Hong Kong is not only a top-tier financial hub — it is also one of the most expensive places to stay. Anyone working in Hong Kong, especially those who have low-income jobs, needs a Minimum Wage to keep up with living expenses.

The Minimum Wage Ordinance and Minimum Wage Commission lay down the government-mandated wage that a person employed in Hong Kong should receive and protects them against unduly low pay.

Here is an ultimate guide exploring Hong Kong’s minimum wage landscape. Read through to learn how to calculate your employee’s earnings to ensure compliance with Hong Kong’s minimum wage law.

Understanding the concept of minimum wage

Let’s start with the basics before diving deep into minimum wages in HK.

Definition of minimum wage

The International Labour Organization defines minimum wage as the minimum remuneration a worker should receive for their work.

The minimum wage is usually decided through a minimum wage ordinance/statute, a wage board, industrial and labour courts, or tribunals. Collective agreements between trade unions and employers can also decide the minimum wage payable.

No agreement can reduce the statutory minimum wage payable. Employment contracts agreeing to any reduction are void under the law.

The rationale behind minimum wage policies

The chief objective is the protection of workers against excessively low pay.

Enforcing statutory minimum wages also ensures that workers receive fair wages to access the necessities of life and stay above the poverty line. From the standpoint of welfare economics, the statutory minimum wage is also considered a tool to minimize societal inequality.

Guaranteeing minimum pay incentivizes workers to be more productive and produce better-quality work.

Minimum wage systems around the world

A majority of countries across the globe follow minimum wages.

United Kingdom and New Zealand were some of the earliest countries to pass legislation to guarantee minimum wages.

Some countries follow a national minimum rate for all workers, while others apply different rates based on the sector, geographical region, population, and enterprise size.

Hong Kong’s statutory minimum wage rate

Here’s a brief overview of the statutory minimum wage system in Hong Kong.

Background and implementation

The Minimum Wage Ordinance enforces the Hong Kong minimum wage.

It applies to every employee and their employer, subject to the exceptions below.

Before the ordinance, a 1932 legislation and the Trade Board Ordinance of 1940 gave powers to the governor to establish minimum wages. But the governors did not propose any minimum wage under these legislations.

The Hong Kong government proposed a Minimum Wage Provisional Commission in February 2009 to reduce the widening wealth gap. The Minimum Wage Ordinance was finally passed in 2010 and bought into effect in May 2011.

Eligibility and exceptions

All employees, including those who are disabled, are eligible to receive Hong Kong minimum wage irrespective of their:

• employment contract (whether permanent, continuous, casual, full-time, or part-time)
• wage payment period (whether monthly, weekly, daily, hourly or per piece basis)

No statutory minimum wages are available for :

• live-in domestic workers (including domestic helpers, chauffeurs, gardeners, or other personal helpers) who receive free housing from their employer;
• student interns and work experience students; and
• anyone not covered by the Employment Ordinance. E.g. anyone serving their employment contract outside Hong Kong and apprentices registered under the Apprenticeship Ordinance

Current statutory minimum wage rate in 2023

From 1 May 2023, HK’s statutory minimum wage (SMW) is HKD 40 per hour. This means that regardless of the wage period, no employer should pay below the statutory minimum wage rate.

The monthly monetary cap for employers recording the total hours clocked in by an employee is fixed at HKD 16,300. So if the employer pays an employee less than HKD 16,300 as wages per month, they need to record the total number of hours worked by that employee during a wage period.

Calculation of hourly wage rate

The minimum wage ordinance only provides a wage floor and doesn’t mandate hourly wage payment.

It doesn’t state that each hour’s wage should meet the statutory minimum. The employer’s only obligation is to ensure that the wages paid are not less than the statutory amount when averaged over the total hours clocked in during a wage period.

