Guide to Employment Law in China – 2008 (Part I)
By Gregory Sy, Grandall Legal Group
I. