China has grown rapidly in the past several decades to become one of the most exciting, fast-paced economies in the world. Nearly every business that wants to expand internationally will consider hiring in China because of its growth potential. However, China employment law can be difficult to follow.
To take full advantage of everything the country has to offer, it is crucial to understand the ever-changing regulations. Here are seven things you need to know about China employment law to help jumpstart your journey into the region.
1. Write a China Employment Law Contract
China’s labor laws use employment contracts as the basis for employment agreements. The American system of “at-will” employment means that an employer may dismiss an employee for any reason. However, this is not possible under China employment law, which requires a written contract with penalties for employers who do not have one.
In addition to fines, if your employee works for one month without a written employment contract, you are required to pay the employee double the normal salary and execute a contract immediately. If you do not execute a contract within one year of hiring the employee, the contract would then become open-term. This means that there is no definitive ending date to the employment relationship.
This type of employment relationship in China is permanent. You will be required to retain that worker until he or she reaches retirement age.
2. Implement Mandatory Contract Provisions
When you are creating an employment contract in China, it must include these items:
- Basic information for the employer and the employee
- Term of the contract including probationary periods
- Job description
- Work site and hours
- Breaks and vacations
- Social insurance
- Labor protection and safety
- Other items as required by law
In addition to mandatory provisions in employment contracts, Chinese law includes the following provisions. These stipulations are in effect whether or not they are explicitly written:
- Minimum wage
- Grounds for termination
- Calculation of statutory severance
3. Use Clear, Concise Language
Many contracts contain vague language, which usually goes against the party that drafted the contract. When you write your Chinese employment contract, make sure that you explicitly detail these terms:
- Salary, including bonuses or thirteenth month payments
- Probationary periods
- The term of service
- The specific social insurance programs and costs as these can vary from region to region
- Whether an expat employee gets social insurance, which also varies depending on local laws
In many cases, courts tend to side with workers and against employers. This means that vague or ambiguous contract language could open you up to legal battles and large settlements.
4. Write the Contract in Country-Specific Language
The law requires that employers write their contracts in Chinese. Even if you do write a dual-language contract, the second language is not legally valid in China. It is wise to have a copy of the local Chinese contract translated into English for your own records. Remember, however, that the English version is not enforceable.
5. Establish a Foreign Investment Enterprise to Employ Chinese Workers
To compliantly hire a Chinese worker, one option is to establish a Foreign Investment Enterprise (FIE). These enterprises can be partnerships between a foreign company and a local company, as well as a company wholly owned by foreign investors.
Many companies choose to open a representative office inside China before fully establishing a FIE, but these legal entities cannot directly employ local workers. They can, however, use a government-designated labor services company, which hires local workers and leases them to the representative office.
Additionally, you can also use an International PEO (Professional Employer Organization) to hire employees in China.
6. Understand Termination Law for Chinese Workers
Chinese law generally protects workers from dismissal after the probationary period and before the term of the employment contract is up. Some of the reasons why a company could compliantly terminate the employment relationship early include:
- Severe misconduct
- Dereliction of duties
- Criminal liabilities
- Major incompetence
- Death of the employee
- Retirement of the employee
In most situations, the only way to dismiss a Chinese worker is to dismiss “for a cause.” The system is designed to protect workers, so filing a grievance for labor arbitration is free, and the courts ask the employer to prove that the dismissal was in accordance with the law. If the courts find that the dismissal is not lawful the employer may have to reinstate the employee or pay double the normal severance payments.
7. Be Aware of Employees Statutory Severance
When an employment relationship ends without cause, the law requires severance payments. Generally, the worker gets at least one month for every year worked. Severance calculations are now split into two sections: work that was done before January 2008 and work that was done after it.
The salary calculations for severance pay is based on the employee’s average monthly salary during the 12 months prior to dismissal. There is a limit, however, to three times the average monthly salary of local employees as determined by the government.
Expand Globally with a Trusted Partner
To make sense of the ever-changing employment laws in China and around the world, partner up with an in-country expert. Velocity Global can help you understand the ins and outs of global immigration and employment law before making a move towards global expansion. Get in touch with our team of experts today.