Introduction

For decades, whether an employee was regarded as employed under a “continuous contract” under the Employment Ordinance (Cap. 57) (“EO”) depended on the “418 rule”: the employee had to be employed continuously by the same employer for four weeks or more and work at least 18 hours in each week. Continuous contract status matters because it is the gateway to important statutory protections and benefits, including paid annual leave, statutory holiday pay, sickness allowance, maternity and paternity leave, severance payment and long service payment.

With effect from 18 January 2026, the “418 rule” has been replaced by a more flexible “417/468” framework. Under the new requirement, an employee will be regarded as employed under a “continuous contract” if they have been employed continuously by the same employer for four weeks or more and either: (i) worked at least 17 hours in each week; or (ii) where they worked less than 17 hours in any week, worked 68 hours or more in the four-week period comprising that week and the three weeks immediately preceding it. This article explains the new threshold, why the rolling four-week calculation matters, and which industries and working arrangements are likely to be most affected.

“Continuous Contract”

The practical concept and threshold of a “continuous contract” is fundamental to Hong Kong employment law. By virtue of satisfying this threshold, employees access a broad array of statutory protections and entitlements, subject in each case to the employee satisfying the applicable eligibility conditions for that particular benefit, including:-

• Annual leave and statutory holidays;
• Sickness allowance and maternity/paternity leave;
• Severance payment and long service payment; and
• Protection against unreasonable dismissal.

The New “Continuous Contract” Threshold: From “418” to “417/468”

A comparison of the old and new requirements is as follows:-

In particular, under “468 rule”, rather than measuring hours on a week-by-week basis, it looks at an employee’s aggregate working hours across a rolling four-week window. This makes it far harder for employers to sidestep the threshold by varying rosters from week to week. For illustration, an employee whose hours fluctuate between 10 and 22 hours per week may well qualify, even if they never consistently exceed 17 hours in any given week.

In particular, the “468 rule” is significant because it moves the analysis beyond a simple week-by-week threshold. Where an employee works less than 17 hours in a given week, employers must look at the employee’s aggregate working hours across that week and the three immediately preceding weeks. This makes fluctuating rosters more important: a shorter week will not necessarily prevent continuous contract status if the rolling four-week total reaches 68 hours, although the assessment remains fact-sensitive and the 468 limb will not assist during the first three weeks of a new employment.

Crucially, under section 3(2) of the EO, the burden of proving that an employment contract is not a continuous contract lies with the employer in the event of a dispute.

Impact on the Employment Landscape

The practical ramifications of this amendment are significant and broad-reaching.

Part-time, casual, seasonal and variable-hours workers are likely to be the primary beneficiaries. The sectors most directly affected are those with heavy reliance on shift-based or fluctuating staffing, including retail, catering, hospitality, food and beverage, entertainment, logistics, events and promotional work. Platform or gig-style arrangements may also require closer review where the underlying relationship is, in substance, employment rather than genuine self-employment.

Meanwhile, employers face a corresponding increase in compliance and administration obligations. Businesses that previously relied on the 18-hour weekly threshold, or rostered staff close to that threshold, should reassess their workforce structures, contracts, payroll rules and timekeeping systems. Key areas of review include:-

• Employees newly qualifying as continuous contract employees may become entitled to statutory benefits, requiring payroll and benefits recalculation.
• Employment contracts, staff handbooks and rostering policies that refer to the old “418 rule” or assume a fixed 18-hour weekly threshold should be reviewed and updated.
• Given the combined “417/468” framework, employers should track both weekly hours and rolling four-week totals, and maintain robust timekeeping and payroll records to determine eligibility and support the employer’s position in any dispute.
• Severance and long service exposure: As more workers qualify as continuous contract employees, employer exposure to severance payment and long service payment claims, as well as holiday, sickness and leave-related costs, may increase.

How can OLN help?

The replacement of the “418 rule” with the new “417/468” continuous contract requirement represents one of the most significant expansions of statutory employment protection in Hong Kong in recent years. For businesses with part-time, casual, seasonal, event-based or variable-hours staff, the implications are immediate and wide-ranging.

Our team at OLN can assist with workforce audits to identify employees who now qualify, or may soon qualify, as continuous contract employees; review and update employment contracts, staff handbooks and rostering practices to reflect the new threshold; and advise on statutory entitlements, payroll administration, record-keeping and dispute risk under the amended framework.

Should you have any questions, please feel free to contact us.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or legal advice of any kind to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Introduction

Hong Kong’s employment landscape is changing. The recent amendment to the Employment Ordinance (Cap. 57) (“EO”), which introduces a broader continuous contract threshold from 18 January 2026, is one of several developments that should prompt businesses to take a closer look at how they structure and manage their workforce. For many, that review may well lead them to an increasingly familiar solution: the Employer of Record.

The Employer of Record (“EOR”) model is not new, but its profile in Hong Kong has grown considerably in recent years. Fuelled by the rise of cross-border hiring, more flexible workforce models, and a steady expansion of statutory employment obligations, more businesses are turning to EOR arrangements to simplify the way they engage workers. The appeal is understandable. There are, however, risks that businesses should plan against.

