An employee who has been employed continuously by the same employer for four weeks or more, with at least 18 hours worked in each week is regarded as being employed under a continuous contract. In any dispute as to whether a contract of employment is a continuous contract,

the onus of proving that it is not a continuous contract shall be on the employer. 

A contract of employment is an agreement on the employment conditions made between an employer and an employee. The agreement can be made orally or in writing and it includes both express and implied terms. Employers and employees are free to negotiate and agree on the terms and

conditions of employment provided that they do not violate the provisions of the Employment Ordinance. Any term of an employment contract which purports to extinguish or reduce any right, benefit or protection conferred upon the employee by this Ordinance shall be void. 

Before employment begins, an employer must inform each employee clearly the conditions of employment under which he is to be employed with regard to:

1. Wages (including rate of wages, overtime rate and any allowance, whether calculated by piece, job, hour, day, week or otherwise).

2. Wage period.

3. Length of notice required to terminate the contract.

4. If the employee is entitled to an end of year payment, the end of year payment or proportion and the payment period.

If the contract of employment is in writing, the employer shall give one copy of the written contract to the employee for retention and reference.

If the contract of employment is not in writing, the employer shall provide the employee with such information in writing if the employee, before such employment is entered into, makes a written request. 

Whenever there is any change in the conditions of service, whether these have merely been proposed to an employee or are actually in force, the employer shall inform him in an intelligible manner. If such change to conditions of service is in writing or upon the written request from the employee, a copy of the written amendment must be provided to the employee. 

A non-resident is chargeable to tax either directly or in the name of his agent in respect of all his profits arising in or derived from Hong Kong from any trade, profession or business carried on here, whether or not the agent has the receipt of the profits, and the tax may be recovered out of the assets of the non-resident or from the agent. The agent is required to retain from the assets sufficient money to pay the tax.

Resident consignees are required to furnish quarterly returns to the Commissioner of Inland Revenue (Commissioner) showing the gross proceeds from sales on behalf of their non-resident consignors and to pay to the Commissioner a sum equal to 1% of such proceeds, or such lesser sum as may have been agreed.

Where a non-resident carries on business with a resident with whom he is closely connected and the business is so arranged that it produces to the resident either no profits or profits less than the ordinary profits that might be expected to arise to an independent concern, the business may be treated as carried on in Hong Kong by the non-resident through the resident as agent.

Where the true profits of a non-resident from a trade, profession or business carried on in Hong Kong cannot be readily ascertained, they may be computed on a fair percentage of the turnover in Hong Kong.

Where the accounts of a non-resident (other than a financial institution) whose head office is outside Hong Kong do not disclose the true profits of a Hong Kong permanent establishment, the profits of the branch in Hong Kong for tax purposes are taken to be the amount which bears to the taxpayer's total profits in the same proportion as his turnover in Hong Kong bears to his total turnover.

Special provisions are made in the IRO for non-resident ship owners and non-resident aircraft owners whose vessels call at locations within Hong Kong waters or whose aircrafts land at a Hong Kong airport. Further details may be obtained from the Inland Revenue Department (IRD).

NOTE: Statutory entitlements such as holiday pay, annual leave pay, sickness allowance, maternity leave pay and paternity leave pay are calculated on the basis of wages, particulars of which are established by the terms of employment contracts. Employers and employees should clearly understand the wage components (for example, commission, allowance, etc), wage rate, conditions and arrangements for payment, etc.

In the absence of any express agreement to the contrary, every contract of employment which is a continuous contract is deemed to be a contract for one month and renewable from month to month.

Every employer must at all times keep a record setting out the wage and employment history of each employee covering the period of his employment during the preceding 12 months.

The record should include the following information of the employee:

1. Name and identity card number.
2. Date of commencement of employment.
3. Job title.
4. Wages paid in respect of each wage period.
5. Wage period.
6. Total number of hours worked in each wage period (if applicable).
7. Periods of annual leave, sick leave, maternity leave, paternity leave and holidays entitled and taken, together with details of payments made in respect of such periods.
8. Amount of end of year payment and the period to which it relates (if applicable).
9. Period of notice required for termination of contract.
10. Date of termination of employment (if applicable). 

