These events and the recent enactment of the revised China labour law on June 29 after 18 months of heated debates, are reminding foreign investors to be mindful of their legal obligations as an employer in China.
Obligations of Foreign Employers China has its own unique labour system and regulations. Apart from the usual employment requirements, such as signing contracts with workers, meeting wage standards and issuing salaries on a timely basis, employers in China are also obligated to:
- File their staff employment and dismissal with relevant government bureaus;
- Maintain employees' personnel files - a unique Chinese document that records the academic and employment history of an employee, and the responsibility of maintaining the file is transferred from one employer to another when the employee changes jobs;
- Withhold and pay individual income tax on behalf of their employees;
- Make monthly contributions to their employees' social benefits and housing funds.
Most of the above processes are complicated by the involvement of several government bureaus and mounds of tedious paperwork. For the unfamiliar, staffing their China operations may pose a challenge. What follows is a useful list of "must-knows" for employers in China.
1. Employment contractOfficial employment contracts written in Chinese must be provided to all employees. While there is no standard contract format, the agreement should bear critical information including term of contract, probation period, job responsibilities, labor protection and working conditions, compensation, termination conditions, disciplinary rules and breach of contract provisions. Depending on individual needs of companies, it is also common to include other contract terms such as non-compete clause, nondisclosure agreements and training bond period.
2. Term of contractsThree legal forms of employment terms exist in China:
- Fixed Term Employment - contract terminates once the stated time period lapses. Upon expiration, the contract can be renewed with mutual consent from both contracting parties.
- Open-Ended Employment - contract without termination date.
- Project-based Employment - contract terminates upon completion of a stated project.
Due to the common abuse of fixed-term contracts by companies to avoid longterm employment commitments, the new labour law includes several provisions to curb such practices and better protect workers' rights. Now, companies can sign at most two fixed-term contracts with an employee and are obliged to pay severance compensation if they do not renew the contract.
3. WagesThe wage standards vary across different regions of China, depending upon economic conditions and job requirements. For Shanghai, the current minimum required wage stands at ¥840 per month.
4. Social Welfare BenefisEmployers are obliged to contribute to the employees' social welfare benefits on a monthly basis. The Domicile City Insurance is the most common benefit scheme adopted for employees of Shanghai residency. The contribution by both employer and employee is detailed in the table above. The contributions are calculated based upon the gross salary paid to the employee, but a varying minimum base and maximum cap applies for Shanghai, Beijing and Guangzhou.
| | Shanghai | Beijing | Guangzhou |
| Social Benefits | Paid bycompany | Paid by employee | Paid by company | Paid by employee | Paid by company | Paid by employee |
| Pension Insurance | 22% | 8% | 20% | 8% | 20% | 8% |
| Unemploy -ment Insurance | 2% | 1% | 1.5% | 0.5% | 2% | 1% |
| Medical Insurance | 12% | 2% | 10% | 2% | 8% | 2% |
| Workplace Insurance | 0.5% | - | 1% | - | 0.5% | - |
| Maternity Insurance | 0.5% | - | 0.8% | - | 0.5% | - |
| Housing Fund | 7% | 7% | 8% | 8% | 5% | 5% |
| Total | 44% | 18% | 41.3% | 18.5% | 36% | 16% |
Minimum Salary Base | 1478 RMB | 1640 RMB | 1816 RMB |
| Maximum Salary Cap | 7392 RMB | 9024 RMB | 9080 RMB |
5. Working hoursThe China labor law stipulates an eight-hour workday, with no more than 40 working hours per week for full-time employees. If there is a specific need for overtime, companies would need to discuss the arrangements with the relevant union and provide overtime compensation, set at 150 percent of normal wages for overtime on normal workdays, 200 percent for rest days, and 300 percent for national holidays.
6. Leave and vacationsSimilar to other international labour practices, China's leave and vacation policy includes annual leave, wedding leave, funeral leave, maternity leave and sick leave. In addition, employees working out of their registered province or city are eligible for family visitation leave.
7. TerminationGenerally, workers can terminate their employment contracts by providing a 30 days written notice to the employer. However, the prior notice can be exempted if the worker is still under probation or if the company fails to fulfill its legal obligations as an employer. Termination by employers is much more complicated and often involves severance compensation. An employer can dismiss staff without prior notice or severance pay only if the worker fails to perform during the probation period or if the worker commits a serious breach of conduct, dereliction of duty or crime in accordance with the law. In other situations, the employer will be required to give 30 days' notice to the employee and/or pay compensation stipulated by the provincial governments. The new labour law also states that companies planning to reduce their workforce must consult the labour unions 30 days prior to the dismissal.
It is undeniable that China offers vast opportunities for foreign investors, but at the same time, the risks of labour disputes can significantly impact business operations. It is therefore critical for employers to develop responsible HR strategies that ensure stable business operations in China.
The JLJ Group - www.jljgroup.com
The JLJ Group is a one-stop service-provider assisting foreign companies to enter or grow in the China market. Our services in the following five areas assist foreign companies who wish to Research the Business Environment, Enter the Market or Grow their Business in China:
- Market Consulting- Corporate Formation- Human Resources- Tax & Accounting- Business Process Outsourcing
For more information, please visit www.jljgroup.com or email to info@jljgroup.com.
