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 know about China’s labour laws and how to comply.
- 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 project or 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 benefits and paid leave requirements, such as maternity leave, holidays, vacation time, health coverage, sick leave, health coverage, workers’ compensation, and pensions.
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 contract lasts less than a year is one month.
The probation period may be set at two months maximum if the contract lasts one to three years and may be set at six months maximum if it lasts three 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 entering China. Then, the application of a Work Permit and Residence Permit must be applied to work compliantly in China.
The employer and the employee should obtain a residence and employment permit for the work contract term during the 30-day grace period that the work visa permits from the day of entry into China. The maximum stay is five years, and the minimum stay is 90 days.
A labour contract between the employer and the foreign employee should be concluded; its term should not exceed five years.
When the term of the employment contract ends, the employment permit is no longer valid. If a renewal is necessary, the employer must apply to the labour administrative authorities within thirty days of the contract’s expiration for an extension of the term of employment. If approved, the company must then follow the necessary procedures to extend the employee’s employment permit. The employer of the foreign employee in China shall be the 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.
Statutory employee leave
The amount of employee statutory leave depends on the number of years that an employee has been employed.
|Statutory annual leave
|More than 1 year but less than 10
|More than 20 years
Female employees are entitled to 98 days of maternity leave. However, it is governed by regional and local regulations. For instance, in some provinces, maternity leave can be extended to 190 days. Like maternity leave, paternity leave varies by region.
Sick leave in China is required to be paid for both local and foreign employees, and its percentage ratio is as follows (local policies may apply):
If the duration of sick leave is less than six months:
|Sick leave is less than six months
|Percentage of salary
|Less than two years
|Between two and four years
|Between four and six years
|Between six and eight years
|More than eight years
|Sick leave is more than six months
|Percentage of salary
|Less than one year
|Between two and three years
|More than three years
*The data in the table above is specific to Shanghai. Please be aware that the standards for deducting sick leave may vary across different cities and regions.
According to China’s Labour Contract Law, employees should not work over eight hours each day or 40 hours per week, on average. After discussing with the trade unions, the employer is permitted to prolong working hours, but they are limited to one hour of overtime per day. Employers can request more than one hour’s worth of overtime only under exceptional circumstances. However, extra hours cannot exceed three hours each day or 36 hours each month.
The minimum wage standards in China are established by each local government and 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 for part-time and full-time employees.
In addition to salaries, employers are required to provide social contributions to the following:
- Medical expenses
- Employee pension
- Housing fund
- Maternity benefits
- Work-related injuries or accidents
|Employer contribution rate
|Employee contribution rate
|14% – 16%
|Unemployment (up to 12 – 24 months of benefit in the
case of redundancy)
|0.5% – 0.8%
|0.2% – 0.5%
|0.8% – 1%
|0.5% – 2%
|Housing funds (residents only)
|5% – 12%
|5% – 12%
There are four legislative grounds for terminating an employee in China:
Termination by mutual agreement
If both the employer and employee come to an agreement through discussion, they may revoke the work contract at any time.
An employee may voluntarily leave their position. If they do, they must give a written 30-day notice. Employees are not required to notify their employers 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
An employer has the right to unilaterally and immediately terminate an employee’s contract due to misconduct.
The contract terminates immediately upon the occurrence of any of the following circumstances:
- Expiration of the agreement
- Employee has reached the legal retirement age
- Government has declared an employee missing or deceased
- 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 for international businesses. Regardless of where you are in your journey – already operating in China or just getting started to explore the market – a seasoned partner on your side can make running and managing your business easier.
Acclime is a premier provider of professional formation, accounting, HR & advisory, and tax services in China. With the help of our EoR services, you will be able to hire employees without setting up a legal entity while saving time, reducing costs, and getting localised support with payroll, HR, and more.
Contact our teams for expert support and further information about HR and employment solutions in China to ensure you are compliant in the market.