China Labor Laws: A Complete Guide for Global Companies

International companies seeking to hire talent in the People’s Republic of China must understand and abide by its labor laws. Employment law in China is complex, and maintaining compliance is an overwhelming undertaking for foreign companies that aren’t up to date on current legal and labor requirements in the country.

This guide provides an overview of China labor laws to know before building a team in the country, as well as how to simplify and ensure compliance with the right global partner.

Workers’ rights in China

China labor law strongly focuses on workers’ rights. Global companies must understand workers’ rights in China before expanding business or hiring talent in the country.

The Labor Law of the People’s Republic of China states that workers have the right to:

• Be employed on an equal basis
• Choose occupations
• Obtain remunerations for labor
• Take rests
• Have holidays and leaves of absence
• Receive labor safety and sanitation protection
• Get training in professional skills
• Enjoy social insurance and welfare treatment
• Submit applications for settlement of labor disputes
• Participate in and organize trade unions

China labor law also stipulates that employers cannot discriminate due to nationality, race, sex, or religious belief.

Employment contracts

Companies seeking to hire employees in China must include the following elements in their worker agreements, following China employment contract law:

• Time limit of the employment contract
• Content of work
• Labor protection and labor conditions
• Labor remunerations
• Labor disciplines
• Conditions for the termination of the employment contract
• Liabilities for violations of the employment contract

There are four types of employment contracts used in China: fixed-term, project-based, indefinite, and temporary. Let’s take a look at each below:

• Fixed-term contract. Fixed-term contracts expire at the end of the predetermined work term.
• Project-based contract. Project-based contracts expire when the employee completes a specific project or task.
• Indefinite contract. Indefinite contracts have no predetermined end date. Employers may be forced by law to use indefinite contracts when an employee has 10 years of continuous service with the employer, or when the employee has completed two consecutive fixed-term contracts and the employer wants to renew the contract.
• Temporary contract. Employers create temporary contracts when a role exists for less than six months. Employers also use temporary contracts for support roles or when hiring for a substitution during another employee’s absence.

Companies hiring in China must produce and have talent sign a labor contract within one month of the employee’s start date. If not, the employee is entitled to two times their normal salary until they sign. If it takes more than a year to sign a contract, the contract is considered indefinite.

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Minimum wage

Minimum wage differs across China. Each region has its own minimum wage and adjusts it every few years based on the cost of living, economic development, and other conditions. As a result, rural regions typically have lower minimum wage rates than more developed regions.

For example, Shanghai has the highest minimum wage at RMB 2,590 (USD $400) per month while the monthly minimum wage in Guangxi is RMB 1,430 (USD $226).

Social security

Employers and employees in the People’s Republic of China must contribute to China’s social security scheme, which covers the below benefits. Contribution rates vary across regions—rates are typically calculated based on an employee's salary from the previous year.

For example, below are the rates for Beijing:

Foreign nationals must also contribute to China’s social security scheme. However, foreign nationals whose home countries have bilateral or multilateral social insurance treaties with China are exempt from contributing. These countries currently include Germany, Denmark, South Korea, Canada, Switzerland, Finland, the Netherlands, Spain, Japan, and Luxembourg.

Probationary period

A probationary period is typically the time it takes a new employee to adapt to their role. Employees in the probation period also often receive fewer benefits.

China labor law allows for probationary periods as long as the employment contract is at least three months. For indefinite-term contracts, probationary periods can last up to six months.

Fixed-term contracts of more than one year must include probationary periods. Below is a breakdown of the probationary periods by contract:

• Project-based employment contracts: No probationary period
• Contracts between three months and one year: Maximum probationary period of one month
• Contracts between one and three years: One to two months’ probationary period
• Contracts for three or more years: One to six months’ probationary period

Working hours and overtime

The standard work week in China is eight hours per day, 40 hours per week. However, employers can grant talent a flexible schedule if they receive permission from their local labor administration.

Employees with flexible schedules include but are not limited to high-level managers, sales staff, field staff, and security workers. A flexible work arrangement means employers don’t have to pay overtime for these employees.

