Employee Requests Salary Reduction for Public Housing? Hong Kong Employers Must Beware of Legal Pitfalls and Compliance Solutions

The "Salary Reduction" Dilemma Under the Public Housing Rich Household Policy

In Hong Kong, housing issues have always been a social focal point. With the tightening and strict enforcement of the "Public Housing Rich Household Policy" by the Housing Authority, many public housing tenants face pressure from exceeding income or asset limits. They may be required to pay 1.5, 2, or even 4.5 times the normal rent, and in the most severe cases, may be asked to vacate their units. In this context, some employees might approach their employers with a seemingly "win-win" request: Can the company cooperate by "reducing" their salary to meet the public housing income limits?

This request, seemingly simple, is fraught with legal pitfalls. Not only might the employee themselves commit an offense, but if the employer handles it improperly, they could face hefty fines, imprisonment, and even damage to the company's reputation. This article will delve into the legal risks involved when employees request salary reductions for public housing purposes, covering aspects of the Housing Ordinance, Employment Ordinance, MPF, tax, and employee compensation insurance. It will also provide employers with a set of legal and compliant solutions, helping you protect company interests while appropriately addressing employees' special needs.

1. What is the Public Housing Rich Household Policy? Why Do Employees Request "Salary Reduction"?

The Public Housing Rich Household Policy aims to ensure the fair allocation of public housing resources, preventing affluent households from occupying valuable public housing units. According to the Housing Authority's regulations, public housing tenants are required to regularly declare their household income and assets. If the household income or net assets exceed the specified limits, they will be deemed a "rich household" and will need to pay additional rent or eventually vacate their unit.

For example, in the 2026/27 financial year, the public housing income limit for a two-person household is approximately HK$19,430 per month (application limit), while the income limit under the rich household policy (5 times the public housing income limit) is as high as HK$101,150 per month. For some employees whose household income falls between the application limit and the rich household limit, or just slightly exceeds the rich household limit, a minor salary adjustment might allow them to fall back into the eligible range, thereby avoiding high rents or losing their public housing. This is the primary motivation behind their request for a "salary reduction" from employers.

2. Five Major Legal Pitfalls Employers Must Beware Of

When an employee requests a "salary reduction for public housing," employers who handle it carelessly could violate multiple Hong Kong laws, facing severe legal consequences. Here are five major legal pitfalls employers must be aware of:

Pitfall One: Housing Ordinance: Criminal Liability for False Statements

If an employer assists an employee in providing false salary proof, even if requested by the employee, it may constitute a false statement under the Housing Ordinance, leading to criminal prosecution.

According to Section 26(1)(a) of the Housing Ordinance (Cap. 283 of the Laws of Hong Kong), any person who "knowingly makes a false statement" commits an offense. Upon conviction, the maximum penalty is a fine of HK$50,000 and imprisonment for 6 months.

Fatal Point for Employers: Even if the employee fills out the declaration form, as long as the employer "assists in making a false statement" (e.g., issuing false salary certificates, providing payslips showing less than the actual salary, or adopting a "nominal salary reduction with private top-up" approach), the employer or company director can be charged with the same offense under the principle of "aiding and abetting" as per Section 89 of the Criminal Procedure Ordinance (Cap. 221).

Real Case Warning: In 2019, two residents of Oi Man Estate were fined HK$30,000 and had their public housing units recovered for concealing property ownership. Such cases warn that the Housing Authority is relentless in combating false statements, and regardless of the amount, any involvement in false statements can lead to criminal liability.

Pitfall Two: Employment Ordinance: Compensation Risk for Unreasonable Variation of Contract

Even if an employee agrees to a salary reduction, if the reduction does not fall under the "reasonable grounds" stipulated by the Employment Ordinance, the employer may still be deemed to have unreasonably varied the employment contract, facing substantial compensation.

