Chinese Labor Law for Global Businesses

Any company looking to hire Chinese talent will have to understand labor laws in China. It can be extremely difficult for foreign companies to navigate the complex employment law landscape in China. Everything, from the employment contracts to the probation period and labor disputes, needs to be handled strictly according to China labor laws.

Labor Union Law in the People’s Republic of China

The All-China Federation of Trade Unions (ACFTU) is the only legal entity in China recognized as a trade union. Any local unions are required to apply to the ACFTU. Groups may not function as unions without approval. Trying to form or join labor unions not approved by the ACFTU is punishable by jail time or fines. Employees in China are, therefore, all subject to the same union conditions.

Severance Payments

In the employer/employee relationship, severance pay comes into play upon employee termination. It is usually one month’s salary per year of service completed. In some circumstances, while an employment contract is being created, another arrangement for severance pay can be negotiated.

A company would need to pay severance for a number of reasons, including:

  • Employees need to be terminated because a business license has been lost and the company must close down.
  • The business has to declare bankruptcy, causing employees to lose their jobs.
  • In the case of wrongful dismissal or termination.
  • There is a mutual agreement on dismissal or dismissal that was initiated by the employer.
  • When a fixed-term employment contract expires. When the employer proposes a renewal, no severance is required.
  • When labor laws are infringed, resulting in an employee resigning.

Termination of Employment Contracts

China’s labor laws identify four statutory types of termination.

Wrongful Dismissal

There are various conditions under which dismissal can be considered wrongful. When an employee is wrongfully dismissed, they may file for arbitration, and if such is granted, the employer might need to reinstate the employee or provide severance pay.

Unjustified Dismissal

When an employment contract is terminated without providing a reason, severance payments are required in such an instance as well as 30 days’ notice.

Termination with Just Cause

An employment contract can be terminated by an employer if there is cause to do so. Such as employer bankruptcy, failure to meet probation period requirements, mass payoffs, or expiration of contracts.

Resignation

An employee should provide 30 days’ notice before resigning unless they are still in their probationary period, in which case only three days are required.

Leave Entitlements

China has different types of leave.

Marriage Leave

Marriage leave is compensated, but the allocated time may differ between regions. Some regions allow as much as 30 days, while others can allow as little as three days.

Family Visit Leave

In cases where parents or a spouse do not live with the employee, they are entitled to leave for the purpose of a family visit. For parents, there is a maximum of 20 days of leave per year, whereas a spouse receives a maximum of 30 days of leave.

Funeral Leave

When a child, spouse, or parent passes away, an employee is entitled to a maximum of three days of bereavement leave.

Annual Leave

After one year continual employment at the same company, employees in China can receive paid annual leave. The number of days associated with this leave is calculated according to how long the employee has been employed by the company. A period of less than ten years but more than one means five days leave. Less than 20 years but more than ten means ten days of leave. Employment for more than twenty years means 15 days of leave.

Working Hours and Overtime Pay

China maintains a standard 40-hour work week, meaning eight hours of work per day. With permission from a local labor administrator, employers can provide employees with flexible schedules if they wish.

Flexible working hours are common for security staff, field workers, sales staff, and high-level managers. However, having flexible working hours means that employers do not have to pay overtime. Both the employer and employee need to be aware that Chinese employment law stipulates that a maximum of 1 hour per day of overtime is permitted unless there are special circumstances calling for more. Even with special circumstances a maximum of 36 hours per month or three hours per day is allowed.

When an employee works more than eight hours a day, overtime pay is calculated like this:

  • Normal workdays constitute 150% of their usual hourly rate.
  • A rest day requires 200% of their usual hourly rate.
  • Statutory holidays require 300% of their usual hourly rate.

Note that this is not calculated on average monthly salary, but on hourly rate specifically.

Probationary Period

New employees need to settle into their roles. They need to learn the ropes and prove that they have the potential to meet the company’s expectations. This is referred to as the probationary period.

During their probation period workers’ compensation and benefits is often less than permanent employees. In order for an employer to legally impose any kind of probation the employment contract must be a minimum of three months. An ordinary probation period is a maximum of six months.

Where fixed-term contracts are a year or more a probationary period is a requirement. Project-based employment contracts will have no probationary period.

Three to 12-month contracts can have a one-month probationary period. A contract lasting between one and three years will have a probationary period of one to two months. A contract longer than three years requires a six-month long probationary period.

Social Insurance

It is a requirement for workers in China to be part of the social security scheme in China. Rates are not standard across all regions. The employee’s salary from the year before is used to calculate their contribution rate.

Social insurance includes a number of different elements to which both employees and employers contribute. Unemployment insurance is contributed to, as is a housing fund. Maternity insurance is usually included in standard medical insurance. It is essential to contribute to work-related injury insurance, medical insurance, and pension insurance.

Foreign nationals working in China are also required to contribute to the security scheme. Where there is a social insurance treaty with the People’s Republic of China there is no need to make additional contributions. Currently, there are only a handful of countries under this umbrella; Luxembourg, Japan, Spain, Netherlands, Finland, Switzerland, Canada, South Korea, Denmark, and Germany.

Minimum Wage

Although the types of employment contracts are standard across the country, the minimum wage is not. There are variations in minimum wage rates that depend on things like economic development and cost of living in a specific region. More developed regions like the cities will have higher minimum wage, whereas more rural regions are expected to have a lower minimum wage. The highest minimum wage can be found in Shanghai.

Employment Contracts

When a business wants to hire employees in the People’s Republic of China there are worker agreements that must be met. The following China labor laws apply:

  • Liabilities for violations of an employment contract
  • Termination conditions of an employment contract
  • Labor disciplines
  • Labor remuneration
  • Labor conditions
  • Labor protection
  • Work content
  • Employment contract time limit

China only has four types of employment contracts. A temporary contract is suitable for roles that will only exist for less than six months. An indefinite contract has no predetermined end date. There are some circumstances where the law might stipulate the need for such a contract, for example, after a period of time where an employee has successfully fulfilled two consecutive fixed-term contracts for the same company.

A project-based contract is only in place while the project is in effect, once it is complete the contract expires. And finally, a fixed-term contract. Fixed-term labor contracts have a predetermined term of employment, and when a fixed-term contract expires, it can only be renewed twice before China labor contract law determines that an indefinite contract must be instated instead.

Employees must sign labor contracts within a month of their start date. For any period after this that they are not under a signed written contract, they are entitled to double their usual salary until they can sign a contract. If their written contract is not ready within a year they are automatically considered to be under an indefinite contract.

Employees’ Rights in the People’s Republic of China

There is a strong focus on employee rights in China. All companies, whether local or global, are required to adhere to strict regulations designed to protect workers in the People’s Republic of China.

Employers must be part of trade unions. Labor disputes must be settled lawfully. Employees must enjoy welfare treatment and social insurance. They require training for professional skills and their health and safety must be protected. Employees must have leave days and holidays, they are required to rest and must be reimbursed for their work. People have the right to choose their occupations and have an equal opportunity employment contract.

Discrimination according to religion, sex, race, and nationality is also not allowed under China labor law. Many foreign companies can find it difficult to ensure compliance when they hire employees in China. Having someone to consult with about China labor laws and other elements like labor dispute mediation can be of great benefit.


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