Changes in the corporate workforce is happening more radically and rapidly than ever.
According to a report published by the International Labour Organisation in 2015, informal employment, very short term contracts, contingent freelance workers and irregular hours are becoming more and more widespread. These changes in patterns of work coupled with the increased use of smart machines, robotics and drones in businesses are fundamentally changing the meaning of “workforce” and “work”, as more people are now holding multiple jobs concurrently.
Modern workforce planning will therefore require consideration of the on-balance sheet and off-balance sheet talent as well as the use of machines and technology.
Unfortunately, the labour law in Hong Kong, like many places elsewhere, has not kept up with how the needs of businesses and workers have changed. As more companies start to engage very short term workers, freelance and contingent workers, these companies also face closer scrutiny from the government and law enforcement agencies as they shift their workforce model.
So what are the common legal issues and pitfalls in engaging contingent on-demand workers?
Independent contractor & misclassified employees
Labelling an on-demand worker as an independent contractor does not necessarily mean that the individual would be viewed by Hong Kong courts as an independent contractor.
In Hong Kong, the legal test to differentiate whether a person is an employee or an independent contractor is to examine all the features of the parties’ relationship against a list of factors and decide whether as a matter of overall impression the relationship is one of employment. Relevant factors to consider may include the degree of control the company can exert over the individual, the extent to which the individual is an integral part of the company, whether the company has any obligation to provide work, and whether the individual is running his own business and needs to manage his own time schedule and financial risks.
Even if an on-demand worker is contracted as an “independent contractor”, if the overall impression of the work relationship between the company and the on-demand worker is one of employment, the "independent contractor" label could be disregarded by Hong Kong court in determining the worker’s rights and benefits.
Misclassifying an on-demand worker as an independent contractor instead of an employee can lead to disputes over vacation pay, MPF contributions, employees' compensation, and severance pay. If the on-demand worker is ultimately found by the court to be an employee, the company's risk exposure may include a record of criminal conviction and the criminal penalty can include fines.
For casual workers, a challenge faced by many companies is to keep a proper record of the hours and days they have worked to comply with the minimum wage requirements. In Hong Kong, the Minimum Wage Ordinance provides for the statutory rate of minimum wage. The current statutory minimum wage rate is HKD 32.5 per hour.
Another challenge faced by many companies engaging casual workers is to monitor if they work 18 hours or more each week for 4 consecutive weeks to be regarded by law as "continuously employed". This is because any employee who is continuously employed is entitled to at least 1 rest day in every period of 7 days. The entitlements to paid statutory holidays and paid vacation also apply to employees who are "continuously employed".
Contract drafting & holiday pay issues
When engaging piece-rated workers and contingent workers with no base salary, a common pitfall is to assume that their remuneration (whether in the form of commissions or otherwise) would cover holiday pay.
In 2015, a fitness and beauty centre was criminally prosecuted for not paying statutory holiday pay to one of its masseuses. This masseuse employee had no base salary. She was remunerated for the hours worked in the form of commissions and would receive a sum of HKD10,000 as her minimum commissions for each month.
The dispute between this masseuse and the fitness centre was about whether the minimum commissions were inclusive of statutory holiday pay. The employee argued that the company failed to pay her any statutory holiday pay. The fitness centre disagreed and contended that her minimum commissions were inclusive of her holiday pay.
The company was ultimately convicted by the court and fined for contravening the Employment Ordinance in not paying the employee’s holiday pay. The court found against the employer because the contract of the masseuse did not expressly provide that her commissions would cover statutory holiday pay.
Takeaway for employers
Companies need to adopt an integrated and holistic approach in planning its workforce, which means HRs would need to work closely with IT and the Outsourcing Team in determining how to best use the company's resources.
In considering the off-balance sheet talent, companies should be mindful of the pitfalls in terms of determining the proper engagement structure, record-keeping and drafting of contract terms.
Getting it wrong can be very costly!