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Employment in China

Chinese employment law

Chinese employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. Other factors that complicate matters include the differences between regions and an inconsistent approach to adherence to laws in different cities. For example, there are differences between minimum wages and welfare contribution amounts in different cities. For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in China.

Key points on employment in China

There are several key areas to be aware of within China’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the Chinese laws and rules for both Chinese employees as well as foreign nationals.

  1. Contracts

    China requires that workers have employment contracts that meet local standards, and companies must have a professional who can draft local employment contracts.

  2. Probation Periods

    The maximum term of the probationary period depends on the term of the employment contract. Only employment that is based on some fixed assignment cannot have a probationary period. All other probation periods are available from one to six months. For example:

    • Employment contract of three months to a year – probation up to one month
    • Employment contract between one and three years – probation up to two months
    • Fixed term contracts of three years or more – probation up to six months
  3. Termination Procedures

    In the case of a first fixedterm employment contract, the employer has the right not to renew the contract upon expiration; however, the employer must pay economic compensation, or severance pay.

    In other situations, the two main approaches for termination are:

    1. Termination through mutual agreement Where employee and employer mutually agree to end the employment.
    2. Unilateral termination  Where the employer cannot reach mutual agreement with the employee Unilateral termination must meet various requirements as outlined below. Termination for cause or termination resulting from the fault or misconduct of the employee can be executed on any of the following grounds and does not require notice or severance payment, when the employee:
    • Fails to satisfy the specified recruitment requirements
    • Has substantially violated the labor discipline or internal rules of the employer
    • Has committed an action of serious dereliction of duty
    • Has additionally established an employment relationship with another employer
    • Has invalidated the employment contract
    • Is subject to criminal liability
  4. Statutory Leave

    There are laws that regulate leave periods based on years of service and the type of leave requested, including:

    1. Annual Leave A minimum of five days of annual leave up to 15 days for long term employees
    2. Maternity LeaveFemale employees are entitled to not less than 98 days of maternity leave, commencing 15 days prior to the projected birth
    3. Sick Leave For a workrelated sickness or injury, the employee is generally entitled to up to 12 months’ sick leave with full pay. For nonworkrelated sickness or injury, sick leave ranges from three to 24 months depending on the employees’ period of employment.
    4. Pensions & Benefits The system of welfare and benefits is complex in China, and are enforced for Chinese employees in particular. There are requirements for both employee and employer contribution rates based on a percentage of salary
    • Pensions Employer contributes 20% of salary and employee contributes 8%
    • Medical Insurance Employer contributes 10% of salary and employee contributes 2%
    • Industrial Industry Insurance Employer contributes from 0.5% of employee’s salary and there is no employee contribution
    • Unemployment Insurance Employer contributes 1% of salary and employee contributes 0.2%
    • Maternity Insurance Employer contributes 0.8% of salary and there is no employee contribution
    • Housing Fund Employer contributes 7-12% approximately (varies by region) and the employee contribution is generally the same

Outsourcing Employment Through a GEO Employer of Record Service

Companies entering China can make a decision whether to use their own resources or to use a Global Employment Organization to handle employment and payroll responsibilities. A GEO solution is particularly beneficial when a company is looking to setup an office quickly with a manageable cost. The complexity of employment regulations in China makes the use of a GEO advisable to ensure full compliance with employment laws, including the drafting of local employment contracts for workers.

The company that is expanding into China contracts with the GEO to employ and payroll their staff on their behalf. The GEO then assumes the legal responsibility for these employees, sponsoring them on work permits if necessary, complying with local employment law and running their monthly payroll. This is especially useful to fulfill all of the specific withholding requirements for pensions and benefits, as well as documenting termination, probation periods and leave requests.

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