The Hong Kong government has rolled out changes to the review mechanism for determining statutory minimum wage (“SMW”) for the first time since SMW was introduced in Hong Kong 13 years ago.
The changes came about after a study was conducted in January 2023 which examined ways in which the SMW review mechanism could be enhanced to provide better protection to grassroots employees.
The changes include:
- Reviewing the SMW rate once a year;
- Adoption of a new formula for adjusting the SMW rate; and
- Reviewing the new SMW review mechanism between five and ten years after its implementation.
The new formula takes into account:
- Inflation: To ensure that adjustments in SMW will not fall below Consumer Price Index A, which covers about 50% of households in Hong Kong, so as to protect the purchasing power of the SMW; and
- Economic growth: To enable increases in SMW to be higher than inflation when the economy is performing well, where economic growth in the latest year will be compared against the growth trend in the previous 10 years.
Should the new formula yield a negative number, the SMW in the relevant year will be frozen. In other words, the new formula will guarantee that SMW will either increase or remain the same. There would not be any lowering of the SMW.
The Government said in its press release statement that the changes strike “an appropriate balance between the objectives of forestalling excessively low wages and minimising the loss of low-paid jobs, while giving due regard to sustaining Hong Kong’s economic growth and competitiveness”.
The first SMW rate to be calculated under the new formula will take effect on 1 May 2026.
As the SMW rate will be reviewed more frequently following the roll out of the new SMW review mechanism, employers may wish to review their current payroll systems to ensure that changes to the SMW rate will be captured promptly in their payroll systems to facilitate compliance with SMW obligations.
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