Hong Kong: Government changed the mechanism for determining statutory minimum wage

On 30 April 2024, the Hong Kong government announced significant changes to the Statutory Minimum Wage (SMW) review mechanism, marking the first substantial update since its introduction 13 years ago.
This change follows a comprehensive study conducted in January 2023 to enhance protection for grassroots employees.
The government seeks to balance fair wages and economic stability, ensuring that the lowest-paid workers benefit from economic prosperity without compromising job security.

What are the fundamental changes to the SMW review mechanism in Hong Kong?

The key changes include:

The SMW rate will now be reviewed annually instead of biennially.
A new formula for adjusting the SMW rate has been adopted.
The new SMW review mechanism will be assessed five to ten years after implementation.

What does the new formula for adjusting the SMW rate take into account?

The new formula considers two main factors:

Inflation: Adjustments ensure that the SMW rate does not fall below the Consumer Price Index A, which covers about 50 per cent of Hong Kong's households.
Economic Growth: When the economy performs well, adjustments can exceed inflation, comparing the latest year's growth to the trend over the previous ten years.

What happens if the new formula yields a negative number?

If the formula yields a negative number, the SMW rate will be frozen for that year. This guarantees that the SMW will either increase or remain the same, with no reductions.

When will the first SMW rate calculated under the new formula take effect?

The first SMW rate under the new formula will take effect on 1 May 2026.

What should employers do in response to the new SMW review mechanism?

Employers should:

Review their current payroll systems to ensure they can promptly capture changes to the SMW rate and comply with SMW obligations.
Prepare for the new mechanism, including the annual adjustments to the SMW rate.

How will the effectiveness of the new SMW review mechanism be monitored?

The mechanism will be reviewed five to ten years after its implementation to assess its effectiveness and fairness, allowing for adjustments based on real-world outcomes and economic conditions.