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LCQ3: Protection of Wages on Insolvency Fund

     Following is a question by Hon Chung Kwok-pan and a reply by the Secretary for Labour and Welfare, Mr Matthew Cheung Kin-chung, in the Legislative Council today (January 28):


     The major financial source of the Protection of Wages on Insolvency Fund (the Fund) is the annual levy on business registration certificates (BRCs). The Protection of Wages on Insolvency Fund Board (the Board) is tasked to administer the Fund and make recommendations to the Chief Executive with respect to the BRC levy rate. Some operators of small and medium enterprises (SMEs) have pointed out that as the economy of Hong Kong has remained stable in recent years, the Fund's expenditure on ex gratia payments disbursed to employees has been declining, resulting in a huge surplus accumulated by the Fund. In this connection, will the Government inform this Council:

(1) of the number of claims received by the Fund from employees since April last year; the total amount of ex gratia payments and the number of companies involved in those claims; the industry which attracted the largest number of claims; whether there is an upward trend on the number of claims;

(2) of the amount of BRC levy income credited to the Fund since April last year and the projected income for the next financial year; whether the authorities expect a growth in such income in the future; and the current accumulated surplus of the Fund; and

(3) as there are views that the persistent uncertainties in the global business environment may impact adversely on the economy of Hong Kong, whether the Government knows if the Board will consider recommending once again a downward adjustment of the BRC levy rate, so as to reduce the operation costs of SMEs in Hong Kong?



     The Protection of Wages on Insolvency Fund (the Fund) is set up to provide timely financial relief in the form of ex gratia payment to employees of insolvent employers in the event of business closures and failure to pay employees. The ex gratia payment covers wages, wages in lieu of notice, severance payment, pay for untaken annual leave and untaken statutory holidays. The Fund is financed by an annual levy on each business registration certificate (BRC), currently at the rate of $250 per annum.

     Under the Protection of Wages on Insolvency Ordinance, the Protection of Wages on Insolvency Fund Board (the Fund Board) has the statutory functions of administering the Fund and making recommendations to the Chief Executive on the rate of levy. The Fund Board reviews from time to time the scope of the Fund's protection and the BRC levy rate having regard to Hong Kong's socio-economic changes and needs as well as the Fund's financial position.

     My reply to the question raised by the Hon Chung Kwok-pan is set out below:

(1) The number of applications received by the Fund and its ex gratia payment payout are closely related to Hong Kong's economic situation. During the period of April to December 2014, the Fund received 1 741 applications from employees involving 345 employers and claiming ex gratia payment of $149.4 million. Compared with the same period in 2013, the numbers of applications from employees and employers involved and the claimed amount of ex gratia payment increased by 3%, 2% and 44% respectively. In April to December 2014, the top three industries with the largest numbers of applications received were food and beverage service, construction and import/export trade.

(2) Under favourable economic situation and coupled with the increased number of BRCs, the income of the Fund as derived from the BRC levy will increase. In April to December 2014, the Fund received $266.6 million of BRC levy, down 26% on the same period in 2013. This was mainly due to the reduction of the annual levy rate from $450 to $250 in July 2013. The levy income in 2015-16 is projected to be $337.5 million, similar to that of 2014-15. As at December 2014, the accumulated surplus of the Fund was $3,967.2 million.

(3) In recent years, the local economy continued to record moderate growth but there are still uncertainties in the external economic environment. Based on past experience, the cyclical ups and downs of the local economy have significant impact on the number of applications received by the Fund and its payout. As a safety net for employees affected by business closures, it is crucially important to ensure the sustainability of the Fund and a sufficient level of cash flow to cope with any economic downturn and sudden outbreak of major insolvency cases. On this basis, the Fund Board monitors closely the financial position of the Fund and, where appropriate, conducts review on its scope of protection and the levy rate. As a matter of fact, the Fund's scope of protection was expanded to cover pay for untaken annual leave and untaken statutory holidays in 2012 and the levy rate was reduced from $450 to $250 per annum in 2013.

     The Fund Board is currently conducting a review of the coverage of the Fund and the levy rate. Apart from the Fund's current financial position, the Fund Board will also take into consideration other relevant factors, including the additional payout of ex gratia payment arising from the review of the Fund's coverage of protection and the possible impact arising from a judicial review on the ex gratia payment of severance payment under the Fund. Once the result of the Fund Board's review is available, we will consult the Labour Advisory Board and the Legislative Council Panel on Manpower.

Ends/Wednesday, January 28, 2015
Issued at HKT 13:02


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