Understanding the 713 Ordinance: A Quick Guide to the Hong Kong Employment Ordinance and the Average Daily Wage

Guide to Hong Kong's 713 Ordinance
Reading Time: 4 minutes

Greetings! We hope you’re ready to take explore one of the most important regulations for Hong Kong businesses – The 713 Ordinance, often known as the 713 Employment Ordinance.

Whether you’re a seasoned business owner or just starting started, learning the nuances of the 713 Ordinance will help you avoid costly legal bills. Hopefully, this quick guide will assist you in developing HR policies that comply with Hong Kong’s employment regulations.

In summary, we will explain what the 713 Ordinance is, how it affects the calculation of Hong Kong’s Average Daily Wage (ADW), and how it may affect your company’s operations. So let’s dive in!


What is the 713 Ordinance, exactly?

What do you think of when you hear the term “713 Ordinance”? It sounds like a section inside a thick law book, doesn’t it? Well, it’s just like what it sounds. The term “713 Ordinance” refers to a section of the Hong Kong Employment Ordinance that describes how to calculate an employee’s average daily income, or “Average Daily Wage” (ADW).


Yes, but what does that calculation have to do with anything?

Well, an employee’s Average Daily Wage (ADW) computation plays an important role in establishing statutory benefits such as holidays, paid sick leave, and severance. We’ll touch on this later. But first, let’s determine how to calculate the Average Daily Wage (ADW). 

In this article, note that I’ll be using the terms “Average Daily Wage” and “ADW” concurrently. They will refer to the same thing.


Understanding the Calculation of the Hong Kong Average Daily Wage (ADW)

The formula used by the 713 Ordinance to determine the Average Daily Wage (ADW) forms the basis of the law. It is as follows:

Average Daily Wage = Total Wages in a 12-Month Period / Total Number of Days Worked

Let’s try to break this down a little bit:

  • Total Wages in a 12-Month Period: This is the total amount of money a worker has made over the previous 12 months. Regular base salary payments and commission are included, but irregular ones such as bonuses, year-end payouts, and other ad-hoc allowances are not.
  • Total Number of Days Worked: This sums up all of the days that an employee worked, including including rest days, statutory holidays, and paid leave.

While this may appear simple, it’s crucial to keep in mind that calculating details and certain exemptions can change these computations. For example, while some specific types of leave can contribute toward the number of days worked, or certain allowances may affect the wage calculation in the 12-month period. When in doubt, it is best to check with the relevant statutory boards and authorities before processing your ADW payments.


How the 713 Employment Ordinance affects your business

Just like any type of law, the 713 Ordinance shouldn’t be taken lightly. It is a guiding principle that can have an effect on many different parts of your business operations.

  • Payroll calculations: To achieve accurate salary computations, your HR and payroll personnel must be aware of this regulation. Any errors could lead to underpayments or overpayments, which would cause compliance problems.
  • Policy choices: The ADW calculation can affect your choices about pay practices, bonuses, leave, and other things. Making decisions that are both advantageous for your employees and in accordance with the law requires knowledge of the 713 Ordinance.
  • Resolution of disputes: A thorough understanding of the 713 Ordinance will aid in the quick and legal resolution of any potential employment conflicts.

Just like any type of law, the 713 Ordinance shouldn’t be taken lightly. It is a guiding principle that can have an effect on many different parts of your business operations.



Common misunderstandings About the 713 Ordinance

It is not uncommon for people to have some misconceptions about the 713 Employment Ordinance. Here are a few of the most typical:

  • Wage exceptions: When determining the average daily wage, not all payments are included in the total compensation. For instance, year-end payments and irregular bonuses (i.e. ad-hoc bonus) are not included in overall compensation.
  • Total days worked: Some companies believe that only when an employee has actually worked x number of days, then should it be included in the total number of days worked. However, according to the 713 Ordinance, even statutory holidays, rest days, and paid leave should also be counted as the number of days worked.

According to the 713 Ordinance, even statutory holidays, rest days, and paid leave should also be counted as the number of days worked.



Let’s wrap up

The 713 Employment Ordinance is more than just a law – it is a legal obligation that affects your HR strategy and operations. It not only affects salary calculations, but also has ramifications on how your company’s policies are created and managed to avoid expensive disputes.

Understanding the subtleties of the 713 Ordinance can help your company stay in compliance, safeguard the rights of your employees, and promote a more open and equitable work environment.

At Talenox, we are aware of the challenges that come with managing a company’s HR needs. Our goal is simple – we want to make your HR experience as humanly simply and efficient as possible. Our HR software was created with companies like yours in mind, providing payroll and leave solutions that are user-friendly and legally-compliant.

With our software, you may automate all your payroll and leave calculations, assuring accuracy and compliance with rules like the 713 Employment Ordinance. In this manner, you are able to concentrate on what you do best—running your business—while leaving the challenges of payroll to us.

Watch this space for further information on HR-related topics as well as company rules and best practices in Hong Kong! Please contact us if you require further assistance or have any queries regarding the 713 Ordinance. We’re here to assist you!

[Note: The purpose of this blog post is to explain the 713 Employment Ordinance in simple terms. It is not a substitute for qualified legal counsel. For specific business-related assistance, we suggest speaking with a legal specialist or qualified HR consultant.]

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