Here’s the formula to calculate the minimum wages payable by an employer:

Minimum wage = Total working hours in a wage period x Statutory Minimum Wage (currently, HKD 40 per hour)

The Labour Department’s Minimum Wage Reference Calculator is also a handy tool to work the minimum wage your employee is entitled to and whether you are paying above their entitlement based on their current salary.

Wage policy and government regulations

The recommendations of the Minimum Wage Commission influence the policy decisions on minimum wages in HK.

The role of the MWC is to strike a balance between promoting Hong Kong’s economic growth and protecting workers against excessively low wages.

Role of the Minimum Wage Commission

The Minimum Wage Commission (MWC) is an independent statutory body in Hong Kong. It has been established under the Minimum Wage Ordinance.

The job of MWC is to submit recommendations on minimum wages to the Chief Executive at least once every two years. The Legislative Council passes the law on minimum wages based on MWC and Chief Executive’s recommendations.

While reviewing the minimum wage rate, MWC conducts in-depth discussions with various organizations representing employers and employees and analyzes statistical information.

Wage adjustment mechanism

Setting the floor for wages is the most critical part of a minimum wage system.

Workers don’t receive effective protection against poverty when the base is too low. If the base is too high, the unemployment rate goes up.

MWC adopts evidence-based criteria for wage adjustment mechanisms. Apart from taking into account the views of the public and stakeholders, it conducts impact assessments.

Impact assessment includes various SMW test levels to evaluate the potential impact on employees, employers, inflation, and unemployment rate based on different economic assumptions.

Factors considered in determining minimum wage

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

• Prevailing economic conditions
• Demand and supply in the market
• Productivity of labour
• Prevailing wage rates
• Bargaining power of trade unions

Enforcement and penalties for non-compliance

As per the Employment Ordinance, any employer that doesn’t pay minimum wages is liable to pay a fine of HKD 350,000 and face imprisonment for three years.

Economic Impact of Hong Kong’s minimum wage policy

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

Income inequality

Increasing the minimum wage can reduce poverty and income inequality by minimizing the gap between wages.

Employment rates and labour market

Critics of minimum wages argue that enforcing a wage floor can lead to employers hiring fewer workers. But there is insufficient evidence to support the premise.

The employment rate may reduce in labour-intensive industries where labour costs make up a chunk of the total production cost.

Supporters of minimum wages suggest that the employment rate may increase if minimum wages increase domestic consumption and demand.

Cost of living and inflation

Increasing the minimum wage is unlikely to significantly increase inflation and the cost of living in Hong Kong.

In fact, labour groups in HK argue that the minimum wage revision of May 2023 is still less than the accumulated inflation rate over the last four years.

Businesses and industries

The statutory minimum wage is only the wage floor for employees. It doesn’t mean Hong Kong employers are only liable to pay the minimum wage. They still need to comply with relevant provisions of the Employment Ordinance and also honour other statutory and contractual entitlements such as leaves, meal breaks, and rest days.

Some business owners have also expressed concerns about a ‘knock-on effect‘ due to the periodic increase in minimum wages in HK. They argue that raising the wages of employees who earn well above the minimum is an added burden to preserve the wage hierarchy.

Comparing Hong Kong’s minimum wage to other regions

Learn how Hong Kong’s minimum wages fare compared to the rest of the world:

Minimum wage rates in other countries

Here’s a snapshot of the current minimum wages:

• Mainland China: Each province in China can decide its minimum wage. The highest monthly minimum wage is in Shanghai at RMB 2590. Hunan has the lowest monthly minimum wage at RMB 1220.
• Switzerland: No national minimum wage. Each Canton can determine its minimum wage. At present, Geneva pays the highest hourly minimum wage of CHF 23.
• Australia: Approximately 812.50 Australian dollars per week
• United Kingdom: Employee’s age determines the minimum wage they earn.. The hourly wage is £10.18 for workers aged 21 to 22, £7.49 for workers aged 18 to 20, and £10.42 for workers above 23.