Hong Kong's Employment Ordinance does not simply consider "mutual agreement" sufficient for varying contract terms. According to the Labour Department's official interpretation, if an employer unilaterally varies employment contract terms (including salary reduction) and it does not fall under one of the following five "reasonable grounds," it may constitute an "unreasonable variation of contract":

1.The employee's conduct

2.The employee's capability or qualifications

3.Redundancy or business operational needs

4.Statutory requirements

5.Other substantial reasons

A "salary reduction for public housing" clearly does not fall under any of the above reasonable grounds.

Legal Consequences: Under Sections 32L to 32Q of the Employment Ordinance, if an employee files a claim, the court may not only order the employer to pay termination payments (including wages in lieu of notice, annual leave pay, long service payment, severance payment, etc.) but also award compensation of up to HK$150,000. This means that an employer who intended to "help" might end up paying a much higher price.

Pitfall Three: Mandatory Provident Fund (MPF): Severe Penalties for False Declarations

Any act of falsely reporting salary to reduce MPF contributions constitutes providing false information and can lead to substantial fines and imprisonment.

MPF regulations clearly stipulate contributions for employers and employees. If an employer cooperates with an employee in a "nominal salary reduction with private top-up," leading to a declared salary to the MPFA that is lower than the actual salary paid, this constitutes "providing false information."

According to Section 43E(1) of the Mandatory Provident Fund Schemes Ordinance (Cap. 485), any person who knowingly provides false or misleading information to the MPFA commits an offense, punishable by a maximum fine of HK$50,000 and imprisonment for 6 months. Furthermore, if an employer deducts an employee's wages for employer contributions, the maximum penalty can be a fine of HK$450,000 and imprisonment for 4 years.

Pitfall Four: Tax Ordinance: Legal Risks for Incorrect Tax Returns

Answer Capsule: If an employer submits false salary information to the Inland Revenue Department, they may violate the Tax Ordinance and face penalties.

Section 80(2)(a) of the Tax Ordinance (Cap. 112) stipulates that any person who, without reasonable excuse, furnishes an incorrect tax return commits an offense. Upon conviction, the maximum penalty is a fine of HK$10,000 and a penalty of three times the amount of tax undercharged. If an employer cooperates with a salary reduction but the actual salary paid does not match the tax return, they may be prosecuted.

Pitfall Five: Employee Compensation Insurance: Financial Crisis from Under-declaration

Under-reporting salary to reduce employee compensation insurance premiums can lead to the insurer proportionally reducing compensation in the event of an industrial accident, with the employer bearing the substantial difference.

According to the "Pro-rata Condition" in employee compensation insurance policies (a market standard policy term), if an employer under-reports wages, the compensation amount would be calculated based on the ratio of declared salary in the event of an industrial accident. The employer must then bear the remaining compensation liability.

Financial Risk Example: Assume an employee's actual monthly salary is HK$20,000, but the employer, to save on premiums, only declares HK$12,000. If an unfortunate fatal industrial accident occurs (calculated based on an employee under 40 years old, 84 months' salary, total compensation approximately HK$1,680,000), the insurance company might only pay HK$1,008,000 (HK$12,000 x 84months). The employer would then have to bear a difference of up to HK$672,000. This is undoubtedly a huge financial risk, akin to "winning a candy, losing a factory."

3. Potential Legal Consequences for Employees Themselves

In addition to employers, employees who request salary reductions to meet public housing eligibility and provide false information will also face severe legal consequences:

•Housing Ordinance: As mentioned above, employees making false statements themselves can face a maximum fine of HK$50,000 and imprisonment for 6 months, and their public housing unit will be recovered.

•Conspiracy to Defraud: If an employee conspires with an employer to falsely report salary, they may commit the offense of conspiracy to defraud under the Crimes Ordinance, which carries even more severe penalties.

4. Legal and Compliant Solutions: How Should Employers Respond?

Facing special requests from employees, employers should uphold legal boundaries and explore legal and compliant solutions. Here is a suggested handling process:

Step One: Clarify Facts, Firmly Refuse Falsification

•Distinguish "Actual Salary Reduction" from "Nominal Salary Reduction": Employers must be clear that any act of "nominal salary reduction with private top-up" or "issuing false payslips" constitutes falsification and must be firmly rejected.

