![[Ordinance 713] Employers Must Read: How to Calculate 12 Months' Average Wage? Paid sick leave and bonus?](https://setuphk.com/wp-content/uploads/2025/08/713-ordinance.jpg)
Employers must read this! How to calculate the 12-month average wage? How to calculate the 12-month average wage?
Since its amendment in 2007, the Hong Kong 713 Ordinance aims to protect employees' entitlement to statutory benefits such as paid sick leave and maternity leave by standardising the calculation of the 12-month average wage, so as to ensure fair and compliant pay.
What is the 713 Ordinance?
Ensure a secure remuneration system for all employees
The 713 Ordinance is part of Hong Kong'sEmployment OrdinanceThe new requirements for wage calculation under the amended Ordinance on 13 July 2007 apply to all employees, irrespective of whether they are employed on a full-time, part-time or temporary contract basis.
The purpose of the legislation is to prevent unfair reduction of wages due to work arrangements, fluctuation in commission or other factors, and to ensure that employers have a clear and compliant method of calculation.
713 Application of the Ordinance
The Ordinance covers a wide range of statutory benefits, including:
- Paid sick leave
- maternity
- Maternity leave
- holiday pay
- payment in lieu of notice
- Dismissal compensation
Employers are required to provide the corresponding calculation method in accordance with the Ordinance and keep relevant wage records to facilitate proof of the basis of calculation to the Labour Department or the Court when necessary.
What are the specific items covered by "713 Wage"?
According to the Ordinance, when calculating an employee's "12-month average wage", not only does it include basic salary, but it also needs to include a wide range of income items that are directly related to work, for example:
- Basic salary: fixed monthly or hourly
- Fixed allowances: travelling allowance, housing allowance, etc. (non-reimbursable)
- Bonus/Incentive: Bonus linked to job performance or company results
- Commission: commission based on sales volume, performance, etc.
- Leave pay: paid sick leave, maternity leave, leave pending maternity leave, annual leave, etc.statutory holidaysWages
Employers should remember to exclude the number of days of unpaid leave in the calculation to ensure that the average wage is a true estimate of the correct level of income of employees.
Calculation of average wage
Calculation of average wage for 12 months
The basic formula for calculating the average wage is:
12-month average wage = (12-month total wages - disregarded wages) / (12-month period days - disregarded days)
The purpose of deducting disregarded wages is to avoid lowering the average wage due to fluctuations in earnings over a period of time.
However, in practice, not all employees adopt the fixed monthly salary system, so it is necessary to refer to the following different calculation methods:
fixed-monthly salary system
If an employee is on a fixed monthly salary, the calculation will be simpler. Simply add up the total amount of fixed salary for the past 12 months, divide by the number of months of employment, and convert to the number of days payable.
Example of calculation under the Fixed Monthly Salary System: Mr A's total salary is HK$200,000, average daily salary = $200,000/365 = $547.95
pure commission system
For employees whose main source of income is pure commission, the average wage is calculated by adding up all commission earned in the past 12 months and deducting the number of no-pay days to arrive at the average daily wage.
This approach reflects fluctuations in earnings from sales or performance-based jobs and ensures that employees are fairly compensated during the holiday period.
Example of commission-only calculation (commission/day): Mr B's commission is HK$350,000/365 = $958.9
Base salary + commission system
If an employee has both basic salary and commission, the two portions of income should be combined and divided by the actual number of days of employment.
Base Salary + Commission System Calculation Example ((Commission + Base Salary)/Days): Mr C's Base Salary + Commission Total Salary is HK$450,000/365 = $1232.88
What are the "disregarded" periods and wages?
Sick leave, maternity leave, annual leave
Leave such as sick leave, maternity leave and annual leave, if unpaid, will not be counted towards the calculation of average wage; however, if they are paid leave, the employer has to pay them with the average wage of the past 12 months in accordance with the 713 Ordinance.
As annual leave will increase with years of service, sick leave has an accumulation ceiling, and maternity leave has a statutory number of days, the purpose of Ordinance 713 is to ensure that your salary is still protected when you take leave!
Other holidays (public holidays, rest days)
Under the 418 Ordinance, employees under a continuous contract are entitled to rest days, statutory holidays and paid annual leave, which may be paid or unpaid depending on the content of the employment contract signed at the time.
In addition, employees have the right not to work for their employers on rest days. Employers must notify their employees in advance if they want their employees to work on their rest days.
If these rest days are unpaid, they should be deducted from the calculation of average wages; if they are paid, they should be included in the calculation.
Example: "Exclusion"
Take Mr A mentioned above as an example, his total salary is HK$200,000 and his average daily wage is HK$547.95. If he takes 10 days of leave in May, his leave pay will be: HK$547.95 X 10 days = HK$5479.5.
After calculating the leave pay, deduct the total pay and multiply it by the number of days remaining:
($200,000 - $5479.5)/(365 - 10) = $547.95
After deducting these two factors from the calculation, the income of employees will not be underestimated because of holidays.
Frequently Asked Questions
How is paid annual leave calculated?
Paid annual leave pay shall be calculated on the basis of the 12-month average wages in accordance with the 713 Ordinance, including earnings such as basic salary, commission, fixed allowances and bonuses, etc., and excluding "disregarded" days and wages.
Does commission include holiday pay?
Yes! Holiday pay should also include a proportionate amount of commission, which is a statutory entitlement of the employee and must therefore be taken into account.
Is the 713 Ordinance applicable to probationers?
If a probationary employee is employed for 4 or more consecutive weeks and works at least 18 hours per week, his employment contract is a "continuous contract" and then the 713 Ordinance applies.
What is the calculation if the period of employment is less than 12 months?
For employees who have worked for less than 12 months, the calculation is based on the total earnings during the actual period of employment divided by the number of days of employment during that period and multiplied by the number of accrued days.
For example, if you have worked for the company for 3 months with a total salary of HK$90,000 and no leave record during the period, the average wage is HK$90,000/90 = HK$1,000.
What is the calculation if there is a salary adjustment in the past 12 months?
In calculating pay, all earnings before and after the pay adjustment must be added together, for example, the old salary for the first half of the year and the new salary for the second half of the year, and then divided by the actual number of days of employment after deduction of the number of "disregarded" days to arrive at the accurate average daily wage.
If a company is found to have miscalculated salaries, what is the retrospective period?
Under the Employment Ordinance and the Limitation Ordinance of Hong Kong, a labour dispute must be lodged with the Labour Tribunal within six years from the date of occurrence of the dispute.
Don't know the 713 Ordinance? Langfeng Business Consultants provides professional company secretarial services
The 713 Ordinance covers the calculation of average wage, salary composition and statutory holiday pay, etc. For employers and human resources, miscalculation may not only affect employees' rights and benefits, but also give rise to labour disputes and legal liabilities.
With years of experience in corporate compliance and personnel management, our team can review your payroll system, establish compliance processes, and provide ongoing company secretarial services to ensure that your business is in full compliance with the Employment Ordinance and related regulations to avoid unnecessary legal risks.