[Hong Kong] Average Daily Wage (ADW) Calculation

What is ADW?

Average Daily Wage (ADW) is used to calculate employee payments for statutory leave (e.g. sick leave, maternity/paternity leave) and other entitlements in Hong Kong. It protects employees from income loss due to wage fluctuations.

How is ADW Calculated?

Formula:
ADW = (Full Pay Wages – Non-Full Pay Wages) / (Total Working Days – Non-Full Pay Days)

Definitions:

• Full Pay Wages: Income for days the employee was fully paid.

• Non-Full Pay Wages: Income for partially paid leave days (e.g. Sick Leave/Maternity Leave/Paternity Leave paid at 4/5 of ADW).

• Total Working Days: Based on proration settings in your Company Payroll Info:

  • If using Calendar Days, count full calendar days in each month.

  • If using Working Days, count only scheduled working days.

  • Maximum days in a year: 365 days.

• Non-Full Pay Days: Total number of days where wages were not fully paid.

What to Include in Wage Calculation?

• Accumulated Basic Salary (including prorated amount)

• Accumulated Pay Items Subjected to ADW (Additions and Deductions)

• Accumulated Leave Payments

Examples

Scenario 1: Less than 12 months of employment

• Employee Start Date: 1 Jan 2020
• Calculation Period: 1 Jan – 31 May 2020
• Total Wages: HKD 50,000
• Days in Period: 152
• ADW: 50,000 / 152 = HKD 328.95

Scenario 2: More than 12 months of employment + Sick Leave

• Period Used: 1 Feb 2020 – 31 Jan 2021 (Past 12 months)
• Total Wages: HKD 120,000
• Sick Leave: 2 days in June 2020
• ADW (June 2020): HKD 328.95
• Sick Leave Pay: 4/5 × 328.95 × 2 = HKD 526.32

ADW for Feb 2021:

• [Wages earned (Full pay) – Wages earned (Non-full pay)] / 365 – [Number of days for Wages earned (Non-full pay)]
• (HKD$120,000 - HKD$526.32) / (365 days - 2 days) = HKD$329.13
  

Payroll Process Involving ADW

During payroll, the system will:

1. Check for ADW-based leave (e.g. Sick, Maternity Leave).

2. Calculate the ADW for the leave period.

3. Create a pay item for ADW-based leave payment.

4. Prorate salary to exclude the leave days.

Salary Proration Rules

• Monthly Fixed Type:

  • Calendar Days → Use full month days

  • Working Days → Use employee’s work schedule

• Hourly Fixed Type:

  • Always based on working schedule

Extended Example

Employee Monthly Salary: HKD 10,000
Payroll Month: April 2021
Sick Leave Taken: 2 days

• ADW for March 2021: (HKD$120,000 - HKD$526.32) / (365 days - 2 days) = HKD$329.13

• Sick Leave Pay (2 days @ 4/5 ADW):
  329.13 × 4/5 × 2 = HKD 526.61

• Prorated Salary for March 2021:
  (28 working days / 30 calendar days) × 10,000 = HKD 9,333.33

• Total Income for March 2021:
  Prorated Salary + Sick Leave Pay =
  9,333.33 + 526.61 = HKD 9,859.94

For further information, please refer to the official guide linked here: A Guide to the Calculation of Relevant Statutory Entitlements on the Basis of the 12-Month Average Wages with Examples