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Employment in China

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.

Employee Entitlements

Information Explanation
Medical Leave ?

For a work-related sickness or injury, the employee is generally entitled to up to 12 months’ sick leave with full pay. For non-work related sickness or injury, sick leave ranges from three to 24 months depending on the employees’ period of employment.

Employment Termination

Information Explanation
Resignation / End of Service Payment ?

Non-competition period compensation
During the non-competition period the employee shall receive at least 30% of his/her previous salary per month. Previous salary means the average salary obtained during the last 12 months and this also includes bonuses or any other extra payments. The maximum time frame for the non-competition period is 2 years.
If the employer wishes to terminate the non-competition period before the official end, an additional three months compensation payment has to be paid.

Severance / Redundancy Pay ?

Severance pay also depends on whether it is termination with cause or termination without cause. If it is with cause, no severance pay is required. If it is without cause, severance pay is required.

Situations that require severance pay include termination due to restructuring, termination as a result of a mutual agreement or termination as a result of the expiration of a fixed-term labor contract. In case severance pay is required, employers are obliged to provide this amount to their employee in addition to other contractual arrangements that are in place. Any unlawful termination by the employer will result in reinstatement of employment or a punitive compensation equal to the doubled severance pay.

Severance pay is calculated at one-month salary for each year. Any working period of six months or above but less than one year must be counted as one year and for working periods less than six months, half a month’s salary must be paid as severance. For example, in case an employee worked for 13 months for the same company, he will receive severance pay that amounts to 1.5 month salary. The one-month salary is calculated – with certain limitations – at the employee’s average monthly salary during the last twelve months.

The formula for severance is one average month’s wages of the relevant employee for each year of service to the employer. For any period of service in this calculation that is less than six months, the employee is entitled to a half-month’s wages, while for any period of service between 6 months and one year, the employee is entitled to a full month’s wages.

Termination of Employment ?

If the employee is being terminated at the end of a fixed-term contract, no notice is needed. If the employee is not on a fixed-term contract, it depends if it is termination with cause or termination without cause. If it is with cause, no notice is required. If it is without cause, 30 days notice is required.

 

In the case of a first fixed-term 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

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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