Payroll Concepts > Pay-Related Calculations > Average Daily Wage

Upon commencement of the Employment (Amendment) Ordinance 2007, regardless of whether an employee is monthly, daily or piece rated, his relevant statutory entitlements shall be calculated on the basis of his 12-month average wages; and in computing his average wages, any periods and wages that fall under the “disregarding provisions” shall be excluded.

In calculating the average daily wages, an employer has to exclude:

  1. the periods for which an employee is not paid his wages or full wages, including rest day, statutory holiday, annual leave, sickness day, maternity leave, paternity leave, sick leave due to work injuries or leave taken with the agreement of the employer, and any normal working day on which the employee is not provided by the employer with work; together with
  2. the sum paid to the employee for such periods.

Definition of Wages

“Wages” means all remuneration, earnings, allowances, tips and service charges, however designated or calculated, payable to an employee in respect of work done or work to be done. Allowances including travelling allowances, attendance allowances, commission and overtime pay are within the definition of wages. However, it does not include:

  1. the value of any accommodation, education, food, fuel, water, light or medical care provided by the employer;
  2. employer’s contribution to any retirement scheme;
  3. commission, attendance allowance or attendance bonus which is of a gratuitous nature or is payable only at the discretion of the employer;
  4. non-recurrent travelling allowance or the value of any travelling concession or travelling allowance for actual expenses incurred by the employment;
  5. any sum payable to the employee to defray special expenses incurred by him by the nature of his employment;
  6. end of year payment, or annual bonus which is of a gratuitous nature or is payable only at the discretion of the employer;
  7. gratuity payable on completion or termination of a contract of employment.

An employee’s entitlements to end of year payment, maternity leave pay, paternity leave pay, severance payment, long service payment, sickness allowance, holiday pay, annual leave pay and wages in lieu of notice are calculated according to the above definition of wages.

Overtime pay* should also be included in calculating the above payments if it is of a constant character; or its monthly average over the past 12 months is not less than 20% of the average monthly wages of the employee during the same period.

* SimplePay will not be including overtime in the average daily wage calculation by default

To calculate the Average Daily Wage accurately, the employee’s salary information for the previous 12 months is required. For employees with less than 12 month’s salary information, a custom Average Daily Wage will need to be entered. To set a Custom Average Daily Wage do the following:

  1. Go to the employee’s profile and click on Leave > Record Taken.
  2. Go to the Average Daily Wage Override section and enter the employee’s correct Average Daily Wage.
  3. Using the Override Nature drop-down menu, indicate whether the Custom Average Daily Wage should be used permanently, for the employee’s first month of employment only or for the employee’s first year of employment only.
  4. Click Save.

For more information about calculating the average daily wage, and some examples, please visit the Labour Department website.

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