After a half year of public discussion, a decision on the amendment to the PRC Labor Contract Law was made by the Standing Committee of the PRC National People’s Congress on 28 December 2012. The newly amended PRC Labor Contract Law (“Amended PRC Labor Contract Law”) will come into effect on 1 July 2013.
In the past, many Chinese companies did not hire employees by themselves but used a large number of employees who were hired by a labor agency and then seconded to work for the companies. This kind of special employment has caused a number of problems in recent years. For example, many seconded employees did not get pay commensurate with their work. Also health and safety rights of seconded employees were not always well protected. The aim of the Amended PRC Labor Contract Law is to change such situation in China.
The Amended PRC Labor Contract Law highlights the principle that direct hiring by conclusion of employment contract with employees shall be the primary means of employment in China. It elaborates more requirements on the use of seconded employees. The details of such requirements are as follows:
- Starting from 1 July 2013, a company providing employee seconding services shall have a minimum registered capital of RMB 2 million, fixed office premises and facilities as well as relevant management rules on seconding employee. Further, it shall obtain an administrative permission from the labor administration authority. All existing labor agencies are required to make re-registration within one year after the effectiveness of the Amended PRC Labor Contract Law. A company who fails to get an administrative permission in the re-registration procedure will not be allowed to engage in employee seconding services.
- After 1 July 2013, an employer can only use seconded employees for work positions which are temporary, auxiliary or substituting in nature. As defined by the Amended PRC Labor Contract Law, a “temporary” work position refers to a position which lasts no longer than six months. An “auxiliary” work position refers to a position which provides supporting services to the core business positions of a company and a “substituting” work position refers to a position which is temporarily vacant due to an employee taking leave or studying, etc. Further, the State labor administration authority will set a limitation on the percentage of using seconded employees in an enterprise.
- The employer shall adopt the same remuneration allocation policy to seconded employees who do the same work as that of employees directly hired by the employer. Legally speaking, such remuneration shall include not only the basic salary but also bonus, subsidies and allowances, etc.
To implement the above new policies, the Amended PRC Labor Contract Law gives the enterprises some time to make adjustment on their employment arrangements. The new law allows the enterprises to continue to perform the existing labor secondment contracts which have already been executed before its issuance (i.e. before 28 December 2012) until the expiration of the contracts. However, the principle of equal pay for equal work as stated in the above item 3 shall be adopted immediately after the effectiveness of the Amended PRC Labor Contract Law.
Foreign invested enterprises may wish to check if their current employment arrangements need to be adjusted. Please note that after 1 July 2013, if any enterprise breaches the new provisions on the use of seconded employees, it can be ordered by the labor administrative authority to make rectification. If it fails to do so, a penalty from RMB 5,000 to RMB 10,000 can be imposed on the enterprise for each seconded employee.
The limitation on the percentage of seconded employees does not apply to representative offices established by foreign companies in China. Representative offices of foreign companies are not independent legal entities in China and therefore, are not allowed to hire Chinese employees directly, but must hire them through a labor agency.