The wage and employment records must be kept at the employer’s place of business or at the place where the employee is employed, and they should also be kept for a period of another six months after the employee ceases to be employed.

NOTE:

• Employers should keep proper records in relation to employees’ attendance, leave and wages, etc for the purpose of calculating statutory entitlements.
• To safeguard their own rights and benefits, employees should also keep proper records in relation to their attendance, leave and wages, etc.

An employer who fails to keep the above record is liable to prosecution and, upon conviction, to a fine of $10,000.

Officers of the Labour Department may inspect the above record, inquire any person or seize anything which may appear to be evidence of an offence under the Employment Ordinance. Any person who fails to comply with the requirements of the officers of the Labour Department is liable to prosecution and, upon conviction, to a fine of $100,000 and to imprisonment for one year. 

"Wages" means all remuneration, earnings, allowances, tips and service charges, however designated or calculated, payable to an employee in

respect of work done or work to be done. Allowances including travelling allowances, attendance allowances, commission and overtime pay are

within the definition of wages. However, it does not include:

1. The value of any accommodation, education, food, fuel, water, light or medical care provided by the employer.
2. Employer's contribution to any retirement scheme.
3. Commission, attendance allowance or attendance bonus which is of a gratuitous nature or is payable only at the discretion of the employer.
4. Non-recurrent travelling allowance or the value of any travelling concession or travelling allowance for actual expenses incurred by the employment.
5. Any sum payable to the employee to defray special expenses incurred by him by the nature of his employment.
6. End of year payment, or annual bonus which is of a gratuitous nature or is payable only at the discretion of the employer.
7. Gratuity payable on completion or termination of a contract of employment.

An employee's entitlements to end of year payment, maternity leave pay, paternity leave pay, severance payment, long service payment, sickness

allowance, holiday pay, annual leave pay and payment in lieu of notice are calculated according to the above definition of wages.

Overtime pay should also be included in calculating the above payments if:

• It is of a constant character.
• Its monthly average over the past 12 months is not less than 20% of the average monthly wages of the employee during the same period.

An employer is prohibited from deducting wages from his employee, except under the following circumstances:

1. Deductions for absence from work. The sum to be deducted should be proportionate to the period of time the employee is absent from

work.

2. Deductions for damage to or loss of the employer's goods, equipment, or property by the employee's neglect or default. In any one case, the sum to be deducted shall be equivalent to the value of the damage or loss but not exceeding $300. The total of such deductions shall not exceed one quarter of the wages payable to the employee in that wage period.

3. Deductions for the recovery of any advanced or over-paid wages to the employee. The total sum to be deducted shall not exceed one quarter of the wages payable to the employee in that wage period.

4. Deductions of the value of food and accommodation the employer supplies to the employee.

5. Deductions, at the written request of the employee, in respect of contributions to be paid by the employee through the employer for any medical scheme, superannuation scheme, retirement scheme or thrift scheme.

6. Deductions, with the employee's written consent, for the recovery of any loan made by the employer to the employee.

7. Deductions in respect of paternity leave pay paid to the employee before the required document is provided if the employee fails to provide the employer with the required document within 3 months after the first day of paternity leave taken, or if the employee has ceased to be employed, fails to provide the required document before the cessation.

8. Deductions which are required or authorized under any enactment to be made from the wages of the employee.

9. Deductions for outstanding maintenance payment owed by the employee pursuant to the Attachment of Income Order issued by the court.

Deductions under items (1) to (8) shall have priority over item (9).

Unless with the approval in writing of the Commissioner for Labour, the total of all deductions, except those for absence from work and outstanding maintenance payment, made in any one wage period shall not exceed one half of the wages payable in that period. 

An employer who makes illegal deduction from wages of an employee is liable to prosecution and, upon conviction, to a fine of $100,000 and to

imprisonment for one year. 

Wages shall become due on the expiry of the last day of the wage period. An employer should pay wages to an employee as soon as practicable but in any case not later than seven days after the end of the wage period. An employer is required to pay interest on the outstanding amount of wages to the employee if he fails to pay wages to the employee within seven days when it becomes due.

