage payment period (which may be monthly, weekly, daily, hourly, or per piece basis)

No SMWs are available for : 

  • Domestic employees (housekeepers, cooks, drivers, gardeners, and other domestic workers) who receive boarding from their employers free of charge.
  • Work-study students and student interns.
  • Only those people who are not protected by the Employment Ordinance. For instance, those who complete a job contract overseas and incumbents under the Apprenticeship Ordinance.

Current Statutory Minimum Wage Hong Kong 2023 Rate

Effective from 1st May 2023, the rate of HK Statutory Minimum Wage is HKD 40 per hour. This way it is prohibited to pay wages under a specified regulation that all employers should comply with.

The monthly wage ceiling for employers who keep the record of total hours worked by an employee is HKD 16,300. Hence, if the employer’s earnings that are paid to an employee are less than HKD 16,300 per month, the employer needs to record the total number of hours worked by this employee during a wage period.

Calculation of an Hourly Wage Rate

The minimum wage rule simply creates a minimum wage Hong Kong and does not require establishing the wage per hour.

Moreover, it doesn’t say that each hour’s salary must be paid by the minimum. The employer is only tasked with guaranteeing that the hourly rate falls within the statutory minimum when aggregated over the total work hours.

The formula to determine the minimum salary that an employer must pay is as follows: 

Wage period total hours worked x Statutory Minimum Wage = Minimum Wage
( currently HKD 40 per hour)

Labour Department also has a minimum wage reference calculator which gives a statistic that can help you work out the minimum wage your employee is entitled to and their actual rates of pay currently.

Wage Policy and Government Regulations

The recommendations made by the Minimum Wage Commission influence the foundation for the governmental decisions that require a minimum wage Hong Kong.

The main responsibility of the MWC is to find a good solution to cause the economic success of the city and also at the same time protect workers from very low payments.

Function Of The Minimum Wage Commission

The MWC, or the Minimum Wage Commission is an independent statutory commission whose existence is a key provision of the current wage regulation in Hong Kong. It has been placed within the legal framework of the Local Minimum Wage Ordinance.

The purpose of MWC is to make its subsidiary bodies provide recommendations on minimum wages to the Chief Executive Office at least twice a year. The council of Legisread c enacted the basic salary regulation based on the report of the MWC and the consultation from the High Curator.

During the minimum wage rate review, the MWC forges into a thorough exploration of the employment and labor organizations, a sector in which the council has to analyze statistical data.

Wage Adjustment Mechanism

The establishment of the floor pay is the most important step of the system concerning the minimum fee.

Poverty is still prevalent despite the worker’s unprecedented shield only when the level is too low. In case the base is above the equilibrium level, the unemployment rises.

MWC describes wage adjustment mechanism requirements from a scientific point of view. Sectors but surely they do take into account the opinion of the public and stakeholders. As well they make impact assessments.

Societal impact analysis encompasses various aspects of the social cycle, such as employees’ and employers’ effects, pricing, and unemployment rates, which are based on different economic scenarios.

Key factors to consider in determining Minimum Wage Hong Kong

Some key factors that MWC considers for calculating minimum wage Hong Kong include:

  1. Prevailing Economic Conditions: The macroeconomic performance of Hong Kong is closely measured, including the GDP growth, inflation rates, and unemployment levels. The economic stability and growth prospects are major determinants in the ability of businesses to absorb increased labor costs.
  2. Demand and Supply Dynamics in the Market: The MWC studies the dynamics of supply and demand in the labor market, especially in the sectors, which have a large portion of low-wage workers. Knowing the equilibrium between labor supply and demand enables us to evaluate the effect of changes in minimum wage Hong Kong on employment and labor market participation.
  3. Productivity Levels of the Labor Force: The wage levels of workers depend on the productivity of workers. The MWC measures labor productivity and output across sectors to ensure that minimum wage rates correspond to productivity. The higher productivity can also legitimize the higher wage levels and ensure sustainable economic growth.
  4. Prevailing Wage Rates: Current wage rates in different industries and jobs are used as a reference point in the determination of the minimum wage Hong Kong. The MWC analyzes wage information from various sectors to ascertain whether the minimum wage Hong Kong is representative of the current wage and guarantees fairness in the remuneration of workers.
  5. Bargaining Power of Trade Unions: The MWC looks at the impact of trade unions and collective bargaining agreements on wage negotiations. Industries with strong union bargaining power may result in higher wage floors, especially where there is organized labor movement.

Enforcement Measures and Penalties for Non-Compliance

Under the Employment Ordinance, any employer who fails to give the required minimum is responsible for paying a HKD 350,000 fine and jail time of up to three years.

The Economic Consequences of the Minimum Wage Hong Kong Policy

Here’s how the minimum wage policy of Hong Kong may impact the following: 

Income Inequality

Increasing the minimum wage Hong Kong has the potential to alleviate poverty and reduce income inequality by narrowing the disparity between wages.

Employment Rates and Labor Markets 

The critics of the minimum wage say that, by imposing a wage floor, workers will be more expensive for the employers and they will have to hire fewer workers. Nevertheless, the hypothesis as such has still no solid proof behind it.

Employment in labor-intensive industries may fall, where the labor costs within the production could be substantially increased.

Supporters of minimum earners opine that the employment rate might surge if the minimum wages are higher and as such there will be a rise in domestic consumption and demand.

Cost of Living and Cumulative Inflation

Higher base salaries could considerably suppress inflation and the price of living in Hong Kong.

