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Case 3 : What is genuine self-employment?

Case 1

Parties Involved :Mr Lam (a cross-border container truck driver)
Mr Tse (officer-in-charge of a China-Hong Kong transportation company)

The Case

Mr Lam, a container-truck driver who worked between the Mainland and Hong Kong, was employed by Mr Tse, officer-in-charge of a China-Hong Kong transportation company. A few months ago, Mr Tse asked Mr Lam to set up his own company as a sole proprietor. The business registration fee was shared equally by the transportation company and Mr Lam. The company signed a truck leasing and rental agreement with Mr Lam, claiming that no employment relationship existed between them. Mr Tse said that Mr Lam was a self-employed person and therefore Mr Tse’s company did not need to make MPF contributions for him.
 
Mr Lam said that his duty was to deliver goods using the container truck of Mr Tse’s company and that all the work was arranged by the company. His pay was calculated in the form of profit sharing between them. The company paid him by depositing a cheque in his bank account every month. Mr Lam could not refuse the work arranged by the company. Also, the container truck was owned by the company, which never charged Mr Lam any rental fee.
 
All expenses relating to the container truck, such as maintenance fees, vehicle insurance and vehicle license fees, as well as all daily expenses of Mr Lam in relation to his work, such as fuel charges, bridge tolls, tunnel tolls, customs fees and line-up fees, were paid by the company. Mr Lam did not need to pay any capital expenditure or bear any other financial risk. He was never involved in determining the fees that the company charged to its customers, or the operation and management of the company.
 
Mr Lam thought that an employment relationship existed between Mr. Tse’s company and himself, so he made a complaint to MPFA.

Investigation and Enforcement Action by MPFA

The MPFA contacted Mr Tse immediately and requested him to provide related documents. The company provided a signed truck leasing and rental agreement with Mr Lam and claimed that no employment relationship existed between the company and Mr Lam. After meeting with Mr Tse, MPFA took a written statement from him, in which Mr Tse denied the charges and insisted that Mr Lam was not the company's employee. Finally, as there was sufficient evidence, MPFA decided to prosecute Mr Tse’s company for not enrolling Mr Lam in an MPF scheme. The employer eventually pleaded guilty in court, and was convicted and fined $14,000.

Understanding MPFSO

Definition of a self-employed person

Under the MPF System, a self-employed person is someone who receives income from the provision of services or goods in a capacity other than that of an employee. Self-employment is based not simply on an agreement between the employer and the employee, or the signing of a “self-employed contract”. It depends on whether an actual employment relationship exists between the two parties.

For example, after an employee has allegedly changed his status to a “self-employed person”, the company still has considerable control over the employee’s work; the work is still assigned and arranged by the company; the company requires the employee to wear specified uniforms during working hours and to follow the company’s regulations; the facilities and expenses are all arranged and paid by the company, etc. Under these circumstances, this is regarded as “false self-employment”. There is no change in the employment relationship, so the employer still has to make contributions for the employee.

 

Legal Consequences & Penalties
Employers who require their employees to change their status to “self-employed persons” intentionally without enrolling them in an MPF scheme thereafter are regarded as evading their MPF responsibilities. Employers who fail to enrol their employees in an MPF scheme or make the required contributions commit an offence and are liable to a maximum fine of $350,000 and three years’ imprisonment. Employers who fail to remit employees’ MPF contributions deducted from the employees’ income to the trustees concerned are subject to a maximum fine of $450,000 and four years’ imprisonment.

Last Revision Date: 20/12/2012