An employer who wilfully and without reasonable excuse fails to pay wages to an employee when it becomes due is liable to prosecution and, upon

conviction, to a fine of $350,000 and to imprisonment for three years. Where a wage offence committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, such person shall be guilty of the like offence and, upon conviction, is liable to the same penalty. An employer who wilfully and without reasonable excuse fails to pay interest on the outstanding amount of wages to the employee is liable to prosecution and, upon conviction, to a fine of $10,000. 

An employer who is no longer able to pay wages due should terminate the contract of employment in accordance with its terms. If wages are not paid within one month after they become due, an employee may deem his contract of employment to be terminated by his employer without notice and is entitled to payment in lieu of notice in addition to other statutory and contractual termination payment. To avoid disputes, an employee should inform his employer when he exercises such rights under the Ordinance.

An employee shall enjoy rest days, statutory holidays and paid annual leave during employment.

REST DAY

Eligibility for Rest Day

An employee employed under a continuous contract is entitled to not less than one rest day in every period of seven days.

Definition of a Rest Day

A rest day is defined as a continuous period of not less than 24 hours during which an employee is entitled to abstain from working for his employer.

Appointment of Rest Days

Rest days shall be appointed by the employer. They may be granted on a:

• Regular or irregular basis.
• Regular rest days - the employer should inform his employees of the arrangement irregular rest days - before the beginning of each month, the employer must inform his employees orally or in writing the appointed rest days or by displaying a roster showing the dates of the appointed rest days for each employee.

An employer may substitute some other rest day with the consent of the employee, in which case it must be within the same month before the original rest day or within 30 days after it. 

An employer must not compel an employee to work on a rest day except in the event of a breakdown of machinery or plant or in any other unforeseen emergency. For any rest day on which the employee is required to work, the employer should substitute some other rest day within 30 days after the original rest day. The employer should notify the employee of the arrangement within 48 hours after the employee is required to work.

An employer who without reasonable excuse fails to grant rest days to his employees is liable to prosecution and, upon conviction, to a fine of $50,000. An employer who compels his employees to work on their rest days is liable to prosecution and, upon conviction, to a fine of $50,000.

An employee, except young persons under the age of 18 employed in industrial undertakings, may work voluntarily on a rest day. Any condition in a contract of employment which makes payment of any type of annual bonus or end of year payment conditional on an employee agreeing to work on rest days is void.

Whether rest day is paid or not is to be agreed by employers and employees.

STATUTORY HOLIDAYS

An employee, irrespective of his length of service, is entitled to the following 12 statutory holidays :

1. The first day of January.

2. Lunar New Year's Day.

3. The second day of Lunar New Year.

4. The third day of Lunar New Year.

5. Ching Ming Festival.

6. Labour Day, being the first day of May.

7. Tuen Ng Festival.

8. Hong Kong Special Administrative Region Establishment Day, being the first day of July.

9. The day following the Chinese Mid-Autumn Festival.

10. Chung Yeung Festival.

11. National Day, being the first day of October.

12. Chinese Winter Solstice Festival or Christmas Day (at the option of the employer).

If the employer requires the employee to work on a statutory holiday, the

employer should make the following arrangement:

If the employer and employee agree, any day within 30 days before or after the statutory or alternative holiday may be taken by the employee as a

substituted holiday.

If a statutory holiday falls on a rest day, the employee should be granted a holiday on the next day which is not a statutory holiday or an alternative holiday or a substituted holiday or a rest day.

An employee having been employed under a continuous contract for not less than three months immediately preceding a statutory holiday is entitled to the holiday pay. Holiday pay should be paid to the employee not later than the day on which he is next paid his wages after that statutory holiday. The daily rate of holiday pay is a sum equivalent to the average daily wages earned by an employee in the 12-month period preceding the following specified dates. If an employee is employed for less than 12 months, the calculation shall be based on the shorter period.

NOTE: In calculating the average daily wages, an employer has to exclude (i) the periods for which an employee is not paid his wages or full wages, including rest day, statutory holiday, annual leave, sickness day, maternity leave, paternity leave, sick leave due to work injuries or leave taken with the agreement of the employer, and any normal working day on which the employee is not provided by the employer with work; together with (ii) the sum paid to the employee for such periods. (see Appendix 1 for details).

