When David was onboarding a new partner, he found that due to the nature of the work and the corporate management system, HR and the employers would use different methods to do the payroll.
There was once an HR from a steakhouse complaining when he was calculating the salary of a part-time employee, “Because the working day of each month is different, the holiday of the month and unpaid leaves they took also has to be deducted. Checking that again and again is really nerve-wracking!”
In this article, David will disassemble for you the use of different methods of calculation in various scenarios, so that the salary is not counted too much!
Does the Employment Ordinance Stipulate How to Pay?
According to the law, both parties can set appropriate terms and conditions on their own without violating the provisions of the Employment Ordinance. The labor law stipulates that the contract should contain the following details:
1. Wage rate, overtime wage rate and any allowance (whether calculated by piece, work, on time, day, week or other methods);
2. Wage period;
3. The notice period required to terminate the contract; and
4. If the employee is entitled to year-end remuneration, information about the year-end remuneration, part of the year-end remuneration and payment period.
In addition, when an employee signs a written employment contract before the start of employment, if the employment contract is concluded in an unwritten form, the employer must, after receiving the employee’s written request before the start of the employment, send a notice containing the above conditions to the employee .
In other words, no matter how you choose to calculate the employee’s salary, the Labour Department does not have mandatory requirements for calculation based on Calendar Day, Working Day, or annual average working days. The employer may decide based on the company’s relevant salary regulations and whether employees are paid for their rest days. However, the employer or HR must specify the employment conditions with the employee in advance.
After understanding the relevant provisions of the Employment Ordinance, let David explain three different methods of calculating wages for us!
Three Different Salary Calculation Methods
1. Calendar Day
Calendar day is the number of days on the calendar for employees to calculate salary, and in this case, rest days are generally paid. For example, in the service industry, when most companies take a single day off for employees per week or give them 6 days in total per month, we should calculate employees based on Calendar Day.
Let’s see how David calculates Long‘s August’s salary under the calendar day’s salary calculation method!
Long is an employee who joined a steakhouse on August 22, 2021. The salary is HK$10,000 per month and he is entitled to 1.5 days of paid vacation after working five days a week. So how should HR calculate his first month’s salary from August 21 to August 31?
David: “Because Long is a full-time employee with a monthly salary, we use the calendar day method of calculation.”
First calculate the average daily salary, and then multiply it by the combined workdays and rest days of the Long.
Finally, it is calculated that the employer should pay HK$3,225.8 to Long.
The formula is: HK$10,000/31*(5+1.5+3.5)=HK$3,225.8
2. Working Day
Compared with calendar days, working days exclude the days of Saturday and Sunday, so the number of working days in each month is basically in the range of 20-23 days. This payroll method is more suitable for part-time employees who are paid on a daily basis.
Chen joined a store as a salesman as a part-time employee on August 18, 2021, with a daily salary of HK$200 and no pay on rest days. Suppose he works every Monday, Wednesday, and Friday, and he is full attendance by the end of the month. So how to calculate his first month’s salary?
David: “It’s too simple! Since Chen has no pay on weekends, we use working days to calculate salary for him.”
Multiplying the number of working days by the daily salary can easily get the total amount of HK$1,600. Calculation formula: HK$200*8=HK$1,600
Similarly, if Chen was employed in this store on August 27, 2021 as a full-time monthly employee, the monthly salary is HK$15,000 and there is no paid rest day. So in the case of Chen’s full attendance, how do we calculate his first month’s salary?
David: “Although Chen is a full-time monthly salary employee, because his rest days are not paid, the method of calculating salary on working days is still applicable.”
After calculating Chen’s average wage in August, multiply it by the number of working days to get the answer!!
After calculation, the employer should pay him HK$2,727.2. The formula is HK$15,000/(31-9)*4=HK$2,727.2
3. Annual average working days
Compared with calendar days and working days, this method is more suitable for office employees or managers who work from Monday to Friday. That is to say, after subtracting paid rest days and statutory holidays from the 365 days of the year, the average monthly working days will be 21.75.
Office employees or managers who do not have flexible schedules from Monday to Friday do not need to use the relatively complicated calendar day or working day to calculate their salaries, which greatly reduces the intensity of the calculation. So let’s take a look at the related example below.
Jayson is an HR who joined Office A on January 3, 2020, with a monthly salary of HK$30,000. He took 4 days of unpaid leave from January 13, 2020 and continued to work on the 17th. How should we calculate his first month’s salary?
David: “This question is still pretty interesting, but don’t panic, let’s see how I can solveit!”
When it is known that Jayson has no flexible schedule and paid rest days, it is calculated based on the annual average working days.
First, calculate the average daily salary: HK$30,000/21.75=HK$1,379.31
Employees should deduct wages: HK$1,373.31 (average daily wages) * 4 (number of days of leave) = HK$5,517.24
Periodic basic salary of the current month: 21 (working days)/21.75 (average monthly working days) *HK$30,000 (monthly salary) =HK$28,965.52
So the actual basic salary of the month: HK$28,965.5-HK$5,517.2=HK$23,448.3
David: “Huh, don’t let me deal with such a complicated problem next time! Even the simplest calculations related to fixed salary, we also need to have a comprehensive understanding of labor laws. “
How to Use Workstem to Do Payroll Accurately?
When employers actually do the payroll themselves, they will definitely encounter more complicated situations than these examples. At this time, if there is a human resource management tool that can quickly deal with these headaches and speed up the efficiency of the employer in dealing with trivial and complex matters, it is especially important.
Workstem is committed to providing users with new ideas for solving HR problems. Employers or HR can set up personalized compensation rules with one click based on the company’s internal compensation policies and employee types. Then the powerful system background performs calculations to achieve punctual, fast, and error-free hourly/weekly/monthly wage delivery.
In fact, it is not only the personalization of the salary rules, the clocking in/out, the scheduling, and the autopay, no matter how complicated the task is, we can also handle it!
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