Entrepreneur Asia: Power Players

A new recruitment model for HK’s maids

Filipino maids with food, hampers and bags reserve place to sit in Statue Square in central Hong Kong for a Sunday social function
Michael Coyne | Lonely Planet Images | Getty Images

A domestic helper leaves her home country in search of higher salaries in places like Hong Kong, Singapore or the Middle East, but instead of sending money home to her family, she faces abuse, unpaid wages and crushing debt.

It's not a new story, although it played out much more publicly than usual earlier this year in Hong Kong, when employer Law Wan-tung was sentenced to six years in jail for severely abusing and failing to pay Indonesian helper Erwiana Sulistyaningsih.

But even the international uproar over that case hasn't spurred changes to how Hong Kong regulates the employment agencies.

Although Erwiana had attempted to flee the abuse, when she contacted her employment agency, the office told her it wouldn't help and sent her back because she hadn't finished paying off the debt from her placement fees.

"It's frustrating as a lawyer," said David Bishop, one of Fair Employment Agency's (FEA) founders and a lecturer at the University of Hong Kong. Over the years, many placement agencies have continually shifted strategies to squeeze more profit from helpers, from charging placement fees, then training fees, then loans, with some using cross-border jurisdictional limits to evade liability, he said.

That frustration spurred a drive to find an entrepreneurial solution, leading to the creation of the nonprofit FEA, which charges employers, but not helpers, for placements.

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"The incentive of most agencies is they make more money and are more profitable if they place more workers. They do better if they do a bad job," because they can charge the replacement helper another fee, said Bishop.

The fees can become a huge burden for workers, saddling them with a suffocating debt load.

In Hong Kong, domestic helpers can typically be charged around 31,000 to 37,000 Hong Kong dollars ($4,000-$4,700) in total, according to Hong Kong-based non-governmental organization (NGO) Asia Pacific Mission for Migrants (APMM). That compares with the city's minimum monthly wage of 4,110 Hong Kong dollars ($530).

The placement fee in Hong Kong is supposed to be set at 10 percent of the first month's salary, but the government there has little way to police fees charged in workers' home countries.

By comparison, in the Philippines, the median salary for a housekeeper is around 129,000 pesos, or less than $3,000, a year, according to PayScale, a compensation data provider.

The pay disparity makes the fear of being sent home before the debt is repaid a keenly felt threat for domestic helpers, and one which can prevent them from reporting abuse.

FEA opened its doors in September of last year. The start-up funding came to around 1 million Hong Kong dollars ($129,000), which was raised from a combination of zero-interest loans from co-founders Scott Stiles and Tammy Baltz as well as grants from individuals.

And even with the changed business model, the agency has already crossed over the breakeven line, although its profit margins can vary widely depending on the service provided.

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For a full-service applicant, which includes processing a visa and airfares, FEA charges around 7,500 Hong Kong dollars, while a direct hire already located in the city would run around 3,000 Hong Kong dollars, if the worker needs to leave the country first.

The fees appear to be around market rates, based on Internet searches of several agency websites which listed their "full-service" charges as around 6,500-8,000 Hong Kong dollars. Multiple agencies didn't return emailed requests for comment.

On the higher end, FEA's profit margins are around 40-50 percent, but because the agency also has volunteer workers in addition to its six full-time staff members, man-hour costs of vetting multiple applicants may not be fully accounted for, the founders noted.

"In a perfect scenario, one worker chosen immediately, the margin could be 75 percent, but that doesn't happen in real life," said Scott Stiles, FEA's general manager.

Top left, David Bishop, top middle, Scott Stiles and top right Tammy Baltz, FEA co-founders. From lower left to right, Eugene Yap, a FEA client, Holly Allan from Helpers for Domestic Helpers, Nelian Haspels, International Labour Organization and Emily Lau Wai-hing, a legislative council member
Photo provided by Fair Employment Agency

So far, FEA has placed around 130 workers. While the number sounds relatively small, especially compared with the more than 330,000 foreign domestic helpers already in the city, the industry is fragmented, with many small agencies, and FEA may actually be one of the larger operations, Stiles said.

There were around 2,365 employment agencies in Hong Kong in 2014, with around 1,000 of those providing services for foreign domestic helpers, according to data on the website of the Association of Hong Kong Agencies for Migrant Workers. FEA estimates around one in eight Hong Kong households employs a foreign domestic worker.

FEA's founders have also found another measure of success, besides the bottom line.

Bishop noted that after matching one helper, the employer began to consider using another agency to process the paperwork.

"The domestic worker told them specifically that she was working with the Fair Employment Agency because they were fair," Bishop said. "These women are under great pressure to get jobs while they can legally stay here. To see her willing to lose the opportunity to work just to process with Fair was exciting to me."

Industry Association of Hong Kong Agencies for Migrant Workers and Asosiasi PPTKI Hong Kong didn't return emailed requests for comment on industry practices and profitability.

Data on those subjects are scarce, making it difficult to see how well FEA's approach stacks up against its for-profit competition.

"There are thousands of agencies in the region, perhaps hundreds of NGOs (non-governmental organizations) concerned with migrants and also probably hundreds of interested academics, but as far as I know, no-one has published a break-down of the actual costs of recruitment alongside the charges typically made by agencies," John Gee, chair of the research sub-committee at Singapore-based non-profit Transient Workers Count Too, said via email.

Gee has been advocating for requiring Singapore agencies to provide itemized bills to explain their charges.

"We think that agency charges are largely a matter of what the market will bear, rather than a reasonable percentage mark up on services provided," he said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1