The Average Daily Wage (ADW) is designed to protect employees of wage fluctuation by calculating wages earned over a period of 12 months. Once you have determined the days or for a 12-month period, the formula used to calculate ADW is:
[Wages earned (Full pay) - Wages earned (Non-full pay)] / 365 - [Number of days for Wages earned (Non-full pay)]
To fully understand the above ADW formula, here are some reference points that you can refer to:
Wages earned (Full pay) - the employee is fully paid for the day he/she worked.
Wages earned (Non-full pay) - any wages that are not paid in full for the days he/she worked; such as Sick Leave/Maternity Leave/Paternity Leave can be paid 4/5 of Average Daily Wage per day. If you have more non-full pay payments like Rest Day/Statutory Holiday/Annual Leave/Other payments, it will also fall under Wages earned (Non-full pay).
Number of days for Wages earned (Non full pay) - the number of days for wages not paid in full for the days he/she worked
Note: Previously, you will need to exclude full paid leave days, however the Amendment Ordinance has made a technical amendment* to help simplify the administrative work. For reference, you can view Note 9 in Page 6 of the Amendment Ordinance guide.
(*Amendment reference: To simplify the administrative work involved in calculating average wages, the Amendment Ordinance has made a technical amendment to presume the sum payable for the periods under (i) and (ii) as wages.
By doing so, an employer does not have to exclude his employee's full-paid leave (be it statutory holiday, annual leave, maternity leave or any other leave taken with agreement of the employer) as well as the sum paid correspondingly when calculating average wages. It is noteworthy that the definition of wages under EO has not been changed as a result of this amendment.)
How to calculate Average Daily Wage (ADW)?
Before referring to ADW calculation examples, you will need to know how to determine the days for ADW first. For example, assuming an employee is hired on the 1 January 2020:
Scenario #1
Details:
Total Wage: HKD$50,000
Payroll month: June 2020
Average Daily Wage payment for: 18 June 2020
Employment Duration: worked for only 6 months (which is less than the 12 month period)
Determining the number of days:
The Start Date of the period will be 1 January 2020 (employee's Hired Date). The End Date will be 31 May 2020.
The End Date is 31 May 2020 because the end date needs to be on the last day of the previous month. It helps to standardise the monthly payroll process, as payroll is usually calculated for the whole of June 2020.
Therefore, 1 Jan 2020 - 31 May 2020 = 152 days
Average Daily Wage (ADW) Calculation:
HKD$50,000 / 152 days = HKD$328.9473
Scenario #2
Details:
Total Wage (1st Feb 2020 - 31st Jan 2021): HKD$120,000
Payroll month: February 2021
Average Daily Wage payment for: February 2021
Employment Duration: 1st year or more
Sick Leave taken in June 2020: 2 days (payment is calculated based on 4/5 of ADW)
Determining the number of days:
Since January 2020 to February 2021 is more than 12 months, you will need to adjust and only use the current past 12-month period for ADW. Hence,
Start Date: 1 February 2020
End Date: 31 January 2021
The End Date needs to be on the last day of the previous month (31 January 2021).
Therefore, 1 February 2020 - 31 January 2021 = 365 days
(If there is a leap year with more than 365 days, you will need to use 365 days)
Average Daily Wage (ADW) Calculation:
ADW in June 2020: HKD$328.9473
To calculate sick leave payment of 4/5 of Average Daily Wage, the calculation is as below:
4/5 x HKD$328.9473 x 2 days = HKD$526.31568
ADW for February 2021:
[Wages earned (Full pay) - Wages earned (Non-full pay)] / 365 - [Number of days for Wages earned (Non-full pay)]
(HKD$120,000 - HKD$526.31568) / (365 days - 2 days) = HKD$329.1286069421
Calculating Payments Using Average Daily Wage (ADW) in Talenox
If you would like to automate ADW calculations, Talenox will calculate ADW every month automatically.
In order to obtain the accurate calculation for Average Daily Wage, do ensure that you process the past 12-months payroll for your employees. 😁
To do this, you can head to Payroll > Payroll Settings > Process Payment - Step 2 (Select Pay Item) > Hourly/Daily Attendance tab and choose "Average Daily Wage" item:
To know more about processing sick leave, maternity leave and paternity leave using Average Daily Wage (ADW), 4/5 of Average Daily Wage (ADW) or Full Amount, you can refer to this guide.
We have an ADW report available for download to verify the ADW amounts showing in Talenox for your employees. You can find the guide on how to download the ADW report here.
We hope that these simple scenarios will be able to help you in calculating payments using the Average Daily Wage (ADW). 😎