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Legal Update

More About 'Wages' - When Are Tips included?

20 August 2007
Mayer Brown JSM Legal Update


In the recent High Court case of Lam Pik Shan v Hong Kong Wing On Travel Service Limited considers whether tips for a tour guide fall within the definition of wages in the Employment Ordinance. Hon Yam J overturned an earlier decision of the Labour Tribunal by determining that all the tips and service charges pocketed by the claimant, a tour guide, formed part of her "wages" for the purposes of the Employment Ordinance.

Full Update

The Employment Ordinance (the "EO") provides for payment of various statutory entitlements. Most of these are determined by reference to the "wages" of the employee.

A tour guide's salary is well known to be minimal. The majority of a tour guide's income derives from tips and service charges. 

In the case of Lam Pik Shan v Hong Kong Wing On Travel Service Limited (HCLA 19/2006), a tour guide claimed that tips and service charges received by her should be included as wages under the EO and, therefore, be taken into account in determining statutory benefits.

The Law  

Section 2 of the EO provides that:

    " 'Wages' ... means all remuneration, earnings, allowances including travelling allowances and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment  ..." (emphasis added)

 "[T]ips and service charges" is also defined in the same section as follows:

    " relation to wages, means sums of money received, directly or indirectly, by an employee in the course of and in connection with his employment which are-

      (a) paid or derived from payments made by persons other than the employer; and

      (b) recognized by the employer as part of the employee's wages; ..." (emphasis added)

The Facts

The claimant, Lam Pik Shan ("Lam"), was a tour guide employed by the respondent, Hong Kong Wing On Travel Service Limited ("Wing On") since April 1997. Her contract of employment was terminated in February 2003, during SARS. Lam claimed against Wing On for a number of entitlements, including annual leave pay and statutory holiday pay in lieu, amounting to a total of over HK$150,000. 

It was accepted that, in the last 12 months prior to Lam's termination of employment, she had received a basic monthly salary of HK$2,200 and tips and service charges which varied from a few thousand to over HK$10,000 a month.

Wing On contended that tips and service charges were not part and parcel of Lam's wages and her wages should be capped at the basic salary. In contrast, Lam asserted that the full amount of tips pocketed by her, as well as the tour allowance payable for each trip by Wing On should be included in her "wages".

The presiding officer at the Labour Tribunal found that the tips were not payable as part of the employment arrangement but, instead, through a collateral agreement.  As such they did not fall within "wages".

The Findings Of Court Of First Instance

The Court of First Instance disagreed with the presiding officer's finding that the collection of tips from customers was under a separate collateral contract between Lam and Wing On. In particular, Wing On could and actually did elect to collect tips on behalf of the tour guides.

The court considered that a key issue in determining whether the tips should be part of Lam's wages was whether or not Wing On recognised the tips as part of Lam's wages. The court found that Wing On did not just recognise the existence of tips, but had actively participated in the collection of the tips before every tour.  Wing On had also issued letters to credit card companies stating Lam's total annual income including her tips received in the figures specified in such letters. Further, Wing On reported to the IRD the total income of each and every tour guide including all the estimated amounts of tips in its records.

The Decision

Yam J determined that tips and service charges were part of the wages of the tour guide "received by an employee in the course of and in connection with his employment which are paid or derived from payments made by persons other than the employer". The appeal was therefore allowed and the case was remitted to the Labour Tribunal for assessment of Lam's entitlement.

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