Factors affecting wage rate differences

A number of factors contribute to the variation in minimum wages across countries. These include:

• Regional economic conditions
• Cost of living
• Differences in labour market conditions
• Size of the enterprises
• Population
• Sector-specific economic factors

Lessons from other minimum wage models

Here’s what Hong Kong can consider incorporating:

• Implement an age-based minimum wage system similar to the UK.  A national minimum wage is paid to anyone between 16-22 whereas a national living wage is available for workers aged 23 and above. The national living wage is higher than the national minimum wage.
• Permit specific industries to formulate their minimum wages in HK, depending on their capacity to pay and the skills of the workers
• Annually review the minimum wage to take into account rising living costs and inflation

Navigating Hong Kong’s minimum wage landscape as an employer

Are you looking to register your business in Hong Kong and get employees on the roll? Here’s how to cruise through the statutory minimum wage requirements:

Ensuring compliance with minimum wage regulations

Consult with an employment law lawyer to stay updated about the latest changes to Employment and Minimum Wages ordinances.

Integrating minimum wage policies into payroll management

Outsource your payroll processing to a trusted service provider to keep your accounting system up to date with the latest minimum wage laws.

Strategies for managing labour costs

Investing in training to make employees more productive to counter increases in labour costs due to higher minimum wages.

Moreover, given that higher labour costs may also increase a firm’s tax burden, consult an accountant for efficient corporate tax planning and filing.

Employee engagement and satisfaction

Ensure that the average wages of employees are above the minimum wage limit to promote employee satisfaction and motivation.

Future of minimum wage in Hong Kong

The future of minimum wages in Hong Kong is uncertain as there are multiple actors are at play.

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

Potential Changes and Trends in wage policies

Hong Kong’s economy faces significant challenges due to the ongoing global economic crisis in the wake of the COVID-19 pandemic and geopolitical risks.

As MWC noted in its findings, increasing minimum wages in such an economy can force enterprises to reduce headcount, leading to unemployment.

As such, the government may freeze the statutory minimum wage rate until the economy bounces back. Between 2011 and 2018, when the Hong Kong economy was in a better position, the minimum wage rate increased from HKD 28 to HKD 37.5. However, from 2019 until 2023, it has only increased from HKD 37.5 to HKD 40.

Role of Government and Policymakers

Hong Kong’s government faces significant public pressure to reconsider the mechanism of deciding minimum wages in light of the protests and demonstrations.

The government has also pointed out the need to balance the interests of businesses and workers and avoid sharp increases that may potentially impact employment rates.

Advocacy and workers’ rights movements

Labour groups in Hong Kong have been consistently critical of the minimum wage revisions by the government.

They believe employers should pay a living wage, estimated to be HKD 60 currently, to meet the basic needs of employees in an expensive region such as Hong Kong. Worker rights movements have also urged the government to consider minimum wage reviews every year instead of reviewing them once every two years.

Conclusion

To recap, as an employer in HK, you cannot offer wages below the statutory minimum. Failure to pay minimum wages attracts civil and criminal liability.

While minimum wages protect the employees, they also directly impact a business’s bottom line. Given the economic situation of Hong Kong, there is a greater need for closely monitoring the minimum wage policies that create a win-win situation for all.

Running a business in Hong Kong can be challenging when you have to ensure compliance with labour and employment laws. Need help with starting up in Hong Kong and sailing through legal compliances?

Contact Air Corporate today so we can guide you in the right direction.

FAQ

How to calculate Hong Kong minimum wage for my employee?

You need to multiply the hours an employee works by the current statutory minimum wage to work out the monthly minimum wage.

What is the current minimum wage in HK?

From 1 May 2023, the minimum wage in HK is HKD 40 per hour.

Do employers need to pay minimum wage in HK for rest days?

Employers and employees can agree on the payment of minimum wages for rest days and the manner of calculation.

There is no obligation under law to pay minimum wages for rest days.

The post Exploring Hong Kong’s Minimum Wage Landscape in 2023 appeared first on AirCorporate.