•Company Stance: Clearly inform employees that the company cannot sign any documents that are not factual, as this is a legal bottom line.

Step Two: Explore Legal and Compliant Remuneration Adjustment Schemes

If an employee genuinely needs a salary reduction, employers can negotiate with the employee to explore the following legal options:

1.Transition to Part-time or Reduced Working Hours: If the employee agrees, the full-time contract can be converted to part-time, or weekly working hours can be reduced, with a corresponding salary adjustment. This constitutes a reasonable contract variation.

2.Take Unpaid Leave: Employees can apply for unpaid leave to reduce their total income for the month or year.

3.Adjust Remuneration Structure: Without affecting the total remuneration, adjust the payment method for certain non-fixed remuneration (e.g., commissions, bonuses). However, all adjustments must be made under legal compliance and truthfully declared.

Step Three: Written Records and Truthful Declarations

•Sign a Contract Addendum: If both parties agree to adjust working hours or remuneration, a written addendum must be signed, clearly stating the changes, effective date, and reasons such as "mutually agreed adjustment of working hours" or "mutually agreed adjustment of remuneration."

•Update Insurance: Inform the employee compensation insurance company of actual salary changes to ensure adequate coverage and avoid insufficient compensation risks in the future.

•MPF and Tax Declarations: All salary changes must be truthfully declared to the MPFA and Inland Revenue Department to ensure accurate MPF contributions and tax calculations.

Step Four: Communication Strategy: Empathy and Upholding Principles

When handling such requests, the HR department should exercise empathy, understanding the housing pressure employees face. However, at the same time, it must uphold the professional bottom line that the company must comply with the law, clearly explain the severe consequences of falsification, and guide employees towards legal and compliant solutions.

Conclusion: Compliant Operations, Safeguarding Long-term Interests of Employers and Employees

An employee requesting a salary reduction for public housing is a sensitive issue involving complex legal and human considerations. As an employer, when faced with such requests, do not let the company fall into legal quagmires due to a momentary desire to "help." Upholding the principle of compliant operations not only protects the company from hefty fines and criminal liability but also builds an honest and healthy workplace environment, safeguarding the long-term interests of both employers and employees.

Through clear communication, exploring legal remuneration adjustment schemes, and ensuring all changes are documented in writing and truthfully declared, employers can effectively address this challenge and avoid unnecessary legal risks.

Take Action Now: Ensure Your HR Policies Are Compliant and Worry-Free!

Facing increasingly complex labor laws and employee demands, Get More Resources Limited, as your professional HR partner, is committed to providing comprehensive compliance solutions for businesses. We can assist you with:

•Developing Compliant Remuneration Adjustment Guidelines: Ensuring all salary changes comply with the Employment Ordinance and other relevant regulations.

•Auditing Employee Handbooks and Contracts: Reviewing existing documents to plug potential legal loopholes.

•Management Training: Enhancing management's understanding of labor laws and effectively responding to HR challenges.

•Employee Compensation Insurance Compliance Audit: Ensuring adequate declaration for employee compensation insurance to avoid financial risks.

Contact our expert team now to identify the most dangerous potential risks in your company and ensure your HR policies are compliant and worry-free!

•Professional Consultation: Contact the Get More Expert Team now for tailor-made HR legal consultation and compliance solutions.

•Find Out More: Explore Get More’s full-spectrum HR services, from compliance audits to talent management, we stand with you every step of the way.

Disclaimer:

The content of this article is for informational purposes only and is intended to provide general legal information and HR management advice. It does not constitute professional legal advice in any form. Hong Kong's laws and regulations may change at any time, and each case has its unique circumstances. Readers should consult a professional lawyer or the Labour Department before making any business or legal decisions. Get More Resources Limited is not responsible for any loss or impact arising from the use of the information in this article.