Global HR Compliance in China

Hiring and Firing International and Foreign Workforce in China

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Employment Agreements in China

China Labor Contract Law provides for three types of employment contracts, as follows:

• Fixed-term employment contract – This type of employment contract establishes a contract for a certain amount of time, such as five or ten years.
• Non-fixed-term employment contract – A non-fixed-term employment contract does not have a specific duration included in it.
• Project-based employment contract – This type of employment contract is time-limited, but the time is connected to when the project is completed rather than a specific date or deadline.

Employment Termination and Severance Pay (Dismissal) in China

From a legal perspective, terminating employees in China can be more difficult than expected. Employers should follow these steps to ensure full compliance:

• Step 1 — Determine whether the termination is an early termination or not. If the employer chooses to terminate the employee before the expiration of the first fixed-term contract, this is considered “early termination,” and certain additional requirements apply.
• Step 2 — In case of early termination, the employer should attempt to negotiate an agreement with the employee, including the termination date, severance payment, and any other necessary details. This is often the safer option, even if there are grounds for unilateral termination.
• Step 3 — If unable to come to a termination agreement, consider whether there are grounds to support immediate termination for cause or a 30-day notice termination without cause, keeping in mind the statutory obstacles to such types of termination.

If none of the above measures can be adopted, then the termination is likely to be considered unlawful, and an additional severance payment might be required.

Notice Period in China

In China, an employee may unilaterally terminate his or her employment contract by giving a written notice 30 days in advance or 3 days in advance during the probationary period. On the other hand, an employer may unilaterally terminate an employment contract by giving a written notice 30 days in advance or providing one month’s salary in lieu of notice in certain circumstances:

• the employee, after undergoing a legally prescribed period of medical treatment for an illness or non-work-related injury, can perform neither his or her original work nor other work arranged for him or her by the employer;
• the employee is incompetent in performing the duties of his or her position and remains so after undergoing training or an adjustment of his or her position;
• a major change in the objective circumstances relied upon at the time of the conclusion of the employment contract renders the contract non-performable. After consultations, the employer and the employee cannot agree on amending the employment contract.

Severance Payments in China

If the employee was terminated for any of the following reasons, then the employer must provide him with severance pay:

• Employee resignation due to the infringement of his employment rights by the employer;
• Expiration of the contract of employment;
• The employer and employee mutually agreed on the dismissal, with the former initiating the dismissal;
• The termination was due to the bankruptcy of the employer;
• Unilateral termination of the employee by the employer unless for cause, eg severe misconduct;
• The termination was due to the revocation of the employer’s license, voluntary liquidation or was ordered to close down;

Employee Benefits and Contributions in China

Pursuant to national and local labour laws and regulations, employees are entitled to receive basic social benefits, including:

• pension
• medical insurance
• maternity insurance
• work-related injury insurance
• unemployment insurance and the housing fund

In addition, employees have the right to enjoy:

•  statutory holidays
• paid annual leave
• marriage leave
• maternity leave, etc.

Minimum Statutory Salary in China

The minimum wage in China varies based on what each local government sets. This is changed annually or every two years based on the following:

• Cost of living
• Average wage levels
• The particular region’s economic development level

Probationary Period in China

The China probation employment law associates the maximum term of probation with the duration of the employment contract. An employee can only have one probationary period. If the employer renews the employment contract, it cannot set up a new probationary period.  For example, the probation period would be as follows:

• For an employment contract for less than three months – no probation period.
• For an employment contract with no fixed term – up to 6 month probation period.
• For an employment contract for three months to one year – up to 1 month probation period.
• For a 2-year labor contract, max 2 months.
• For 3-year or indefinite (open-ended contract), max 6 months probationary.

Overtime in China

In some circumstances, an employer may extend an employee’s working hours after consulting with the trade union and the employee concerned. Specifically, hours can be extended to accommodate production or business operations changes. Generally, however, overtime should be limited to one hour per day. In special circumstances, the overtime should be capped at three hours per day, provided that the employee’s health is not affected and the total monthly overtime does not exceed 36 hours.

Working Hours in China

The general principle is that the daily working hours should not exceed eight hours, and the weekly working hours should not exceed 40 hours under the standard working hour system. An employer must ensure that every employee has at least one rest day each week.

Annual Leave in China

According to the government Regulations on Paid Annual Leave of Employees:

• Employees who have worked between one and ten cumulative years are entitled to five days of annual leave.
• Employees who have worked between ten and 20 cumulative years are entitled to ten days of annual leave.
• Employees who have worked for more than 20 cumulative years are entitled to 15 days of annual leave.
• If the employer fails to arrange annual leave for employees due to business reasons, the employer must pay encashment to employees for such accrued but untaken annual leave.

Sick Leave in China

During an employee’s sick leave period, his or her salary will be determined and paid based on the standard of sick pay and sick benefits during the medical treatment period according to state laws and local regulations. If an employee suffers from a non-work-related illness or injury and needs to stop working due to medical treatment, a medical leave between 3 and 24 months will be granted according to local regulations where the employee works and based on the employee’s years of service.

Suppose an employee cannot perform his or her original work or other work arranged by the employer after his or her period of medical care expires. In that case, the employer has the right to terminate the employment contract and pay severance upon giving the employee a 30-days’ advance written notice or one month’s payment in lieu of notice.   In addition, subject to local regulations in different cities, the employer may pay medical treatment subsidies equivalent to 6 to 12 months of his or her salary based on the seriousness of his or her sickness.

Parental Leave

Maternity leave

According to the Special Provisions on Labour Protection of Female Employees, pregnant employees are generally given maternity leave of 98 days, including 15 days of antenatal leave. An extra 15 days of leave may be granted if the employee experiences a difficult childbirth. Employees who give birth to more than one baby in a single birth will be granted an extra maternity leave of 15 days for each additional baby.

Parental leave

While there is no national entitlement to paternity leave, local legislation generally provides male employees with some paid paternity leave. In Beijing, for example, the entitlement is 15 days, while in Shanghai, the entitlement is 10 days.

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