9. Do wages include discretionary commission or bonus?

9. Do wages include discretionary commission or bonus?

The definition of “wages” does not include commission, attendance allowance or attendance bonus which is of a gratuitous nature or is payable only at the discretion of the employer. 

However, it includes any other types of commission, allowance or bonus (for example, non-discretionary commission).

Upon commencement of the Employment (Amendment) Ordinance 2007 on 13 July 2007, regardless of whether employees are paid monthly, daily or piece-rated, their relevant statutory entitlements (such as sickness allowance, annual leave pay, payment in lieu of notice and so on) are calculated on the basis of their 12-month average wages. In computing their average wages, any periods and wages that fall under the “disregarding provisions” are excluded. The main objective of the legislative amendment is to ensure that all components of wages as defined under the Employment Ordinance (such as non-discretionary commission) are included in the calculation of relevant statutory entitlements. Prior to the legislative amendment, the Court of Final Appeal in Lisbeth Enterprises Limited vs Mandy Luk (FACV 17/2005) held that commission accrued and calculated on a monthly basis was not to be included in the calculation of holiday pay and annual leave pay on the ground that sections 41 and 41C in the old legislation did not provide for a workable mode of calculation. After the commencement of the legislative amendment in 2007, the situation was reverse; that is, it is now included. As usual, the legislative amendment has no retrospective effect. It provides that it will be applicable in the following situations:

 1) The employment contract was entered into on or after 13 July 2007 (“the commencement date”).

For employment contracts entered into before the commencement date, the amended legislation is applicable under the following situations: (1) If maternity leave pay, paternity leave pay, sickness allowance, holiday pay or annual leave pay is payable by an employer to an employee in respect of a wage period, and the last day of the wage period falls on or after 13 July 2007. (2) If the due date of the end of year payment (or proportion of it) payable by an employer to an employee falls on or after 13 July 2007. (3) If the relevant statutory entitlements are payable upon termination of contract and the date of termination falls on or after 13 July 2007.