Under the provisions of the Employment Ordinance (the “EO”), employees in Hong Kong are entitled to certain statutory benefits including annual leave, maternity leave, paternity leave, sick leave and (in some cases) severance or long service payments. In each case, the amount the employee will receive in relation to these entitlements is to be calculated by reference to the daily or monthly average of the employee’s wages. The term 'wages' is also used in assessing minimum wage compliance. While it may be natural to assume that wages refers to salary, the EO in fact defines the term much more broadly.

Definition under the Employment Ordinance

According to the EO, 'wages' are made up of “all remuneration, earnings, allowances, including travelling and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges” payable to an employee for work done or to be done and which are capable of being expressed in terms of money. This is subject to a number of exceptions, however. For example, annual bonuses are excluded from the calculation of wages, as are employer contributions to an employee’s retirement scheme.

Thus, while it is clear that wages comprise more than just salary, it is not always clear whether a particular component of an employee’s remuneration package should be included or not. The label given to a particular item of compensation will not be conclusive and any term in an employment contract which purports to exclude a particular payment which properly falls within the EO definition of wages from being treated as such will be void.


While annual bonuses and gratuity bonuses payable on completion or termination of a contract of employment are not considered to be wages, bonuses payable on a more frequent basis will fall within the definition. An attendance bonus, as well as similarly titled bonuses (such as a 'diligence bonus'), which are payable subject to the terms of the employment contract and which are intended to secure the employee’s prompt attendance at the workplace are also likely to form part of an employee’s wages and therefore be included in the calculation of statutory entitlements.


Where an employee has a contractual right to receive a commission under their terms of employment, such payment will be considered wages. Not all commissions, however, will be included. The EO expressly excludes commissions which are gratuitous in nature or payable only at the discretion of the employer. Furthermore, case law suggests that where an individual receives commissions from a third party for a referral of business, this will not form part of the individual’s wages unless the referral was made in the performance of the individual’s duties to his employer under the terms of his employment.

Overtime payments

Overtime payments will form part of an employee’s wages for the purpose of calculating statutory entitlements, provided that overtime payments are a regular and sufficient component of the employee’s remuneration package. The EO provides that overtime payments will only be included if overtime pay is of a constant character or makes up at least 20% of the employee’s average monthly wages during the previous 12-month period.


Employee compensation packages sometimes include one or more allowances (eg travel or food allowances) on top of the employee’s base salary. Although the definition of wages expressly includes allowances (and in particular refers to travel and attendance allowances), not all payments which are labelled an 'allowance' will be considered part of the employee’s wages. While allowances given for school fees or club memberships or other costs that an employee might incur in his personal life will fall within the definition of wages, payments which are made to defray special expenses incurred by an employee due to the nature of his employment are expressly excluded.

For example, if an employee is given an allowance in advance of a business trip which has been calculated based on a genuine pre-estimate of the expenses that the employee is likely to incur, case law suggests that such amount should not be considered wages. Similarly, an allowance given to coach or limousine drivers to cover the cost of parking they are likely to incur in connection with their duties is likely to be seen as a reimbursement and not as wages. This is the case regardless of whether the employee is required to account for such expenditure by the provision of receipts or to return any unused portion of the allowance.

The definition of wages also excludes certain travel allowances. Those of an ad hoc (or non-recurrent) nature or which are payable to defray actual expenses incurred by the employee due to the nature of their work will not form part of wages. However, in cases where the employee is regularly paid a transportation allowance as part of the remuneration package, regardless of the method used for getting to work, such allowance is likely to be treated as wages.

There is also an important distinction between an allowance given by an employer for certain living amenities such as accommodation, food, education, fuel, medical care or water and the provision of free or subsidised services by the employer. Where such benefits are provided to employees by the employer “in kind”, the value of such benefits will not form part of the employee’s wages. If, however, the employee receives a cash allowance or other payment to cover the cost of obtaining such benefits from a third party, that allowance/payment should generally be taken into account when calculating an employee’s wages.

Tips and service charges

In some industries, particularly in the services sector, tips and service charges can amount to a substantial component of an employee’s overall earnings. The EO makes it clear that tips and service charges that an employee receives are included in the definition of wages, but only where such amounts are recognised by the employer as being part of an employee’s wages. Whether that is the case in a given workplace will depend on the particular facts.

Where an employee occasionally receives a tip from a customer in circumstances in which there is no expectation that tips will form a significant part of the employee’s overall income and there is no requirement to inform the employer of any tips received, those payments are unlikely to be treated as wages. On the other hand, where there is an expectation that customers will give a tip and the business operates on that basis and/or the employer plays an active role in the collection, retention and distribution of tips among staff members, case law suggests that such payments will form part of an employee’s wages. It is therefore essential that the employer keeps a clear record of these kinds of payments.

Not straightforward

As you can see, working out what elements of compensation will be treated as wages is not always straightforward. In structuring a remuneration package, it is therefore essential to consider carefully which elements of the package ought to be treated as wages and therefore taken into account when calculating statutory entitlements. If this is not done properly at the outset, the administrative and financial cost of rectifying the matter can be significant.