In China, employees are entitled by law to overtime pay (“OT pay”) and paid annual leave (“annual leave”).  Employers may also stipulate their own OT and annual leave policies, as long as those policies are no less favorable than those required by law.  But following local regulation is not the end of the story.  In this alert, we provide some tips on tricky issues and local differences with respect to OT pay and annual leave entitlement.

1. Basis of OT Pay

In Shanghai, the basis for calculating OT pay is the employee’s standard salary as provided in the labor contract or the collective labor contract (whichever is higher).  If there is no agreed base salary for the employee, OT pay is based on an assumed salary of seventy percent of his or her total remuneration (both base pay and extra subsidies or allowances) during a full-attendance month.In Beijing, the calculation basis of OT pay is the employee’s salary provided in his or her labor contract.  If the contract does not provide for an agreed salary, the next step is to apply any OT pay calculation basis agreed in the collective labor contract covering that employee where neither a contract or collective agreement deal with the point, the employee’s OT pay is calculated based on his or her full remuneration (again, both base pay and extra subsidies or allowances) during a full-attendance month.

2. Definition of “Continued Service”

By law, an employee is entitled to statutory annual leave (also known as “paid time off”) if he or she has one year or more of seniority. The labor authority has interpreted “continued service” to include years of service with former employers, not just with the employee’s current employer.  This means that even an employee in their first year of employment with their employer is entitled to statutory annual leave, if totaling up service with both the current and former employers brings them to at least one year.  Periods of leave to which an employee is legally entitled count towards the continued service period.Today many Chinese employers provide their employees with additional annual leave, beyond the legal minimum, basing the amount of additional leave on the employees’ years of service with the current employer only.  Typically Chinese employers would count the employee’s entire period of service with them, including previous service where the employee resigned and rejoined the employer after a period of time.  Employers have discretion on how to define service years for extra annual leave provided it goes beyond what is statutorily required.

3. Local variations

The above practice tips are summarized based on current legislation and court opinion in Shanghai and Beijing only.  In China, different provinces and cities may have their own local rules when it comes to overtime and annual leave entitlements, including as to whether these rules extend to foreign nationals. Employers who have personnel based in multiple regions should ensure their internal policies are in compliance with all applicable local rules.