![[713 Ordinance] Employers must read: how are 12-month average wages calculated? How is paid sick leave or a bonus counted?](https://setuphk.com/wp-content/uploads/2025/08/713-ordinance.jpg)
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The Hong Kong 713 Ordinance (i.e. the Employment (Amendment) Ordinance 2007, in effect from 13 July 2007) aims to ensure employees enjoy statutory benefits such as paid sick leave and maternity leave, by regulating how the 12-month average wage is calculated, ensuring that pay is fair and compliant.
What is the 713 Ordinance?
A pay system that protects all employees
The 713 Ordinance refers to the wage calculation rules added when Hong Kong's Employment Ordinance The wage calculation rules added after the amendment on 13 July 2007 apply to all employees, whether full-time, part-time or on temporary contracts.
The purpose of the law is to prevent employees' wages from being unfairly reduced because of work arrangements, commission fluctuations or other factors, while giving employers a clear and compliant calculation method.
Scope of the 713 Ordinance
The Ordinance covers a range of statutory benefits, including:
- paid sick leave
- Maternity leave
- Pre-confinement leave
- Holiday pay
- Payment in lieu of notice
- Dismissal compensation
Employers must apply the corresponding calculation method required by the Ordinance and keep the relevant wage records, so that they can prove the basis of the calculation to the Labour Department or a court when necessary.
What items do “713 wages” cover?
Under the Ordinance, calculating an employee's “12-month average wages” covers not only basic salary but also a range of income items directly related to the work, such as:
- Basic salary: fixed monthly or hourly pay
- Fixed allowances: transport allowance, housing allowance and the like (not reimbursements)
- Bonuses: bonuses linked to work performance or company results
- Commission: payments calculated on sales, performance and the like
- Holiday pay: paid sick leave, maternity leave, pre-confinement leave, annual leave and the like Statutory holidays Wages
When calculating, employers should remember to exclude the days of unpaid leave, so that the average wages truly reflect the employee's correct level of income.
How to calculate average wages
Calculating 12-month average wages
The basic formula for average wages is:
12-month average wages = (total wages for 12 months – excluded wages) / (number of days in the 12-month period – excluded days)
The purpose of deducting excluded wages is to prevent average wages from being pulled down by income fluctuations during certain periods.
In practice, however, not all employees are paid a fixed monthly salary, so the different calculation methods below need to be considered:
Fixed monthly salary
If an employee is paid a fixed monthly salary, the calculation is relatively simple: add up the fixed salary for the past 12 months, divide by the number of months employed, and then convert to the number of days payable.
Fixed monthly salary example: Mr A's total salary is HK$200,000; average daily wage = $200,000/365 = $547.95
Commission only
For employees whose main income is commission only, the average wage calculation must add up all commission earned in the past 12 months and then deduct the days of unpaid leave to calculate the average daily wage.
This approach reflects the income fluctuations of sales or performance-based jobs and ensures that employees receive fair compensation during leave.
Commission-only example (commission/days): Mr B's commission is HK$350,000/365 = $958.9
Basic salary + commission
If an employee has both basic salary and commission, the two parts of income must be combined and then divided by the actual number of days employed.
Basic salary + commission example ((commission + basic salary)/days): Mr C's total of basic salary + commission is HK$450,000/365 = $1232.88
Which periods and wages are “excluded”?
Sick leave, maternity leave and annual leave
For leave such as sick leave, maternity leave and annual leave, if the leave is unpaid it is not counted in the average wage calculation. If it is paid leave, however, the employer must pay it at the average wages of the past 12 months under the 713 Ordinance.
Annual leave increases with length of service, sick leave has an accumulation cap and maternity leave has a statutory number of days. The aim of the 713 Ordinance is to make sure your pay stays protected when you take leave.
Other holidays (general holidays and rest days)
Under the 418 Ordinance, all employees under a continuous contract are entitled to rest days, statutory holidays and paid annual leave. Rest days may be paid or unpaid, depending on the terms of the employment contract signed at the time.
Employees are also entitled not to work for their employer on rest days. If an employer wants employees to work on a rest day, it must give them advance notice.
If these rest days are unpaid, the days must be deducted when calculating average wages. If they are paid, the days must be included in the calculation.
Example: “excluded” days
Taking 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 took 10 days of leave in May, his holiday pay would be: HK$547.95 X 10 days = HK$5479.5.
After calculating the holiday pay, deduct it from the total salary and multiply by the remaining days:
($200,000 - $5479.5)/(365 - 10) = $547.95
By deducting these two factors in the calculation, the employee's income will not be underestimated because of leave.
FAQ
How is paid annual leave calculated?
Paid annual leave pay must be calculated using the 12-month average wages under the 713 Ordinance. This includes basic salary, commission, fixed allowances and bonuses, and excludes the days and wages that are “excluded”.
Does holiday pay include commission?
Yes. Holiday pay must also include a proportionate amount of commission. This is a statutory entitlement of employees, so it must be included in the calculation.
Does the 713 Ordinance apply to employees on probation?
If an employee on probation has been employed continuously for 4 weeks or more and works at least 18 hours a week, the employment contract is a “continuous contract” and the 713 Ordinance applies.
How is it calculated if the period of employment is less than 12 months?
For employees who have worked less than 12 months, divide the total earnings during the actual period of employment by the number of days employed in that period, then multiply by the number of days accrued.
For example, if someone works at a company for 3 months, earns a total salary of HK$90,000 and takes no leave during that period, the average wage is HK$90,000/90 = HK$1,000.
How is it calculated if pay changed during the past 12 months?
When calculating pay, you must add up all income before and after the pay adjustment. For example, if the first half of the year is paid at the old salary and the second half at the new salary, add the two together and divide by the actual number of days employed after deducting the “excluded” days. This gives the correct average daily wage.
If a company has miscalculated salary, how far back can a claim go?
Under Hong Kong's Employment Ordinance and Limitation Ordinance, a labour dispute that needs to be brought to the Labour Tribunal must be filed within 6 years from the date the event occurred.
Not sure about the 713 Ordinance? SetupHK offers professional company secretarial services
The 713 Ordinance covers the calculation of average wages, the components of pay and statutory holiday pay. For employers and HR teams, a calculation error can not only affect employees' rights but also lead to labour disputes and legal liability.
The SetupHK team has years of experience in corporate compliance and personnel management. We can review your pay system, set up compliant processes and provide ongoing company secretarial services, making sure your business fully complies with the Employment Ordinance and related regulations and avoiding unnecessary legal risk.
