Exploring Hong Kong’s Minimum Wage Landscape

Hong Kong is not only a top-tier financial hub — it is also one of the most expensive places to stay. Anyone working in HK, 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 HK's minimum wage landscape. Read through to learn how to calculate your employee's earnings to ensure compliance with the minimum wage law in Hong Kong.

Understanding the Concept of Minimum Wage

Let's start with the basics before diving deep into base salaries 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 an ordinance/statute, a wage board, industrial and labor 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 payments 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.

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

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 National Minimum Wage Rate

Here's a brief overview of the Statutory Minimum Wage (SMW) system in Hong Kong.

Hong Kong Minimum Wage Ordinance

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. However, 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 brought 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 SMWs 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
• 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 SWM is HKD 40 per hour. This means that regardless of the wage period, no employer should pay below the statutory salary rate.

The monthly monetary cap for employers recording the total number of 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 earnings per month, they need to record the total number of hours worked by that employee during a wage period.

Calculation of Hourly Salary Rate

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

It doesn't state that the salary for each hour should meet the 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.

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 regarding the minimum wage 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 earnings.

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 passed the law on minimum wages based on MWC and the 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 salaries 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 labor
• 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 the minimum 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

A minimum wage increase can reduce poverty and income inequality by minimizing the gap between salaries.

Employment Rates and Labor Market

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

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

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

Cost of Living and Inflation

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

In fact, labor 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 honor 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 salaries 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 the wage gap between Hong Kong and the rest of the world:

Minimum Wage Rates In Other Countries

Here’s a snapshot of the current minimum wages:

• Mainland China: Each province can decide its minimum wage. The highest monthly minimum wage is in Shanghai at RMB 2690.
• Switzerland: Each Canton can determine its wage. At present, Geneva pays the highest hourly minimum wage of CHF 24.32.
• Australia: Approximately 812.50 Australian dollars per week
• United Kingdom: Employee's age determines the 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 labor 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 base pay 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 Labor Costs

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

Moreover, given that higher labor 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 base 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 at play.

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

Potential Changes and Trends In Wage Policies

HK'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 rate of base salary 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

Labor 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 the minimum salary 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 to closely monitor 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 labor 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.