Within the space of two months, the China Ministry of Human Resources and Social Security ("MHRSS") has issued three successive regulations aimed at strengthening enforcement of labor laws and regulations and ensuring companies' compliance with them. Under these new regulations, random checks will increase, companies will be rated on their compliance with labor laws and severe violations will be published. These regulations are targeted to take effect from the beginning of 2017.
The three new regulations are:
1. The Measures for Publishing Serious Offences Against Labor Protections Laws (the "Publishing Measure"), which proposes a "name and shame" scheme in which cases of violations of labor law that result in serious consequences will be published, in the mainstream media;
2. The Measures for the Rating of Enterprises' Labor Law Compliance (the "Rating Measure"), under which companies will be given a rating on their compliance with labor laws and regulations, which ratings will be used in follow-up enforcement actions and will be shared with other government departments and union organizations; and
3. The Notice on the Promotion of Random Checks in the Regulation of Human Resources and Social Security Matters (the "Random Checks Notice"), under which a system of random checks and inspections on a wide range of labor and social security law compliance areas will be set up and strengthened.
More details on the three new regulations are set out below.
The above new regulations will likely mean strengthening of labor law enforcement and an increase in inspection frequency starting in 2017.
Companies with China operations are advised to conduct a comprehensive internal audit on their compliance with all areas of labor and social security laws and regulations to head off the risk of adverse findings in a future inspection by the labor bureau. Areas in which foreign companies may need to pay particular attention to, include compliance with working hours, rest and leave, overtime pay, social insurance and labor dispatch regulations.
For details on how to handle audits by labor bureaus in China, please click here.
The new measures could also signal the beginning of the labor authorities' enforcement of the labor dispatch restrictions that were first released in 2013/14 but were not fully effective until early 2016 (click here for previous reports).
1.The Publishing Measure
The Publishing Measure was released on September 1, 2016 with an effective date of January 1, 2017. According to the Publishing Measure, severe violation of labor laws and regulations will be published by MHRSS. Examples of severe violations listed in the Publishing Measure include:
- unjustified deduction or delay in pay of substantial amounts;
- failure to enroll in social insurance or pay the premiums resulting in serious consequences;
- use of child labor;
- severe violation of working hours, rest and leave rules;
- severe violation of female and juvenile workers' rules;
- violation resulting in severe adverse social impact.
Severe violation will be published through the mainstream media either immediately or as part of regular publication. Regular publication will be once every quarter at the municipal level and at least once every 6 months at the provincial level and national level.
2. The Rating Measure
The Rating Measure was released in final form on July 25, 2016 and will be effective from January 1, 2017. According to Rating Measure, the labor department will rate employers after routine labor inspection on an annual basis (rating may also be adjusted if non-compliance is found outside of routine inspection). The ratings are as follows:
- "A" (the best) given to the employers that are fully compliant;
- "B" given to the employers that have non-compliant issues but do not belong to C rating; and
- "C" (the worst) given to employers that:
- have been penalized at least 3 times for labor law non-compliance;
- have violations causing collective disputes, or severe adverse events or social impact;
- use child labor or force employees to work;
- refuse to comply with an order by labor authorities to rectify or pay penalty;
- obstruct inspection by the labor authorities; or
- are pursued for criminal liability due to labor law non-compliance.
When determining the rating for a company, the circumstances that the labor authorities will consider include:
- the company's internal policies and regulations;
- whether employment contracts are signed; · compliance with the labor dispatch regulations;
- use of child labor;
- compliance with female and juvenile workers' rules;
- compliance with working hours, holiday and leave rules;
- compliance with salary payment and minimum wage rules; and
- participation in various types of social insurance and payment contribution.
Labor authorities will reduce inspection frequency for employers with A rating, increase it for employers with B rating and make those with C ratings key targets for their inspections.
3.The Random Checks Notice
The Random Checks Notice was released and became effective on August 1, 2016. According to the Random Checks Notice, by the end of October 2016, the local labor authorities will publish a list of matters in which random inspections will be carried out on employers, and a list of officers who will carry out such inspections. Further, by the end of June 2017, the local labor authorities will set up a database on all entities that may be subject to inspection. Both the labor officer and the inspection target will be selected randomly.
Around 100 items have been listed as matters that will be subject to random inspections and more will be published in local regulations. These items fall into a wide range of topics, including:
- the company's internal policies and regulations;
- employment contracts and recruitment process;
- working hours, rest and leave;
- use of child labor, protected female and juvenile workers;
- wage payment, minimum wage, and social insurance;
- recruitment agencies, labor market regulations and professional training verification;
- labor dispatch arrangements; and
- employment of foreigners, Taiwan, Hong Kong and Macau residents.
The subject matters of the random inspections are detailed in nature. For example, under Use of Protected Female Workers, one of the items is whether female workers 7 or more months pregnant or within nursing period (before the child turns 1) have been allocated to work extended hours or on night shifts.
Under Labor Dispatch, one of the items listed is whether dispatched workers have been arranged to work in positions other than temporary, substitute or auxiliary positions and whether entities that use dispatch workers have defined the auxiliary positions through employee consultation procedures.
Such detailed inspections mean that companies that have not been fully compliant with labor laws and regulations in the past will find it more difficult to get away with it in future.
While it is still too early to say how intensely the labor authorities will carry out these new measures, their publication is a clear sign that MHRSS intends to step up the level of labor law enforcement. We anticipate that more active and frequent labor inspections will begin from 2017.
Given the potential penalties and publicity of non-compliance, employers who do not comply with the relevant regulations will be exposed to a higher risk with respect to both economic sanctions and their reputation. Companies are advised to conduct a comprehensive internal audit in China to ensure compliance with all areas of labor and social security laws and regulations and head off the increased risk in this area starting next year.