If you plan to set up and manage your operations in China, it is essential to be familiar with the various employment & labour regulations – not just to help you avoid unnecessary labour disputes but also to create a productive and seamless environment for your employees in China.
The below guide outlines everything foreign-owned businesses should knowabout China’s labour laws and how to comply.
Key takeaways
- The specific regulations may be a combination of provincial, city and national legislation depending on where the employee is based
- China’s labour law is subject to quickly implemented and frequent changes, depending on the government’s direction
- Setting up and registering a business in China is a prerequisite to hiring employees, regardless of whether they are local or international hires
Different types of employment contracts
In China, employment must involve a written contract to be legal. An employer has a 30-day grace period to provide the contract to an employee. Failure to do so will lead to a double wage penalty to the employee for each following month that passes by without them having a written contract. If a year passes without a contract, it is automatically categorised as an open-ended contract.
There are three types of employment contracts in China:
- Fixed-term labour contracts are the standard labour contracts in China. They set an employer-employee relationship for a specific length of time, whether for full-time or part-time work
- Open-ended/indefinite labour contracts don’t have a set termination date and can be concluded only via mutual agreement
- Project-based contracts are based on a specific projector task rather than on the period a company will employ the employees.The contract expires after the delivery of the project.
Regardless of the type of contract, it must fulfil all statutory benefitsand paid leave requirements, such as maternity leave, holidays, vacationtime, health coverage, sick leave, health coverage, workers’compensation, and pensions.
Probation
The agreement may incorporate a probationary period if an employee works full-time and the contract lasts more than three months. The salary during the probation period may not be less than 80% of the agreed wages or not be less than the lowest salary standard of the same position in this company, and not be less than the minimum wage of the area where the company registered.
The contract duration determines how long a probation period is permitted.The maximum probation period that can be applied if the contractlastsless than ayear is one month.
The probation period may be set at two months maximum if the contractlastsone to three years andmay be set at six months maximum ifit laststhree years or more or if it is an open-term contract.
Employment of foreign nationals
Foreign Nationals who wish to work in China are issued a Z visa for enteringChina. Then, the application of a Work Permit and Residence Permit must beapplied to work compliantly in China.
The employer and the employee should obtain aresidence andemploymentpermit for the work contract term during the 30-day graceperiod that the work visa permits from the day of entry into China. Themaximum stay is five years, and theminimum stay is90 days.
A labour contract between the employer and the foreign employee should beconcluded; its term should not exceed five years.
When the term of the employment contract ends, the employment permit is nolonger valid. If a renewal is necessary, the employer must apply to thelabour administrative authorities within thirty days of the contract’sexpiration for an extension of the termof employment. If approved, thecompany must then follow the necessary procedures to extend the employee’semployment permit. The employer of the foreign employee in China shall bethe same as specified in his Employment License.
Upon the termination of the labour contract, the employer must report it to the labour and public security authorities and cancel the Employment Permit and the residence certificate.
Employee leave
Statutory employee leave
The amount of employee statutory leave depends on the number of years that an employee has been employed.
| Working years | Statutory annual leave |
|---|---|
| More than 1 year but less than 10 | 5 days |
| 10-20 years | 10 days |
| More than 20 years | 15 days |
Maternity leave
Female employees are entitled to 98 days of maternity leave.However,it isgoverned by regional and local regulations. For instance, in someprovinces, maternity leave can beextended to 190 days. Like maternityleave, paternity leave varies by region.
Sick leave
Sick leave in China is required to be paid for both local and foreignemployees, and its percentage ratio is as follows (local policies mayapply):
If the duration of sick leave is less than six months:
| Sick leave is less than six months | |
|---|---|
| Working period | Percentage of salary |
| Less than two years | 60% |
| Between two and four years | 70% |
| Between four and six years | 80% |
| Between six and eight years | 90% |
| More than eight years | 100% |
| Sick leave is more than six months | |
| Working period | Percentage of salary |
| Less than one year | 40% |
| Between two and three years | 50% |
| More than three years | 60% |
Working hours
According to China’s Labour Contract Law, employees should not workover eight hours each day or40 hours per week, on average. After discussing with thetrade unions, the employer is permitted to prolong working hours, but theyare limited to one hour of overtime per day. Employers can request more thanone hour’s worth of overtime only under exceptional circ*mstances. However,extra hours cannot exceed three hours each day or 36 hours each month.
Minimum wage
The minimum wage standards in China are established by each local governmentand are changed annually or every two years considering the following:
- Average wage levels
- Cost of living
- The degree of economic development in a particular region
The minimum wage typically consists of hourly and monthly minimum wages forpart-time and full-time employees.
Mandatory contributions
In addition to salaries, employers are required to provide socialcontributions to the following:
- Medical expenses
- Employee pension
- Housing fund
- Maternity benefits
- Unemployment
- Work-related injuries or accidents
| Benefit | Employer contribution rate | Employee contribution rate |
|---|---|---|
| Pension | 14% – 16% | 8% |
| Medical expenses | 10% | 2% |
| Unemployment (up to 12 – 24 months of benefit in the case of redundancy) | 0.5% – 0.8% | 0.2% – 0.5% |
| Maternity | 0.8% – 1% | 0% |
| Work-related injuries | 0.5% – 2% | 0% |
| Housing funds (residents only) | 5% – 12% | 5% – 12% |
Employment termination
There are four legislative grounds for terminating an employee in China:
Termination by mutual agreement
If both the employer and employee come to anagreement throughdiscussion, they may revoke the work contract at any time.
Employee termination
An employee may voluntarily leave their position. If they do, they must givea written 30-day notice. Employees are not required to notify theiremployers if the business:
- Created unsafe working conditions
- Failed to pay their salary on time
- Given orders that contradict the terms of the contract and/o
- Used violence, detention, or threats to force an employee into working
Employer-initiated termination
An employer has the right to unilaterally and immediately terminate anemployee’s contractdue to misconduct.
Automatic termination
The contract terminates immediately upon the occurrence of any of thefollowing circ*mstances:
- Expiration of the agreement
- Employee has reached the legal retirement age
- Government has declared an employee missing ordeceased
- Employer declares bankruptcy
- The business license of the employer is revoked
How Acclime can help
The Chinese market offers a wealth of challenges and great opportunities forinternational businesses. Regardless of where you are in your journey– already operating in China or just getting started to explore themarket – a seasoned partner on your side can make running and managingyour business easier.
Acclime is a premier provider of professional formation, accounting, HR& advisory, and tax services in China. With the help of our EoRservices, you will be able to hire employees without setting up a legalentity while saving time, reducing costs, and getting localised support withpayroll, HR, and more.