China labor law stipulates that overtime should not exceed one hour per day unless under special circumstances. In these special situations, overtime should not be more than three hours per day or 36 hours per month.

Employers must pay the following for overtime:

• On normal workdays: 150% of normal hourly wages
• On a rest day (typically Saturdays and Sundays): 200% of normal hourly wages
• On a statutory holiday: 300% of normal hourly wages

Leave entitlements

Leave entitlements in China fall under several categories: annual, funeral, family visit, and marriage. Learn more about these leave entitlements below.

• Annual leave. Employees who have worked continuously for more than one year are entitled to paid annual leave, which is calculated based on their working years. If an employee has been with a company for at least one year but less than 10 years, they receive five days of leave. For at least 10 years but less than 20, employees receive 10 days of leave. For over 20 years of employment, employees receive 15 days of leave.
• Funeral leave. If an employee’s parent, spouse, or child dies, they may take one to three days of bereavement leave.
• Family visit leave. Employees in China may take family visit leave if their spouse or parents do not live with them. Employees are entitled to up to 30 days of family visit leave per year to visit a spouse and 20 days per year to visit parents.
• Marriage leave. Employees who have recently married are entitled to compensated marriage leave. The amount of time varies by region, with the minimum being three days and the maximum being 30 days.

Termination

There are four statutory types of termination in China: resignation, termination with just cause, unjustified dismissal, and wrongful dismissal. We break these down below.

• Resignation. Employees are expected to give employers 30 days’ notice for resignation. However, during the probationary period, employees are only expected to give three days’ notice.
• Termination with just cause. Employers can terminate an employment contract for just causes, such as contract expiration, mass layoffs, termination during the probationary period, or employer bankruptcy.
• Unjustified dismissal. Also known as termination without cause, employers that carry out unjustified dismissal must give employees 30 days' notice, or payment in lieu, as well as severance payments. For example, termination would be considered unjustified if an employee is unable to perform due to inability despite receiving adequate training.
• Wrongful dismissal. Employee dismissal may be considered wrongful under various circumstances. For example, dismissing an employee during pregnancy or without proving they do not meet employment conditions is considered wrongful dismissal. Wrongfully dismissed employees can file labor arbitration against the employer, which could result in double the severance pay or employee reinstatement.

Severance

Severance payment is generally one month’s salary for every year of service. However, the employer and employee can negotiate severance pay during employment contract creation.

Employers must pay severance for any of the following reasons:

• The employee resigns due to labor right infringement
• employment contract expires, unless the employer proposes to renew the fixed-term employment contract by maintaining it or raising the conditions
• The employer initiates the dismissal, or both parties agree on the dismissal
• The employer terminates the employment for unjustified or wrongful dismissal
• The employer becomes bankrupt and terminates the employee
• The employer loses their business license and terminates the employee

Labor unions

The only legally mandated trade union in China is the All-China Federation of Trade Unions (ACFTU). All local, industry, or enterprise unions must apply and submit to the ACFTU’s authority. Any group wishing to advocate for workers’ rights in China must first gain approval from the ACFTU.

Employees in China cannot freely form or join independent labor unions apart from the ACFTU. If they do, they may face fines or even jail time.

Compliantly hire employees in China with an employer of record

International companies seeking to hire talent in China face compliance challenges when navigating the country’s labor laws. Noncompliance could result in penalties such as fines and a lower corporate social credit score, which restricts companies from doing business in China.

Rather than wading through the bureaucracy and risking noncompliance, companies can partner with an employer of record to mitigate risk and enter the market with peace of mind.

Velocity Global’s Employer of Record (EOR) solution helps companies quickly and compliantly enter or test the Chinese market and hire local talent without the need for entity establishment.

As an employer of record, Velocity Global handles hiring, payroll, benefits administration, immigration, and HR support for your talent in China while ensuring full compliance—so you can focus on your international business goals.

Contact Velocity Global to learn how we can help you quickly and compliantly hire and support talent in China and 185+ countries.

Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.