China’s labour framework is designed to protect employees, and foreign-invested companies that approach HR in China the same way they would in their home country often find themselves exposed to compliance risks they did not anticipate. Labour laws vary by city, change frequently and can be enforced by employees quickly and at low cost. The result is that getting the basics right from the outset, contracts, handbooks, social insurance and termination procedures, is far more cost-effective than dealing with disputes after the fact.
This guide covers the most critical HR compliance requirements under the PRC Labour Law and Labour Contract Law, including employment contracts, foreign employee obligations and termination procedures.
- Every employee needs a written employment contract that complies with Chinese law. Standard contracts from other jurisdictions are unlikely to meet local requirements and should not be used without review.
- Non-compete clauses are permitted for up to two years but require monthly compensation throughout the restricted period.
- Foreign employees are subject to specific work permit and social insurance requirements, and their contracts comply with and are subject to PRC law.
- China does not permit at-will termination, so dismissals are based on legal grounds, with a properly implemented staff handbook to support compliance.
- Severance is calculated at one month’s salary per full year of service, subject to a cap of three times the local average monthly salary.
Why HR compliance matters in China
China’s employment rules are detailed, locally administered and subject to frequent change. Understanding what applies in each city where you have staff, and keeping contracts, handbooks and contributions aligned with current requirements, is what separates companies that avoid disputes from those that face them.
Employment contracts in China
China recognises three types of employment contracts: fixed-term, open-ended and project-based. Every employee has a signed written contract that complies with PRC law. Contracts from other jurisdictions are unlikely to meet local requirements without a thorough review. For a full breakdown of contract types, probation rules and statutory entitlements, see our guide on understanding employment and labour law in China.
Probation is permitted for fixed-term and open-ended contracts, ranging from one to six months depending on contract length, with no probation allowed for contracts under three months or project-based roles. Only one probation period is permitted per employee, it is stated in the contract and salary does not fall below 80% of the agreed wage or the applicable local minimum wage.
Protecting intellectual property and trade secrets
Employment contracts should address intellectual property and confidentiality, especially for senior, technical or client-facing roles. Non-disclosure clauses protect sensitive information, while non-compete clauses can restrict employees from joining competitors after departure.
Non-competes are limited to two years and require monthly compensation during the restriction period, typically at least 30% of the employee’s average salary over the prior 12 months, rising to 50% for restrictions beyond one year. They should only apply to employees with access to genuine commercial secrets and are tailored to the role to be enforceable.
Social insurance contribution levels also require attention, as they are often set below the legal base, creating a common compliance risk that can result in back payments and penalties.
Compliance obligations for foreign employees in China
Companies employing foreign nationals face additional compliance layers across work authorisation, social insurance and contract requirements.
Work permit requirements
China classifies foreign workers into three tiers, A, B and C, based on skills and experience, and the process can be time-consuming, so early planning is important. When employing foreign staff, companies ensure contracts are governed by PRC law, as contracts with a foreign parent alone are not sufficient.
Employers need to register employees for social insurance and make monthly contributions unless exemptions apply under a bilateral agreement, and complete social insurance registration within 30 days of work authorisation being issued. Our immigration and visa service can support work permit applications and the full relocation process for foreign hires.
Termination of employment contracts in China
China does not permit at-will employment for full-time employees. Every termination requires a legal basis, and the employer bears the burden of proving its actions were justified if challenged. Understanding the grounds for termination and the procedures that apply to each is essential to avoiding costly disputes.
Grounds for employee termination
The table below summarises the five main termination routes, the conditions that apply and whether severance is payable.
| Termination type | Key conditions |
| Mutual agreement | Either party can initiate. If the employer initiates, severance is payable |
| Employee resignation | 30 days written notice required. Three days notice during probation |
| Immediate dismissal for misconduct | Grounds include serious rule violations, criminal liability or causing harm to the employer |
| Termination with notice | 30 days notice or payment in lieu required, plus severance. Applies where the employee cannot perform original or alternative work, or where circumstances have significantly changed |
| Automatic termination | Applies on contract expiry, retirement, death, employer bankruptcy or business licence revocation |
Why an employee handbook in China is important
One of the most commonly used legal grounds for termination is a violation of company rules. Without a properly implemented employee handbook, it becomes significantly more difficult to dismiss or even sanction employees. The handbook should describe expected behaviour, disciplinary procedures and company policies in as much detail as possible. It is best written in Chinese to avoid enforceability issues in local labour tribunals or courts.
Situations where termination is not permitted
Article 42 of the Labour Contract Law protects certain employees from termination. These include:
- Employees suspected of or diagnosed with an occupational disease, or undergoing medical observation
- Employees who have entirely or partially lost the ability to work due to a work-related injury
- Employees on a medical treatment period for a non-work-related illness
- Pregnant, post-natal or breastfeeding employees
- Employees who have worked continuously for the employer for 15 years and are within five years of retirement age
Consequences of unlawful termination
If a termination is unlawful, the employee can claim reinstatement or double statutory severance. If reinstated, the employee is entitled to full salary from dismissal to reinstatement. If legal grounds are weak, negotiating a mutual termination is often the more practical way to avoid labour arbitration. The step-by-step termination process is covered in our guide on how to terminate an employee in China.
How severance pay is calculated in China
Severance is calculated at one month’s salary per full year of service, based on the employee’s average monthly remuneration over the previous 12 months. For partial years, less than six months count as half a month, and six months or more count as a full month. The reference salary is capped at three times the local average monthly salary, which is updated periodically and should be confirmed before calculation. For a full breakdown of employment costs including severance, social insurance and leave entitlements, see our guide on how much does an employee cost in China.
Conclusion
Compliance with employment law in China is an ongoing responsibility rather than a one-time setup. Labour laws change frequently and vary locally, so employment contracts, staff handbooks and social insurance contribution levels should be reviewed regularly to ensure they remain aligned with current requirements. Getting the fundamentals right from the outset significantly reduces the cost and risk of disputes down the line.
How Acclime can help with HR compliance in China
China’s employment law requirements involve keeping employment contracts, staff handbooks and social insurance obligations up to date across a frequently changing regulatory landscape. Acclime’s China supports businesses with employment contract drafting, staff handbook implementation, social insurance registration and ongoing compliance reviews. Contact us to discuss how we can support your HR compliance needs in China.
Contact our teams for expert support and further information about HR and employment solutions in China to ensure you are compliant in the market.
Grace Zhang, HR Services Manager, g.zhang@acclime.com
Stella Zhou, HR & Payroll Director, y.zhou@acclime.com
Jacob Ketcher, Business Development Manager, j.ketcher@acclime.com
