What is Ordinance 713?
713 means that no matter what kind of employee is(monthly, daily or piece-based paid), the employee’s leave pay shall be calculated on the basis of the average daily wage (ADW) earned by the preceding 12 months instead of simply dividing by 30 days, the number of days or the number of working days in the month. If the employer is found not to calculate wages based on Ordinance 713, the employer should recalculate all the wages and pay the underpaid wage.
Why is Ordinance 713 important?
The purpose of Ordinance 713 is to ensure that all the 「wages」 are included when counting the statutory entitlements of employers.
Thus, employers of SMEs should cooperate with the salary calculation requirements of Ordinance 713, so as to hire and reward employees legitimately, and perform basic responsibilities of employers.
The statutory entitlements of Ordinance 713
What statutory entitlements are included in Ordinance 713?
- Holiday pay
- Annual leave pay
- Sickness allowance and related clauses
- Maternity leave pay and related clauses
- Paternity leave pay
- End of year payment
- Wages in lieu of notice
- Additional payments for failing to comply with the order for rehire or re-employment for unreasonable and unlawful dismissal
Calculation of Ordinance 713
To avoid deflating the average wages and hence reducing the amount of statutory entitlements, Ordinance 713 defines the periods and wages to be disregarded. When calculating the 12-month average daily (or monthly) wages, one has to identify the following situations as stipulated by the Amendment Ordinance under which an employee is not paid his wages or full wages and then exclude the periods together with the wages paid to the employee.
For example: If maternity leave is only paid four-fifths, the salary and days in this period should be deducted when calculating average daily wage.
The effectiveness of Ordinance 713 is a challenge for many companies in Hong Kong. On the one hand, the structure of commission calculation can be quite complicated according to the business differences of each company. On the other hand, if companies rely on Excel to manually calculate wages, there is a potential risk of error.
Workstem
Good introduction: The payroll function in the Wokstem human resources system supports automatic calculation of the average daily wage for 12 months based on the records of each employee’s hiredate, holidays, payroll,etc!