The EOR Model

An EOR is a third-party entity that formally acts as the employer on record of workers on behalf of a client company. In a typical EOR arrangement, the EOR signs the employment contract and handles payroll, MPF enrolment and contributions, employer tax reporting and other employment administration, while the client company retains day-to-day operational control over the workers’ activities.

The tripartite EOR structure is, in essence, as follows:

• The EOR employs the workers on paper and manages agreed compliance obligations;
• The client company directs the workers’ daily tasks and business activities; and
• The employees are formally contracted to the EOR but functionally serve the client.

The EOR model has found particular appeal among businesses seeking to expand into new markets without the delay and cost of establishing a local entity, as well as multinationals looking to centralise employment administration across jurisdictions.

The Benefits of EOR

In light of the new continuous contract framework, EOR arrangements offer a number of practical attractions for Hong Kong businesses.

1. The EOR can take responsibility for monitoring evolving statutory requirements and managing outsourced compliance processes so that employment contracts, payroll systems and benefits structures reflect the applicable law.
2. Businesses can engage talent quickly, without setting up a local entity and without having to build the full local employment administration infrastructure themselves. This can reduce costs and increase efficiency.
3. The administrative burden on internal HR departments is also reduced. Payroll calculations, MPF enrolment and contributions, employer reporting to the Inland Revenue Department (“IRD”) under the salaries tax regime, and statutory leave tracking can all handled by the EOR.
4. Companies considering a Hong Kong presence can hire locally on a trial basis through an EOR before committing to a formal corporate structure, allowing them to conduct market testing before committing capital and labour for the long term.

Key EOR Risks to Consider

Despite its commercial appeal, the EOR model carries meaningful legal and operational risks that businesses should evaluate carefully before proceeding.

1. Risk of Being Deemed the True Employer

Under Hong Kong law, the question of who is the “employer” for the purposes of the EO may turn on the substance of the relationship, not merely the label assigned to it. The courts and tribunals may examine the reality of the arrangement. If the client company:

• exercises substantial control over the worker’s day-to-day activities;
• provides the worker’s equipment, workspace, and tools;
• integrates the worker into its own organisational structure; or
• fails to maintain a meaningful distinction between its own staff and the EOR-engaged worker,

there is a risk that the client company may be found to be the worker’s true employer, depending on the facts, notwithstanding the contractual position with the EOR. This could expose the client to EO-related liabilities, including obligations relating to severance payment, statutory holiday pay, annual leave, sickness allowance and claims for unreasonable dismissal.

2. Employment Agency Regulations

The EOR model, if not properly structured, may also raise employment agency licensing issues. Employment agencies are regulated under the  EO and the Employment Agency Regulations (Cap. 57A), and employment agencies must generally be licensed by the Labour Department. An EOR that functions essentially as a broker, by introducing or placing workers with client companies without genuinely acting as the substantive employer, may risk being treated as an unlicensed employment agency, with attendant regulatory and criminal exposure.

3. MPF and Salaries Tax Obligations

Even where an EOR arrangement is properly structured, client companies should satisfy themselves that the EOR is enrolling eligible employees in an MPF scheme within the statutory framework, making timely and correct MPF contributions, and filing accurate employer returns and related IR56 forms with the IRD. The statutory obligation to make MPF contributions sits with the employer of record, but reputational and operational risks can flow back to the client if an EOR defaults on these obligations.

4. Permanent Establishment Risk

For overseas companies engaging workers in Hong Kong through an EOR, there may also be Hong Kong profits tax risk if the worker’s activities constitute a permanent establishment in Hong Kong or otherwise result in Hong Kong sourced profit for Profits Tax purposes, particularly if they involve entering into contracts on the company’s behalf. Businesses should take advice on this risk before deploying an EOR arrangement, particularly where the engaged workers exercise significant commercial discretion.

5. Continuity of Employment and the “417/468 Rule”

Under the new framework, businesses that rotate EOR-engaged workers through consecutive contracts must be vigilant. From 18 January 2026, an employee is regarded as employed under a continuous contract if the employee has been continuously employed by the same employer for four weeks or more and either works at least 17 hours in each week or, where the employee works less than 17 hours in a week, has worked 68 hours or more in the four-week period comprising that week and the preceding three weeks. The “468 Rule” does not apply to the first three weeks of a new employment, and attempts to structure arrangements to avoid statutory entitlements may create additional legal and reputational risk.

How can OLN help?

OLN has extensive experience advising businesses, from market entrants to established multinationals, on the full spectrum of employment issues in Hong Kong. Whether you are considering an EOR arrangement for the first time, reviewing an existing structure for compliance risk, or navigating the implications of the new continuous contract framework, our team can help you assess your exposure and structure your workforce arrangements on a sound legal footing.

Should you have any questions, please feel free to contact us.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or legal advice of any kind to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.