Why Is Employee Compensation Insurance Important In Hong Kong?

All businesses run with the help of employees. CEOs and directors have a vision for their business and an idea of how they want to grow to succeed. Employees are part of creating and executing the vision with the instructions they receive. Successful companies understand that employees are crucial assets for a business to succeed.

Employees can face risks of injuries or illnesses when working for the business. The employer must reduce these risks and have protocol actions if one of these risks occurs. Examples can include an employee in an F&B business seriously burning themselves, to illness from inhaling toxic fumes at a manufacturing firm or worse.

Even an office job can involve injuries like slipping and breaking a bone. Employers must be prepared to ensure their employees feel safe and cared for by the firm.

These risks are why the Hong Kong government has made employee compensation insurance mandatory for every employer. The policy helps companies protect their employees and cover any risks that may occur during their working period.

What is Employee Compensation Insurance?

Any employee can be a victim of unfortunate accidents at work. These can range from physical accidents to illness or even death. Some industries have riskier jobs than others.

Employee compensation insurance covers the employer's liability if an employee is injured, contracts a disease, or dies while working or on the way to work.

"According to Section 40 of the  Employees' Compensation Ordinance (ECO), Chapter 282 of the Laws of Hong Kong, no employer shall employ any employee in any employment unless there is in force a policy of insurance to cover their liabilities both under the Ordinance and at common law for injuries at work in respect of all their employees, irrespective of the length of the employment contract or working hours, full-time or part-time, permanent job or temporary employment."

The government of Hong Kong takes employee compensation insurance very seriously. Any employer who fails to comply with the Ordinance to secure insurance coverage commits an offence and is liable on conviction to a maximum fine of HK$100,000 and two years imprisonment.

Employee Compensation Cover

Work Injuries and Occupational Diseases

An injury is considered a 'work injury' when it occurs on the way to work or during working hours. Examples of work injuries include slipping in the office, falling from a height, or contracting toxic illnesses.

For example, a head chef's environment contains hazardous equipment and risks. While cooking, he may accidentally drop hot oil on his arm. The employee suffered from third-degree burns, and the manager rushed him to the hospital for care.

The employer/business will be in charge of paying for his medical care and will have to pay 80% of his salary while on leave to recover (not including basic sick leave). The loss of an employee can cause significant financial stress on the business as they will lose money and have to hire a new chef.

Employee compensation insurance is the perfect protection for such situations. It will cover all medical costs and salary while recovering and compensating the injured employee. Therefore, employee compensation insurance can save the business a large sum of financial loss and, more importantly, provide the employees with the financial care they need during recovery.

Permanent Disabilities and Death

Some injuries or illnesses can result in permanent disability or, worse, death. These cases are the most tragic for both the employee and the employer. No business wants any harm to its employees and tries its best to avoid any risks that could lead to this outcome. Unfortunately, such situations can happen even if the employer and employee try their best to be safe. When such situations occur in a workplace, they affect the business, the employee, and their family.

For example, a construction worker slipped and fell to his death in Tuen Mun, Hong Kong, while working on the exterior of a building. Cases like this can happen anywhere and unexpectedly. Furthermore, the employer is liable for this accident and must compensate the family for their loss. The employer must reimburse the family for funeral and medical expenses, up to a maximum of HKD 92,670.

The table below from the  Hong Kong employee compensation guide by the labour department shows compensation provided to each age range for employees who have died/fatal injuries.

Figure 1

Employees can also be permanently injured and unable to continue their duties after work accidents. According to the labour department, an employee under the age of 40 who suffers from permanent total incapacity due to a work injury will be paid 96 months of salary as compensation. The table below from the labour department's employee compensation guide shows compensation that must be provided for permanent injuries in each age range.

Figure 2

Employee compensation insurance covers the cost of compensation and other financial expenses related to an employee's death or permanent injury. It also protects the employee's family or the injured employee's future. Thus, it helps the company avoid employee lawsuits against the business. As claims can take a long time to settle, the insurer calculates and pays the proper estimate of costs to prevent the claim from going out of control and causing business damage.

Employees and employers must understand that the ECO calculates a range of injury severity in percentages. Each percentage has a certain amount of compensation (can be found in the ECO guide). For example, loss of the index finger is a 14% loss of earning capacity.

Steps to Take When Your Hong Kong Employee is Injured At Work

It is essential to follow the correct steps when injured at work and receive the proper compensation for an honest injury.

• Notified about the injury: Managers and other employees may be busy and may not notice the accident. Therefore, the first step is for employees to inform managers, HR, or team leaders that they have been injured.

• Medical examination: Every employee should be taken to the hospital regardless of the injury. A medical examination is necessary to understand the severity of the injury.

• Receive a detailed report of injury: One of the most important steps is understanding the medical report and the doctor's suggestions. At this point, the employer will file the report.

• Notify the Labour Department: employers should notify the Labour Department within 14 days after the incident or seven days in case of death. It is essential to inform the insurer of the employee compensation policy.

• Keep a record of information: Employees and employers must record each injury and payment settlement.

• Claim settlement: The claim will not be paid by the insurance company instantly to the employer. An insurer will settle the claim when the employee has recovered and is back at work. The process is to get the most accurate claim settlement, including medical care or compensation.

  
  

Why is Employee Compensation Insurance Mandatory?

Employee compensation insurance is mandatory and beneficial for businesses for several reasons.Firstly, it reduces significant financial losses by covering medical injury costs, which would otherwise heavily impact the business.Secondly, it ensures employee safety, showing employees that they are valued and crucial to the business's success.Lastly, it protects the business's reputation by accurately compensating employees or their families, reducing the risk of lawsuits. Overall, it provides essential support to employees during challenging times.

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To learn more about employee compensation insurance and get the best coverage for your employees in Hong Kong and Asia, contact Red Asia Insurance.