China: Government imposes more deterrents on non-compliant employers.

What are the new measures?

The Chinese Ministry of HR and Social Security and its local branches have introduced new measures geared towards ensuring employer compliance with employment laws. The new measures give more 'teeth' to the Chinese labour protection administrative departments, entitling them to monitor employers' compliance with local labour laws through daily inspections at workplaces; examining employment contracts and work rules and investigating employee or anonymous reports and complaints.

Under the new measures, the Chinese labour protection administrative departments will have the power to impose administrative sanctions on employers in cases of non-compliance - the new measures include publicising 'serious' employer violations in newspapers and magazines and on TV. In addition to naming and shaming, employers will receive A, B or C grades based on their compliance in various areas, including:

  • Employer work rules and regulations
  • Employment contracts
  • Labour dispatch workers
  • Overtime and holiday compliance

The employer rating will be reviewed and decided upon by the Chinese labour protection administrative department every year and the results will be kept in each company's labour security credit record for at least three years. Companies with excellent track records which do not warrant a routine audit are categorised as Class A; average companies which should be regularly audited are put under Class B; and companies with a number of historical violations will be classified as Class C. Class C companies will fall under tight scrutiny of the enforcing agencies and will likely become major targets for supervision regularly inspections by the labour administrative authorities.

In addition to potentially receiving a Class C rating, "badly-behaved" employers might also be named and shamed publicly. Companies which have been punished by the labour administrative authority for severe violations of labour law (e.g. cases of intentional failure to pay, or underpayment of salary or social insurance contributions) will be listed on the official website of the local labour authority every quarter. Their names will also be printed in major newspapers, or broadcasted on TV stations and other media. The public information to be published will include: the company's name, address and registration code; the full name of the legal representative or person responsible for each violation; and the fines and/or other sanctions imposed.

How will the new measures be implemented and applied?

Some provinces or cities in China have introduced specific local implementing rules. For instance, in the Hebei province, if companies do not pay their employee salaries on time and when such delay involves more than 10 people, or the unpaid amount exceeds 50,000CNY, these companies will be deemed to have committed a major breach of the regulation, and then be named publicly. In Beijing, the local labour administrative authority must ‘name and shame’ an employer within 6 months of closing its investigation, or it will lose its entitlement to do so. We anticipate that specific local rules will be implemented in other cities over the next couple of months.

What is the practical impact of the new measures?

Although the new measures may seem to be strict and perhaps somewhat onerous, it seems to us that the government’s intention is less about actively seeking out and punishing wrongdoers, and more about deterring and sending a strong message to employers. And it seems, it is working - many employers are now taking steps to ramp up their compliance efforts.

Some areas where we typically see employers “fall down” include:

  • Non-compliant work rules or employment contracts;
  • Failure to follow the ‘democratic process’ prior to implementing an employee policy;
  • Non-payment of overtime and failure to comply with working hours and holiday rules;
  • Failure to contribute social insurance;
  • Non-compliance with protective measures for female employee and minors (young workers between 16 and 18 years old); and
  • Non-compliance with labour dispatch rules.

Our view is that larger multinational corporations are likely to be high on the agenda, for the fact that sanctions against them will likely generate more media interest. To prepare for the new measures, our advice is for employers to “stock take” through HR legal audits. Any compliance gaps should be immediately analysed and rectified. Particular attention should be paid to the high-risk areas referred to above.