Effective August 1, the rules around salary payment practices are now more practical for employers in Shanghai, thanks to an update to the Municipal Enterprises Salary Payment Regulation (“Updated Regulation”). An employer in Shanghai now has the freedom to implement its own salary payment rules, as long as the rules don’t conflict with the Updated Regulation. There are some process requirements: for example, the employer will need to negotiate with employee representatives about the rules and publish the rules to all employees.

Among the changes, employers now have a longer period to make an employee’s last salary payment. Under PRC Labor Contract Law, the last salary payment must coincide with the employee’s completion of work. Practically however, employers often need a buffer to calculate, for example, quarterly bonuses and sales staff commissions. In Shanghai, this reality is now legally accommodated.

The Updated Regulation also resolves the controversial issue of what should comprise base pay for purposes of calculating overtime and leave pay. The following are now specifically excluded from base pay: year-end bonus, commuting allowance, meal allowance, housing subsidy, night-shift allowance, high temperature allowance and overtime pay.

Finally, the Updated Regulation articulates a policy that opens the door for employers to decrease an employee’s salary as a consequence of employee misconduct. While rules for implementation have yet to be formulated, this represents a significant development and departure from the laws in the rest of China.

Shanghai is blazing the trail for employers in this regard: it is the only province where the Updated Regulation or any similar rule applies. A national salary payment regulation is currently being drafted, and this may reflect the principles of the Updated Regulation. We will continue to keep you apprised.