Paid Annual Leave is part of the compensation
Everyone knows there are 365 days in a year. Besides the weekend off, an employee does have annual leave. Also, paid annual leave is part of the compensation. Then what should an employer be aware of?
Who can entitle a Paid-Leave?
According to the Employment Ordinance, employees who have been employed under a continuous contract for 12 months are entitled to annual leave with pay. An employee’s entitlement to paid annual leave increases progressively from seven days to a maximum of 14 days according to his length of service.
Can an employer pay in lieu of Leave?
According to the Employment Ordinance, regardless of whether an employee is entitled to holiday pay, an employer should grant his employee a statutory holiday, or arrange an “alternative holiday” or “substituted holiday”. An employer must not make any form of payment to the employee in lieu of granting a holiday. In other words, “buy-out” of a holiday is not allowed. However, an employee may choose to accept payment in lieu of the part of his leave entitlement which exceeds 10 days.
For example: An employee who is entitled to 12 days of paid annual leave may choose to take only 10 days of paid annual leave and accept payment from the employer in lieu of 2 days of annual leave.
How to calculate if paid annual leave is converted into the payment?
The daily rate of annual leave pay is a sum equivalent to the average daily wages earned by an employee in the 12-month period.
Current staff
| Employment | |
| More than 12 months | Previous 12 months average daily wage X no. of annual leave |
| Less than 12 months | Employment period average daily wage x no. of annual leave |
For example: Ada worked for your company more than a year. And her total salary is HK$200,000 (Included salary and commission etc). Total work days are 240. If Amy takes 7 days annual leave. The calculation is
HK$200,000 / 240 x 7 = HK$5,833.33
Termination of Employment Contract
| Period of Employment | Annual Leave Entitlements |
| Less than 3 months | 0 |
| 3-12 months | Work days/365 x Entitled Annual Leave in the current leave year |
| 12 months, less than 3 months in the current leave year | Annual leave not yet taken |
| 12 months, 3-12 months in the current leave year | Work days/365 x No. of Annual leave + Annual leave not yet taken |
What is the consequence if an employer denies an employee to take annual leave?
An employer who does not allow employees to take annual leave is liable to prosecution. And, upon conviction, to a fine of $50,000.
For further information, please contact us.
You may want to read: MATERNITY LEAVE REIMBURSEMENT SCHEME IN HONG KONG