The local unions in Hong Kong point out that even the minimum wage increase in May 2023 was still less than the accumulated inflation rate over the last four years.

Businesses and Industries

The statutory minimum wage may only serve as the lowest possible wage that can be given to workers. This, however, does not transfer the rights of Hong Kong employers to pay anything above the minimum wage. Anyway, these individuals have to abide by the Employment Ordinance and other statutory and contractual provisions along the lines of leaves, meal breaks, and rest days.

Some owners of the business have displayed distress about the ‘knock-on effect‘ every time there is a hike in the minimum wage Hong Kong. They claim that the salaries of those who already get paid several times more than the minimum salary should not be increased to protect the hierarchy of wages.

The Minimum Wage Hong Kong Compared to Other Regions

Discover the wage gap between Hong Kong and the rest of the world:

Minimum Wage Levels in Other Countries

The current minimum wages of the countries are : 

  • Mainland China: Each province can choose the rate of the minimum wage. The maximum minimum wage in Shanghai is RMB 2690 per month.
  • Switzerland: Each Canton shall make its own decision on wages. At present, Geneva sets the highest hourly minimum wage of CHF 24.32.
  • Australia: $812.50 per week is the weekly figure in Australian dollars.
  • United Kingdom: Employee’s age is used as a determinant for the amount of salary they receive. The hourly rate for employees aged between 21-22 is £10.18, for employees aged between 18-20 it is £7.49 and for employees above 23, it is £10.42.

Influences of Wage Rate Differences

Numerous variables are found to be responsible for the differentiation of minimum wages between countries. These include:

  • Economic conditions specific to regions
  • Living expenses
  • Disparities in the job market
  • Business size
  • Population demographics
  • Sector-specific economic indicators

Lessons Derived from Other Country Minimum Wage Models

These are the facts Hong Kong can consider incorporating from other countries’ minimum wage plans: 

  • Implementing the UK type of age-specific minimum wage system. There is a national minimum wage available for anyone who is from 16 to 22 years old, but workers who are 23 and above are entitled to a national living wage. The National living wage is above the National minimum wage.
  • Permitting a small number of industries in HK money issue, not only due to their capacity to pay but also the skill level of workers.
  • Assessing the base pay every year and bringing up the expenses of living and inflation.

Managing Minimum Wage Hong Kong as an Employer

If you are registering your business in Hong Kong and need a workforce on the payroll, here are the requirements: 

Ensuring Minimum Wage Hong Kong Act Compliance is Key

Seek legal assistance from a labor attorney to be aware of the recent updates on Employment and Minimum Wage ordinances. 

Minimum Wage Hong Kong Payroll Management

Outsource your payroll processing to a good service provider to ensure the payroll system is updated with the most recent law changes, including the minimum wage law.

Labor Cost Management Strategies

Investing in skills training to make employees more effective to counter the increase in labor costs due to higher minimum pay.

On top of that, if a firm costs more because of higher labor costs, the taxes should also be higher. It is desirable to visit a tax accountant to obtain an efficient tax planning and filing service.

Employee Engagement and Satisfaction

Make sure a situation where employees’ average wages are higher than the base wage limit to make the workers happy and consequently promote their motivation.

The Future of Minimum Wage Hong Kong

The future of minimum wage Hong Kong is ambiguous being multiple producers are involved in the process.

Here’s a look at some of the key aspects:

Change and Innovation In Wage Policies

HK economy is faced with the difficult tasks caused by the economic crisis in the world after COVID-19 as well as political issues.

Indicating in the report that increasing the minimum salaries in such an economy forces enterprises to terminate some workers and get out of business which leads to unemployment.

Therefore, there are high chance that the government will make the statutory minimum wage Hong Kong constant until the economy recovers. In the period between 2011 and 2018, when the Hong Kong economy was performing at its peak, the annual increase in base salary rose from HKD 28 to HKD 37.5. Nevertheless, since 2019, the rate of increase has been only from HKD 37.5 to HKD 40 till the present.

Role of Governments and Policymakers

The Hong Kong government amidst the protests and riots needs to re-examine the way it decides minimum wages or certain benefits to the employees that were implemented to avoid such agitations.

The government also noted the fact that it is necessary to achieve a balance of interest between business and labor and to control sharp rises that might affect employment.

Advocating Workers’ Rights Movements

Labor associations in Hong Kong were supposing that the minimum wage set by the government did not match inflation.
They insist that employers should provide a living wage in the estimated amount of HKD 60 per day required for a simple life in such regions as Hong Kong. In the workers’ rights movement, many have called for reviewing the minimum wage annually as the current two-year review cycle is considered inadequate.

Conclusion

To summarise the statutory minimum wage Hong Kong, employers in HK can not offer lower than the legal minimum. In case of nonpayment of the minimum wage such failure cause civil and criminal liabilities.

The minimum wage Hong Kong that protect the employees, on the other hand, have a direct impact on the business’s bottom line. The fact that Hong Kong is an economy, there is a provision for the constant tracking of the minimum wage policies which will see a situation where all parties involved are winning.

How Can FastLane Help You?

Are you a business owner navigating through the complexities of payroll administration in Hong Kong? FastLane Group is here to simplify your payroll processes and ensure compliance with labor and employment laws. With our expertise and cutting-edge online payroll software, we guarantee a seamless and hassle-free payroll experience, allowing you to focus on what matters most – growing your business. 

Contact us today to learn more about our payroll outsourcing services tailored for foreign companies operating in Hong Kong. Let’s streamline your payroll management and unlock greater efficiency together!