‘418 rule’ overhaul bridges benefit gap for Hong Kong workers

Upon legislation, the ‘468 rule’ will benefit an additional 11,400 Hong Kong employees.

As labour market trends evolve, employees are demanding greater protection that aligns with the industry’s current dynamics. This growing demand has prompted Hong Kong to relax its employment ordinance, extending coverage to more workers seeking to exercise their statutory rights.

For years, Hong Kong has followed the “418 Rule,” which regards employees as engaged under a “continuous contract” if they have been employed by the same employer for at least four weeks and have worked at least 18 hours a week.

“All employees covered by the Employment Ordinance (EO), irrespective of their hours of work, are entitled to basic protection under EO including payment of wages, restrictions on wages deductions and granting of statutory holidays (SH), etc. Employees who are employed under a ‘continuous contract’ are further entitled to such benefits as SH pay, paid annual leave, sickness allowance, statutory maternity leave, statutory paternity leave, severance payment and long service payment, subject to their fulfilment of respective eligibility criteria of individual benefits,” the Labour Department told Hong Kong Business.

In February, the Labour Advisory Board agreed to revise the “continuous contract” requirement under the Employment Ordinance. Now, an employee meets this requirement if they work at least 68 hours for the same employer over four weeks, allowing those who work shorter hours to enjoy EO benefits. This amendment bill is set to be introduced in the Legislative Council in H1 2025.

Enhanced employee protection

In addition to providing more employees with benefits, the amendment bill aims to protect employees from potential exploitation. Cynthia Chung, corporate commercial partner at Deacons, explained this in an interview with Hong Kong Business.

“There has actually long been a discussion as to whether change needs to be made regarding how ‘continuous employment’ is defined. The current 418 rule has been in place for approximately 30 years, and a glaring loophole under the current rule is that some employers exploit it by having their part-time employers work many hours during the first three weeks of employment, then cap it to under 18 hours in the fourth week, so as to avoid their employees meeting the ‘continuous employment’ status, thereby excluding them from enjoying the benefits granted by the Employment Ordinance to those employees who meet the status of ‘continuous employment,’” Chung said.

With more inclusive legislation, workers in full-time or part-time setups will be protected under the law, covering a significant number of employees in sectors such as construction, retail, and hospitality, where short-term employment contracts are common.

“The existing eligibility criteria for various benefits under EO shall remain unchanged (e.g. an employee having been employed under a ‘continuous contract’ for not less than three months immediately preceding a SH is entitled to the holiday pay). With the relaxation of the threshold of the ‘continuous contract’ requirement, it is expected that more employees with shorter working hours can meet the threshold,” the Labour Department said.

Industry effect

Upon legislation, the proposed amendment bill is expected to benefit 11,400 employees who are currently not employed under a “continuous contract,” as they will meet the revised 468 standards.

“We envisage the change will help attract more people to enter the labour market and may help alleviate the manpower shortage in industries like the retail, accommodation and food services sector, and public administration, social and personal services sector which have engaged more employees with shorter working hours,” the Labour Department said.

Whilst the amendment bill will prove to be beneficial to employees, it may pose challenges for employers. Stephanie Yip, corporate commercial associate at Deacons, said: “Currently, Hong Kong is experiencing a serious manpower shortage, and many employers have been aggressively hiring, especially part-timers.”

“However, due to the present economic challenges, employers may need to sit down and have a think as to whether they could afford to hire as many part-timers as they wish, and afford to pay out the benefits guaranteed under the Employment Ordinance, if such part-timers meet the new continuous employment status,” she warned.

With rising costs, employers must develop strategies to alleviate this burden whilst sustaining their manpower needs.

“Currently, many employers, especially in the retail and hospitality sector, design their employees’ work schedules so that they fall outside of the 418 rule, due to the costs of paying out the benefits granted to employees who fall under continuous employment,” said Chung.

“Once the new rule comes in, if employers still want to ensure that those employees who currently do not qualify for continuous employment status continue to fall out of such scope, they may need to enter into variations of employment contract with such employees to adjust their working hours downwards (which would then affect their pay).”

To ensure that employers comply, the government will provide them with sufficient time to prepare before the amendments take effect.

“We will also launch a publicity campaign to make clear the amendments to employers and employees, on top of our regular enforcement action,” the Labour Department said.

Although the legislative amendment is focused on specific demographics and is adequate for the present labour market, Yip mentioned that Hong Kong law will eventually take a step further to address the prevailing gig economy, thereby enhancing worker protection and labour inclusivity.

“Due to the prevalence of [the] gig economy in Hong Kong, sooner or later, the issue of gig workers will have to be addressed by Hong Kong labour law. Currently, gig workers are often classified as self-employed persons or independent contractors, therefore giving them practically none of the rights and benefits due an employee in Hong Kong,” Yip said.

She noted that the gig economy has become prominent globally, with jurisdictions such as China, the UK, and New York City already passing laws, introducing guidelines, and adjudicating cases to protect gig workers.

“Hong Kong will need to consider if gig workers should have their own classification under Hong Kong labour law, and the major points of focus should cover minimum wage, working conditions, work injury compensation, and also obligations on the digital platforms that hire the gig workers,” she said.

“The Government will continue to review the labour legislation from time to time in the light of social changes and economic development to progressively improve employees’ rights and benefits. We will also continue to encourage employers to provide to their employees employment benefits that are better than statutory requirements,” the department said.