According to the PRC Labour Protection Supervision Regulations which were issued by the PRC State Council on 1 November 2004, the PRC competent labour administrative authorities at different levels, i.e. the PRC Ministry of Human Resources and Social Security (“MOHRSS”) at state level and the Human Resources and Social Security Bureaus at local levels, are responsible for supervising the implementation of the PRC labour law national wide. The authorities are entitled to impose administrative punishments on enterprises for offences according to law.

As of 1 January 2017, three new regulations issued by the MOHRSS under the Labour Protection Supervision Regulations will become effective. They are the Methods on Ranking of Credits of Enterprises in Compliance of PRC Labour Law (“Ranking Methods”), the Methods on Public Announcement of Severe Violations of PRC Labour Law (“Announcement Methods”) and the Notice on Promotion of Making Randomly Inspection Relating to Human Resources and Social Security Matters for Supervision Purposes (“Random Inspection Methods”).

Based on the above, a new supervisory system for enforcement of PRC labour law will be established. We summarise below the major features of its three parts:

• Ranking System

All enterprises will be ranked into three different levels of A, B or C subject to the compliance situation of the enterprises with PRC labour law. Such ranking will be decided by the competent labour administrative authority every year based on the information obtained by the authorities from their daily random inspection results, written documents submitted by the enterprises and the reports or complaints from employees, etc.

When deciding the ranking of an enterprise, the labour administrative authority will mainly focus on checking if an enterprise set up its internal rules and regulations, followed the labour secondment regulations, concluded written contracts with employees, complied with the regulations on protection of female employees as well as the regulations on leave and rest, and duly and fully paid salaries and social insurance contributions, etc.

An enterprise that is in compliance with PRC labour law and has not been punished by the labour administrative authority will be ranked into level A. An enterprise that has been punished by the labour administrative authority for severe offence of the law will be ranked into level C. An enterprise that has been punished by the labour administrative authority but not subject to severe offence will be ranked into level B. Enterprises being ranked into level B or level C will become major targets for supervision and be more regularly inspected by the labour administrative authority. The authority may even call the responsible person of an enterprise at C level to the office to urge the enterprise to be in compliance with PRC labour law. On the contrary, an enterprise being ranked into level A will be likely to be subject to fewer inspections from the authority

• Public Announcement System

Labour administrative authorities can now adopt the principle “Name and Shame”. They are authorised to make public announcements of severe offences against PRC labour law occurred within its jurisdiction every season or every half a year on its official website, or on other major public media such as newspapers or TVs in the area.

Such severe offences refer to offences which have been punished by the labour administrative authority severely such as deliberately not paying or fully paying salaries, not participating in the social insurance or not fully or duly paying social insurance contributions in serious cases, or seriously breaching the laws and regulations on the protection of female employees, or other serious breaches causing bad social impacts.

The announced information will cover the company’s name, registered address, name of its legal representative, details of the offence and punishment. In case of any announcement record, the ranking of the enterprise will definitely be affected.

• Random Inspection System

In addition, all labour administrative authorities at the provincial level will set up a check-up list stating the employment matters to be inspected by the authorities. Further, the authorities will establish a data room containing the basic employment related information of all enterprises as well as a name list of supervisory officers holding supervisory certificates issued by the labour administrative authorities.

A random inspection will be conducted by supervisory officers who are randomly selected from the name list by the competent labour administrative authority on enterprises which are randomly chosen from the data room.

If a serious offence is found out in a random inspection, the competent labour administrative authority may impose administrative punishments on the enterprise, and make a public announcement about such offence through the Public Announcement System.

In the future, the information on compliance of an enterprise with PRC labour law as well as public announcement and random inspection results will be shared among all related administrative authorities such as the Administration for Industry and Commerce, finance departments, tax authorities and trade unions. Any negative records of an enterprise on compliance with the labour law may affect its creditworthiness at other administrative authorities. Therefore, employment related issues become more important for an enterprise in the future not only for its business but also for its reputation.

The establishment of a new supervision system is a clear signal of the Chinese government for strengthening the enforcement of PRC labour law. In order to avoid potential risks, enterprises may wish to conduct an internal check on their compliance with the labour law and make adjustments on their internal employment policies if necessary.