In our February newsletter we discussed a number of proposals that had been put before the Hong Kong Legislative Council (LegCo) for review. In their June sessions the following bills were passed.
Abolishment of the MPF offsetting arrangement
In a big step towards the improvement of retirement protection in Hong Kong LegCo passed a bill on the 9th June to abolish the MPF offsetting arrangement. Currently employers are allowed to offset Severance Payments (SP) or Long Service Payments (LSP) against their Mandatory Provident Fund (MPF) contributions. However, the long-awaited bill prohibits employers using statutory MPF contributions to pay for SP/LSP, although the expectation is that the bill will not be fully implemented until 2025 (the effective date).
Points to note:
i) The bill has no retrospective effect. This means employers can still apply the offset for employment commenced using mandatory and voluntary contributions that were made prior to the effective date. After the effective date employers may only chose to use the accrued benefits made from their voluntary MPF contributions (amounts in excess of the statutory minimum requirement) to offset SP/LSP. Therefore, for employees who commenced employment before the effective date and whose employment terminates after the effective date, their LSP / SP may need to be split into 2 components.
ii) The Bill does not change the rate and maximum payment of statutory SP/LSP, which is currently calculated as 2/3 of the employee’s last monthly wages (capped at HK$22,500).
The purpose of (i) and (ii) is to reduce risk of employers dismissing employees before the effective date.
It has been stated that if for any reason an employee ends up worse off, the Hong Kong government will make up the difference.
Along with the abolishment of offsetting, the HK IRD confirmed that statutory SP/LSP would remain not chargeable to salaries tax. At present there is no required action for employers, but as we hear more details from the HK Government Black Mountain will keep you updated.
The Employment Amendment Bill 2022 to amend the Employment Ordinance
The government recently published the Employment (Amendment) Bill 2022 which will come into force on a date still to be determined. It is expected that this date will be in the near future as it is part of the government response to the 5th wave of Covid-19.
The Amendment covers 3 broad topics:
I. Sick leave
II. Valid reason for dismissal
III. Invalid reason for dismissal
I) Sick leave
Once the Amendment takes effect, a day on which an employee is absent from work due to the employee’s compliance with a Cap 599 Requirement would need to classified as a sickness day. This means if the employee meets the conditions the employer needs to pay sickness allowance at the rate of four-fifths the employee’s daily average wages.
What is Cap 599 Requirement?
It is a restriction on movement where:
1. The employee is placed under quarantine or isolation, or is within a place that is placed under isolation (but does not include compulsory quarantine on arrival to Hong Kong from overseas);
2. The employee needs to comply with a compulsory testing notice (i.e. required to undergo compulsory testing);
3. The employee needs to comply with a compulsory testing order (i.e. ordered to undergo compulsory testing for having failed to comply with a compulsory testing notice); or
4. The employee is prohibited from leaving a restricted premises (that is, premises in relation to which a restriction-testing declaration is in force).
What are the Conditions for sickness allowance?
1. The employee produces a document issued by the government, or electronic data accessible in a manner prescribed by the government, which states:
a. The name or information identifying the identity of the employee;
b. The type of restriction imposed on the employee under the Cap 599 Requirement; and
c. The commencement and expiry dates of the restriction imposed by the Cap 599 Requirement;
2. The sick leave period is 4 consecutive days or more and the employee has accrued sufficient number of sickness days to cover the sick leave period; and
3. The reason why the employee is subject to a Cap 599 Requirement is not due to the employee’s serious and wilful misconduct.
It should be noted that if an employee is receiving sickness allowance, it would be unlawful to terminate the employee’s employment.
In practice due to the large numbers of infected who have not reported to the government for a number of different reasons, many firms have opted to pay staff sickness without official documentation where staff are seen to be reasonable.
II) Valid reason for dismissal to include Failure to Comply with a Legitimate Vaccination Request.
Under the Amendment, it would be a valid reason to dismiss an employee who fails to comply with a Legitimate Vaccination Request.
There are specific conditions that must be satisfied to constitute a Legitimate Vaccine Request, these include requests are made in writing and to every fellow employee who performs the same or similar work. The request should also be deemed as reasonable. In industries where there is a legal requirement for Vaccine passes the rationale for the request is clearer, however if the employer is concerned about other operational requirements it becomes more ambiguous. Until now the focus from the government has been on roles that are customer facing, outside of this it is yet to be tested in court and we would advise caution.
In the event of a refusal by an employee to get vaccinated it is recommended to explain the rationale for receiving a vaccination and try to encourage the employee to get vaccinated before considering dismissal. Vaccination is still a very personal and sensitive topic, and employers are being encouraged to be flexible and understanding.
III) Invalid reason for dismissal
The Amendment clarifies that an employee’s absence from work due to the employee’s compliance with a Cap 599 Requirement would be an invalid reason for dismissal or variation of the terms of the employment contract (“Invalid Reason Amendment”).
Employees are not protected from dismissal if they are absent from work due a COVID-19 related restriction on movement regardless of length of service.
Proposed new position
For employees who have less than 2 years of service: Same as current position (i.e. still not protected).
For employees who have been employed under a continuous contract of 2 years or more: Such employees would be protected against dismissal under the Invalid Reason Amendment.
Absence from work due to compliance with compulsory quarantine on arrival to Hong Kong from overseas is in law not an invalid reason for dismissal. However, it is likely it would be viewed as harsh treatment and an employee might still be protected from dismissal under other grounds.