China Employment Rule and Practice Guide!

China Employment Rule and Practice Guide!

Hardly a day goes by without a motivated candidate inquiring about one or several aspects of the employment rules and practices in China. For obvious reasons, questions about income taxes and visas are among the most asked. Other areas of interest for candidates include working hours, annual leave, offer letter/contract, employee benefits, etc.

 

To help you make an informed decision before starting a new job in China, we have summarized the key information you should know in this China Employment Rule and Practice Guide.

Rules are clear but they often differ from a city to another.

It’s not so complicated … Yet not so simple!

 


1. Offer Letter/Contract

A common practice in China is for an employer to send an offer letter to a candidate who successfully passed the recruitment process.

Though there is no official template, the offer letter typically proposes the employee’s work title, work location, compensation and the term of the employment arrangement (China Law Blog).

 

However, an offer letter is deemed by China Law as … an offer and thus cannot be regarded as a labor contract or a complement to a labor contract (unless specified in the labor contract). A proper labor contract needs to be executed to prove the existence of a labor relationship between the employer and the employee.

 

A written labor contract must be signed within one month of hiring.

The following mandatory clauses must appear in the contract (China Briefing):

 

  • Basic information about the employer (name, address, name of the legal representative or a senior manager) – you can also check the employer’s legal status on the official governmental website (http://www.gsxt.gov.cn/index.html);
  • Basic information about the employee (name, address, identification number);
  • Commencement date and the term of the contract;
  • Description of the job and the location where it is to be implemented;
  • Salary details – is it before tax or after tax? Which currency? Is it paid on a weekly/monthly basis? When is the salary paid? Etc.;
  • If applicable, statement that the employer will contribute for the social insurance of its employee;
  • Labor protection, labor conditions and protection from occupational hazards.

 

Though not mandatory, it is recommended that the following clauses appear (China Briefing):

 

  • Probation period (length, salary, etc.);
  • Non-competition clause (it can besigned for a maximum period of two years and the employer is obligated to continue paying a proportion of the employee's salary after his/her departure from the company to maintain the effectiveness of the non-competition agreement);
  • Confidentiality clauses (any confidentiality clauses must be made with the written agreement of both the employer and employee);
  • Allowances and benefits.

 

Given the fact that foreign nationals cannot be legally employed without holding a valid employment permit, the first day of employment should match with (or should not precede) the starting date mentioned in the employment permit provided by the employer. 

Nevertheless, the practice can differ as in some cases, the employment permit application is processed during the probation period.


2. Governing Language

Chinese is the governing language of a labor contract under China Law. You may either sign a dual-language contract (specifying that the English version is the controlling one) or two one-language contracts (one in Chinese and one in English), the binding document/version will always be the Chinese one. In case you only sign an English contract, it could be refused as such by Chinese courts and should first be translated into Chinese.


3. Employee Handbook

As it is impossible to refer to all employment-related information in the labor contract, employers generally refer to the employee handbook for important matters such as the company’s code of conduct, internal policies (working hours, over time, rest days, annual vacation days, confidentiality clauses, remuneration, etc.), training information, performance standards and assessment information (including end-of-probation reviews), employee benefits program(s), information about the work environment, discipline procedures, etc.

 

This document is usually signed by the employee and is taken very seriously in case of litigation (as long as it does not conflict with China Labor law).

 


4. Contract Duration/Probation Period


You will most likely sign a fixed-term labor contract which. The employer can choose to set a probation period at the start of the contract. The length of the contract will determine the maximum length of probation the employer can set.

  • For instance, for a contract which lasts less than three months, there won’t be any probation period;
  • For a contract whose duration is comprised between three months and one year, the probation period cannot exceed thirty days;
  • If the contract is set for a term that is more than one year but less than three years, the probation period cannot be longer than sixty days;
  • Finally, for any contract whose duration goes beyond three years, the maximum length of the probation period is six months.

 

During the probation period, the employer can pay the employee from 80% to 100% of the salary stated in the labor contract. 

In case you have access to China social insurance benefits, this benefit is naturally included during the probation period. The probation period can be extended in some places. However, its combined length cannot exceed the statutory maximum.


5. Working Hours/Overtime


Working hours for most China employees are determined under China’s “standard work hour system” – which means that a working week (usually five days) should not exceed forty hours and a working day should not exceed eight hours (China Law Blog).

The basic hourly salary can thus be calculated by divided the monthly salary by 174 hours (average number of working hours in the month). Hence each month, we work for 21,75 days.

 

Under China’s “standard work hour system”,

  • Extra hours worked on weekdays should be paid 150% of the hourly salary;
  • Extra hours on weekends should be paid 200% of the hourly salary;
  • Extra hours on public holidays should be paid 300% of the hourly salary.

 

A more flexible work hour system can be implemented (usually the comprehensive work hour system or the non-fixed work hour system) depending on the role/industry but such system must be approved by the local Labor Bureau (China Briefing). 

Though an employer and an employee can contractually agree on an alternative work hour system to the standard one, the agreement still requires the approval of the local Labor Bureau.

 

In practice, compensation time is often used (and can be used in certain circumstances) as an alternative to paid overtime.