Regardless of whether an employee is entitled to holiday pay, an employer should grant his employee a statutory holiday, or arrange an “alternative holiday” or “substituted holiday”. An employer must not make any form of payment to the employee in lieu of granting a holiday. In other words, “buyout” of a holiday is not allowed.

An employer who without reasonable excuse fails to grant statutory holidays, alternative holidays or substituted holidays, or fails to pay holiday pay to an employee is liable to prosecution and, upon conviction, to a fine of $50,000.

An employee is entitled to annual leave with pay after having been employed under a continuous contract for every 12 months. An employee's entitlement to paid annual leave increases progressively from seven days to a maximum of 14 days according to his length of service:

An employee shall take the paid annual leave to which he is entitled within the following period of 12 months. The time of the leave should be appointed by the employer after consultation with the employee or his representative, confirmed by a written notice to the employee at least 14 days in advance, unless a shorter period has been mutually agreed. Paid annual leave should be granted for an unbroken period. If the employee so requests, it may be granted in the following manner:

Any rest day or statutory holiday falling within a period of annual leave will be counted as annual leave and another rest day or holiday must be appointed.

The daily rate of annual leave pay is a sum equivalent to the average daily wages earned by an employee in the 12-month period preceding the following specified dates. If an employee is employed for less than 12 months, the calculation shall be based on the shorter period.

NOTE: In calculating the average daily wages, an employer has to exclude (i) the periods for which an employee is not paid his wages or full wages, including rest day, statutory holiday, annual leave, sickness day, maternity leave, paternity leave, sick leave due to work injuries or leave taken with the agreement of the employer, and any normal working day on which the employee is not provided by the employer with work; together with (ii) the sum paid to the employee for such periods. (see Appendix 1 for details) Annual leave pay should be paid to the employee not later than the normal pay day after the period of annual leave taken.

An employer who without reasonable excuse fails to grant annual leave to an employee is liable to prosecution and, upon conviction, to a fine of $50,000. An employer who fails to pay annual leave pay to an employee is liable to prosecution and, upon conviction, to a fine of $50,000.

An employee may choose to accept payment in lieu of the part of his leave entitlement which exceeds 10 days.

A leave year means any period of 12 months commencing on the day on which his employment commenced and an anniversary of such day.

If an employee has been employed for a leave year and his employment contract is terminated, irrespective of the reasons of termination, he should be entitled to payment in lieu of any annual leave not yet taken. In calculating the daily rate of the payment, the “date of termination of contract” should be adopted as the “specified date”. (see the preceding part on Annual Leave Pay) An employee with three but less than 12 months' employment in a leave year and his employment contract is terminated other than for the reason of summary dismissal due to his serious misconduct, he would be entitled to pro rata annual leave pay.

An employer may elect any period of 12 consecutive months as the common leave year for all of his employees. Should the employer wish to make this arrangement, he shall give one month's notice either to each of his employees in writing or by posting a notice in a conspicuous place in the place of employment. If an employee has not been employed for 12 months in the common leave year, the employer should calculate his leave entitlement on a pro rata basis, and any fraction of a day resulting from the calculation should be counted as a full day's leave. After consultation with his employer, the employee may opt to take the pro rata annual leave accrued preceding the commencement of the common leave year or carry it forward and combine it with his leave accrued in the next leave year.

[Example] common leave year: 

1.1.2010 to 31.12.2010

commencement date of employment: 1.9.2010

pro rata annual leave: 122*/365 X 7 = 2.34 days (round up to 3 days)

(*122 is the number of days between 1.9.2010 and 31.12.2010)

The employee may take the 3 days' leave in 2011, or combine it with his 7 days' leave accrued in 2011 and take 10 days' leave in 2012.

If an employer intends to close down his business or part of his business for granting annual leave to his employees, he should inform the affected employees in writing at least one month in advance.

Where an employee is not yet entitled to paid annual leave in respect of any day during the period of shutdown but he has to stop work as a result, he should be granted paid annual leave during that whole period.

If the annual leave an employee is entitled exceeds the number of days of shutdown, he may take the remaining annual leave immediately following the shutdown.

The common leave year elected by the employer should not be affected by an annual leave shutdown as the annual leave granted shall be in respect of the leave year immediately preceding the period of the shutdown.