The employment laws of the People's Republic of China (PRC) are based on statutory law in a civil law system. There is no system of binding case law precedent and also no requirement for the reporting of cases. There are primary pieces of national legislation, such as the Labour Contract Law 2013, and also local legislation at provincial or municipal level, as well as varying local practices. In general, PRC employment laws are very protective of employees. In particular, employers can only terminate contracts unilaterally if a specific ground prescribed by law exists and these grounds are limited. For example there are no grounds to terminate for poor performance, unless this can be categorised as incompetence, and prior procedural requirements are met.
Issues arising on hiring individuals
Foreign nationals must obtain a work permit and residence visa to work in China for more than 90 days, whether employed directly by, or seconded to work for, an entity in China. To perform certain statutory work tasks in China for up to 90 days, foreign nationals must obtain a work visa, not a business visa. Foreign employees holding valid work permits may enjoy protection under Chinese employment and labour law. Remuneration paid to foreign nationals for their work performed in China is subject to PRC individual income tax, whether they are employed directly by, or are seconded to work for, an entity in China. Social insurance obligations now also apply to foreign nationals, (although a few exemptions apply according to the respective treaties (e.g. for German nationals).
Employment structuring and documentation
Employers must provide full-time employees with a written Chinese language employment contract governed by PRC law, and penalties apply for failure to do so. A subsidiary English version is permissible.
Employment contracts can be for a fixed-term or indefinite term. Employers tend to use fixed-term contracts (of one to three years) because termination options are limited to certain statutory situations. However, employees are entitled to a contract for an indefinite term in certain statutory situations, (including renewal after two consecutive fixed-term contracts).
Foreign nationals can be employed directly by a company in China (with a contract governed by PRC law). Secondment to a Chinese company has become less advisable over recent years because under the changing laws and practices, several associated risks may be triggered regarding employment, immigration, tax, etc.
Representative offices of foreign companies cannot employ any staff directly. To hire Chinese nationals, a staffing agency must be used. Foreign nationals who are employed by foreign companies are usually seconded to the representative office.
The implementation of handbooks, rules and policies are subject to a statutory consultation process with employees if they concern matters such as remuneration, working time, etc. which have a direct bearing on the immediate interests of the employees.
It is not possible to contract out of mandatory provisions of PRC employment laws. However, terms may be agreed if they are more favourable to the employee than the legal provisions. In addition to national level laws and regulations, local regulations also apply (mainly provincial and municipal).
For part-time employees (working less than four hours per day or 24 hours per week) who are not covered by many of the statutory protections most provisions (including termination) can be agreed by contract.
Issues arising during the employment relationship
Wages, annual leave and working time
Minimum wage requirements apply and the exact amount, which is reviewed annually, varies by location- in Shanghai this is currently CNY 2,190 per month.
It is common, but not mandatory, to pay a 13th month salary as a form of bonus.
Overtime compensation depends on the employees' working schedules. Employees working under the standard working time schedule of eight hours per day and 40 hours per week are entitled to be paid at increased rates (or in some cases to be given time off in lieu) for overtime work. Subject to the labour authority's approval, an employer may implement flexible working time schedules, including non-fixed working time schedules and comprehensive working time schedules to certain positions such as management staff, transport employees, travelling sales people and security personnel. Under these schemes, payment of overtime compensation may be avoided to a great extent.
In terms of rest times, employees are entitled to a minimum of one day's rest per week After one year's work (during their career) full-time employees are entitled to a minimum annual leave entitlement of 5-15 days per year - the exact amount varies according to the total years worked.
Medical treatment leave applies - exact entitlements vary by location and years of work, although salary can normally be reduced during medical leave. Maternity leave also applies - the basic minimum is 98 days with extensions in specific circumstances. Further, female employees are protected against termination (except summary dismissal) from pregnancy to one year after the birth of the child. Finally, marriage leave applies (three to ten consecutive days, including weekends; exact entitlements vary by location) depending on the age of the employee.
Employees can require their employer to establish a labour union within the company (or branch) and union representatives may attend board meetings on HR-related matters and can generally represent employees. Unions must be registered with the All-China Federation of Trade Unions. Industrial action is neither expressly permitted nor forbidden, but in the current economic climate, it is increasingly an issue for employers.
Tax and social insurance
Employees have an obligation to pay individual income tax on their remuneration on a monthly basis. Employers have a separate, independent obligation to withhold and pay this tax monthly to the tax authorities.
Employers and employees have statutory obligations to make contributions to various social insurance and welfare funds. The exact funds and the calculation of contributions vary by location, but typically include: medical, pension, unemployment, work-injury and maternity as well as housing funds.
Employees have a right and obligation to report unlawful activities to the relevant authorities.
Issues arising on termination of the employment relationship
There is no automatic transfer of employees with a transfer of business or assets - employees must terminate their employment with the seller and enter into a new contract with the buyer. Certain acquired rights, eg seniority for severance calculation, may be transferred to the new employment.
There is no statutory definition of discrimination, but discrimination on the grounds of nationality, race, sex, religious belief, disability and infectious disease is recognised and prohibited. Sexual harassment of women is also prohibited.
This area of law is not sophisticated but claims are increasing.
During the probationary period an employer can terminate without notice provided they can prove a reason for termination, mainly that the employee fails to fulfil the recruitment criteria; and an employee can resign with three days' notice. Thereafter, employees can resign at any time by giving notice (normally 30 days).
Employers can only terminate for specific grounds comprehensively listed by law. Permitted grounds for termination without notice or severance include serious breach of validly implemented employer rules and policies; serious dereliction of duty or bribery/embezzlement causing substantial harm to the employer; criminal prosecution, etc. Permitted grounds for termination with prior notice of 30 days (or payment in lieu of notice) and severance include: (1) proven incompetence even after training or re-assignment of duties; (2) failure to return to work after statutory medical treatment leave for non-work related injury or illness even if the position is adjusted; and (3) major changes in circumstances (mainly major organisational changes) which make it impossible to perform the contract after the parties fail to reach an agreement on a contract adjustment.
In specific "mass lay-off" circumstances when an employer faces financial or operational problems and has to lay off a minimum of 20 employees, or a number of persons that is less than 20 but accounts for 10% or more of the total number of the enterprise's employees, consultation with employees/ trade union and information obligations to the labour bureau apply and statutory severance must be provided.
The statutory severance referred to above is one month's average salary per year of service, although a cap applies to salary periods of employment from 2008 onwards. The remedy for unlawful dismissal is either double the statutory severance or reinstatement of the employment - the employee is entitled to request their preferred remedy.
Statutory severance must also be provided when a fixedterm contract is not extended and on the conclusion of a termination agreement which has been initiated by the company's initiative.
Published in collaboration with L&E Global: an alliance of employers’ counsel worldwide
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