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Following is a speech by the Secretary for Education and Manpower, Mr Joseph W P Wong, in moving the resolution under the Protection of Wages on Insolvency Ordinance in the Legislative Council today (Wednesday):

President,

I move the motion standing in my name on the agenda.

The resolution seeks to raise the limit of ex-gratia payment in respect of severance payment payable from the Protection of Wages on Insolvency Fund.

The Protection of Wages on Insolvency Ordinance (the Ordinance) which came into effect in 1985 stipulates that employees who are owed the arrears of wages, wages in lieu of notice or severance payment they are entitled to under the Employment Ordinance (Cap. 57) by their insolvent employers may apply for ex-gratia payments from the Protection of Wages on Insolvency Fund (the Fund). The ceilings for ex-gratia payments are set out in the relevant provisions of the Ordinance.

Under section 3 of the Ordinance, the Protection of Wages on Insolvency Fund Board (the PWIF Board) has been formed to administer the Fund. The Ordinance also authorises the Commissioner for Labour to make ex-gratia payments from the Fund to those employees affected by their insolvent employers. The PWIF Board comprises a chairman, three representatives each from employers and employees and three public officers. Regular reviews on the payment limits are conducted to ensure that the amount of ex-gratia payments provide reasonable protection for employees. The most recent adjustment was made in February 1996.

We have recently conducted a review on the coverage of the Fund. We found that in 1997/98, over 93 per cent and 97 per cent of the applicants for payments of arrears of wages and wages in lieu of notice respectively could recover their full entitlements. However, in 1997/98, only about 74 per cent of the applicants for severance payment could recover their entitlements in full.

As the vast majority of applicants have been able to recover their full entitlements to arrears of wages and wages in lieu of notice, the Administration considers that the existing levels of protection for these two items are adequate and there is no need to revise their payment limits. Nevertheless, we consider that there is a need to provide better financial relief to employees who are owed severance payment by their insolvent employers. This is particularly important as under the present economic climate, these employees may need more time to secure a new job. A higher sum of ex-gratia payment of severance payment will enable them to tide over the unemployment period without having to resort to the Comprehensive Social Security Assistance.

We now propose to increase the limit of ex-gratia payment for severance payment, from the existing $36,000 plus 50 per cent of any excess entitlement, to $50,000 plus 50 per cent of the same excess entitlement. This proposal, if implemented, will enable more applicants to get the full amount of their entitled severance payment. Even though some will still be unable to recover their full entitlements, they will get a higher level of severance payment from the Fund. Based on our estimation, about 84% of the applicants will be able to get their entitled severance payment in full after the passage of this proposal.

It is estimated that implementation of the proposed severance payment limit will cost an additional $19 million annually in pay-outs. Although the Fund has recorded an operating deficit of over $100 million for the period April to December 1998, the financial position of the Fund is still healthy. As at the end of December 1998, the total accumulated fund stood at $747.5 million which should be able to cope with the additional pay-outs. Therefore, the proposal is unlikely to increase the levy to be paid by employers.

The Labour Department has consulted and received support from the Labour Advisory Board and the PWIF Board. The Legislative Council Panel on Manpower has also given their support to the proposal.

Subject to the passage of the resolution by this Council, we recommend that the revised limit of ex-gratia payment of severance payment should become effective on the day of its publication in the Gazette (that is, February 5, 1999).

President, I beg to move.

End/Wednesday, February 3, 1999

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