International Labor & Employment Law Committee Newsletter

Issue: September 2012

Editor: Tim Darby | European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Canada Editor: Gilles Touchette | Asia and Oceania Editor: Ute Krudewagen

Hong Kong

Private Sector Paternity Leave Anticipated to Be Introduced in 2013

Jennifer van Dale, Baker & McKenzie, Hong Kong

Mandatory paid paternity leave of between three to five days may be introduced by statute in the private sector in Hong Kong next year. In April 2012, the government introduced five days of paid paternity leave for eligible government employees. It was reported that there was support among Legislative Council members for providing statutory paternity leave to all workers.It is anticipated that a proposal will be put to the Legislative Council next year and it is likely that statutory paternity leave could become a reality in 2013.

The media have reported concerns expressed by employers that statutory paternity leave would raise labor costs and place an unnecessary burden on employers. However, the government has estimated that the overall cost in lost man-hours would be between HK$300 million and HK$400 million a year, or about 0.02 per cent of the total, and the Secretary for Labour and Welfare has stated that the effect on the business sector of giving paternity leave is relatively small.

Tax Treatment for Hong Kong/Macau Residents Working in China Revised to Eliminate Double Taxation

Jennifer van Dale, Baker & McKenzie, Hong Kong

Hong Kong and Macau residents working in China will not be taxed both there and in China under State Administration of Taxation (SAT) notice (Bulletin 16)1 allowing for "preferential" individual income tax (IIT) treatment for such individuals. The bulletin allows for "time apportionment" of salary income based on the physical location of the employee on a given day, as well as special treatment of certain bonus income. Bulletin 16 applies to income earned on or after 1 June 2012.

Bulletin 16 provides a key benefit to Hong Kong residents working in China but still living in Hong Kong. Under the general IIT rules, such individuals could not enjoy time apportionment and their salary income was fully taxed in China unless they had a separate residence outside of China. At the same time, they were also taxed in Hong Kong if they spent more than 60 days in Hong Kong during a tax year.

Bulletin 16 now allows a Hong Kong or Macau resident employed in Hong Kong or Macau and seconded to work full time in China to enjoy time apportionment even without a residence outside of China. For example, a Hong Kong resident who goes to Shenzhen on Mondays, works in Shenzhen during the week and comes back to Hong Kong on Fridays, may be able to pay tax in China on only four-sevenths of his/her salary.

Another benefit under Bulletin 16 relates to bonus income attributable to multiple periods. Under the general IIT rules, bonus income attributable to multiple periods cannot be time-apportioned based on actual days spent in China. Thus, if an expatriate had spent one day in China in a particular month, the bonus income attributable to that month was fully taxed in China. Bulletin 16 purports to allow time apportionment on bonus income based on actual days spent in China during the period for which the bonus income is earned.

Hong Kong and Macau employers must file a 'Guoshuifa No. 124 form' each time they apply for the preferential treatment under Bulletin 16 for their employees. Also, working arrangements which involve cross-border duties must be appropriately documented and the favorable tax treatment must be provided for all employees who are eligible for it.

1Notice Regarding The Implementation of The Employment Income Related Clauses in The Double Tax Arrangements between Mainland China and Hong Kong and Macau (SAT Bulletin No. 16).

Use of Pinhole Cameras by Employer to Monitor Staff Violates Data Privacy Rules, Privacy Commissioner Rules

Jennifer van Dale, Baker & McKenzie, Hong Kong

Covert surveillance of staff should only be used by employers in exceptional circumstances, the Privacy Commissioner held in a recent case disallowing use of pinhole cameras.1

Two former employees of Hong Yip Service Company Limited (Hong Yip) made complaints to the Privacy Commissioner following their summary dismissal on the grounds of unauthorized absence from duty. The complainants were told that the decision to dismiss was based on images of them captured by a pinhole camera which showed that they had spent long periods in a changing room when they were on duty. The complainants found the pinhole in a metal box located on a staircase leading to the changing room. The complaint centered around the fact that Hong Yip had invaded their privacy by installing a device without their knowledge which was collecting their personal data.

The Privacy Commissioner found that Hong Yip's behavior was an "unfair" collection of data and in contravention of Data Protection Principle 1(2) specifying that personal data shall be collected by means that are (i) lawful; and (ii) fair in the circumstances of the case. In addition, the Privacy Guidelines: Monitoring and Personal Data Privacy at Work, provide that other overt options for obtaining the necessary data should be explored and objectively ruled out before deploying covert methods.

An individual who suffers damage, including injured feelings, by reason of a contravention of the Personal Data (Privacy) Ordinance in relation to his personal data may seek compensation from the data user concerned. Breach of an enforcement notice served by the Privacy Commissioner carries a penalty of a fine at Level 5 (at present HK$50,000) and imprisonment for two years.

The Privacy Commissioner did not issue an enforcement notice against Hong Yip due to the fact that the company had removed the camera and destroyed the images of the complainants and it was considered that repeated contravention of Data Protection Principle 1(2) was unlikely.

The Privacy Commissioner's powers in relation to enforcement notices and penalties for breach are due to increase as a result of the Personal Data (Privacy) Amendment Ordinance 2012, which comes into effect from October 1, 2012 (with a few provisions taking effect in 2013).

1Report Number R12- 4839 (14 February 2012).

Return to Home Page | Continue to the following pages: Brazil, Page 1 | Brazil, Page 2 | Canada | China, Page 1 | China, Page 2 | Hong Kong | India, Page 1 | India, Page 2

American Bar Association Section of Labor and Employment Law
321 N Clark | Chicago, IL 60654 | (312) 988-5813