Holiday pay and annual leave pay revisited: Wages and commissions covering every day of the month

The decision of Kan Kin Lan Kenny v Ray White (Hong Kong) Limited [2025] HKCFI 728, the Court of First Instance from early this year revisits and gives useful guidance in relation to calculating holiday pay and annual leave pay in the context of contractual commission or similar payments.

Case Summary and Key Issue

• The Claimant, a former employee, was paid commissions as part of their remuneration.

• The Claimant claimed against the Company for arrears of statutory holiday pay and annual leave pay based upon daily average wages.  The Company did not dispute liability but disputed quantum.

• The key issue had to do with sections 41(6) and 41C(6) of the Employment Ordinance (Cap 57) (“EO”). These are the so called “deduction sections”. The former section relates to the computation of holiday pay, and the latter is an identical provision for purpose of computing annual leave pay.

Section 41(6) reads:

“If, pursuant to the terms of his contract of employment or any other agreement or for any other reason, an employee is paid by his employer a sum of money in respect of a holiday taken by him [(the “Sum”)], the holiday pay payable to the employee in respect of that holiday is to be reduced by the sum.” (own definition and emphasis added)

This mechanism of deduction prevents an employee from being paid twice for the period to which their remuneration relates and their statutory holidays and annual leave (e.g. once as part of an employee’s monthly salary or other remuneration covering all days of the month, and once as holiday pay, on top).  

• The Claimant’s case was that his commissions would only arise on days when he was at work.  Therefore, those commissions related only to workdays and were not paid in respect of every day of the period.  By this logic, the Claimant asserted, the Company was not entitled to take into account the commissions paid to the Claimant as part of the deductible Sum.  The Claimant should therefore have been entitled to a larger sum of holiday and annual leave pays.

• The Claimant succeeded at the Labour Tribunal.  The Company appealed.

Appeal

The appeal was allowed.  The Claimant’s claim was dismissed.  In arriving at its decision, the Court considered the following:

• In this case, the Claimant was paid (i) a monthly basic salary and (ii) commissions calculated and released each month.  Under section 2 of the EO, the definition of “wages” includes commission of a contractual nature.  Accordingly, the commissions formed part of the Claimant’s monthly wages.

• Citing Cathay Pacific Airways Ltd v Kwan Siu Wa Becky (2012) 15 HKCFAR 615, the Court reiterated that a monthly salary is paid for each day of the month, notwithstanding that the employee may not actually be working on certain days.  To consider that a monthly salary relates only to workdays and not leave days would fly in the face of common sense, and would render any calculations for the purpose of holiday pay and annual leave pay unusually convoluted.

• In calculating holiday pay and annual leave pay, one needs only to work out the average of the total wages earned within the specified period.  This process should not involve considering any particular day (or “dailiness”, as coined in Cathay).

• The Labour Tribunal’s decision that the commissions did not relate to leave days had two fundamental issues:

• Sections 41(2) and 41C(2) provide that the daily rate of the holiday/annual leave pay is a sum equivalent to the daily average wage earned during the applicable period.  These provisions make no distinction between a workday or a leave day; and

• The Labour Tribunal’s decision would turn any calculations for holiday and annual leave pays exceptionally complex.  This would be inconsistent with the principles expounded in Cathay that these calculations should be sensible and easy to apply.

Key Takeaways

• In this case, the Court found it necessary to comment that in future similar cases, the Court or the Tribunal need not concern itself with the question of whether commission should be attributed to workdays only.  In a usual monthly-wage scenario, the computation of holiday and annual leave pays is not supposed to be more complex than taking the daily average of the period of the preceding 12 months or shorter. 

• Kan Kin Lam is not the first High Court decision applying sections 41(6) and 41C(6) of the EO.  This was preceded by the District Cout’s decision of Mak Wai Man & Ors v Richfield Realty Limited [2019] HKDC 358, which the High Court also considered in this instance.  In Mak Wai Man, the District Court was asked whether statutory entitlements could be reduced by “team based” commission and team leader bonus.  It was held that as commissions and bonuses were received for both working days and notional working days, they fell within the definition of wages and were therefore deductible for the purpose of calculating statutory entitlements. As Kan Kin Lam is a High Court decision binding on all lower courts, it will likely stand as the authority for future cases where computation of statutory entitlements is in issue.

Russell Bennett and Mark Chiu

If you wish to discuss any matters relating to statutory holidays, annual leaves or other employment matters, please contact:

Russell Bennett

Partner | Email

Mark Chiu

Partner | Email

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. This article was last updated on 16 December 2025.