 


6. Annual Leave, Sick Leave


China’s Labor Law requires that employers pay their employees paid vacation days (or paid annual leave) based on their total years of service – which refers to the employee's cumulative work experience with all previous and current employers (China Law Blog). The statutory minimum annual leave is as follows:

  • If the work tenure is less than one year, there is no obligation for the employer to provide any paid annual leave;
  • From one to ten years of service, employers must provide at least five paid annual leave;
  • Above ten years to twenty years of service, employers must provide at least ten paid annual leave;
  • Above twenty years of service, employers must provide at least fifteen paid annual leave.

 

Paid annual leave does not include the country’s statutory rest days, public holidays and other holidays – such as maternity leave, etc. (China Briefing).

Employers are required to plan for employees to take vacation time each year. Unused vacation time in one year may be carried over to the next year, but not beyond that one year (China Briefing).

 

As not all employees sign a labor contract on January 1st, the number of paid vacation days a new employee is entitled to is calculated using the following formula:

 

(remaining calendar days during the calendar year the employee started his/her employment ÷365) × number of statutory vacation days the employee is entitled to under the law

 

According to China’s Labor Law, employees who are suffering from illness or non-work-related injuries can take paid sick leave. A sick leave is usually paid at a reduced rate that ranges from 60% to 100% of the base daily wage (not necessarily the employee’s full salary) – depending on the employee’s seniority (global and within his/her current company), local regulations and the employee’s contribution to China social insurance system.

 

The minimum sick leave is three months long for employees with less than ten years of cumulative work history, and less than five year’s seniority with their current employer. On the other hand, the maximum sick leave for workers with twenty years of work history and fifteen years with their current employer is an unlimited paid leave.

 

During the employee’s statutory sick leave, the employer cannot terminate his/her labor contract.

 


7. China Social Insurance Benefits


 

As mentioned above, whether a foreign employee must contribute or not to China’s Social Insurance system, and to which extent, will depend on the local requirements of the employer’s location.

For reference, China’s Social Insurance contributions and benefits include pensions, unemployment, work-related injuries, illness and non-work-related injuries and housing. Please note that the housing contributions/benefits are not extended to foreign employees.


8. Labor Contract Termination


A labor contract is deemed terminated when it came to its term, when the employee and employer mutually agree to end it or when the employee/employer unilaterally ends it.

 

During the probation period, an employer can terminate a labor contract by giving a three-day notice to the employee. Except for serious violation(s) of company’s rule(s), the employer must bring sufficient evidence regarding why the employee does not fit the position he/she was hired for. Employee can also resign within three days.

 

Once an employee passed the probation period, both the employer and the employee can terminate the labor contract by giving a thirty-day notice period. Whether an employer has to compensate the employee depends on the following cases:

  • There will be no severance payment if it is proven that the employee seriously violated one or several of the employer’s rules. In that case, the employer can also terminate the labor contract without notice. Over time, if any, should be paid but unused paid annual leave (for the current year) won’t be compensated in most cases;
  • There will be no severance payment if the employee terminates the contract with thirty days’ notice. Over time and unused paid annual leave should be paid;
  • There will be a severance payment when the employer terminates the labor contract with thirty days’ notice. This case applies when the employee is incompetent for the position, when the employee can no longer work after becoming sick or injured and when the requirements for the position has changed.

For a period of employment that is less than six months, half of the average monthly salary should be paid to the dismissed employee. For a period from six months to less than one year, one month (based on the average monthly salary) should be paid. Above one year of employment,the following formula can be used:

average monthly salary x years of service.

The severance is limited to a maximum of twelve months’ average salary. Over time and unused paid annual leave should be paid;

  • There will also be a severance payment in case of termination through mutual agreement – as long as the termination is put forward by the employer. There is no limit regarding the severance payment;
  • Eventually, there will be a severance payment in case of bankruptcy, revoking of company’s license or permanent dissolution of the company.

 

In some cases, it is however not possible to terminate the labor contract of an employee. Most relevant cases are if the employee is pregnant, on maternity leave or in nursing period and if the employee is in the legal medical treatment period for non-work-related illness or injury.


9. Visa


As mentioned at the beginning of this article, you must hold a valid employment permit (and residence permit) to be legally employed in China. Also, you cannot simultaneously be employed by more than one employer. If you happen to pay IIT through your employer while being illegally employed, this could cause you and your employer serious problems.

As for everything regarding China Law, visa regulation depends on location.

However from April 1st this year, theregulation will be more unified across major cities in China.

 

In order to meet the basic requirements, an applicant must be at least eighteen years of age, in good health, have no criminal record, have a commitment from a legal employer and have the professional skills or a corresponding degree necessary to do the work.

The employer first needs to receive the approval from its local SAFEA Bureau before regarding its request to hire a foreign worker. Once the request has been reviewed and accepted, the applicant and the employer will be able to formally apply for the “Work Permit for Aliens of the People’sRepublic of China”.

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Elite Stage is a platform that provides One-stop business Solution for start-ups and foreign enterprises, founded by Venture Capital and Elite Stage Consulting Company, individual Lawyer Partners and Deloitte Auditors. For over 8 years, Elite Stage successfully assisted more than 800 companies from all over the world with their China market entry.

 

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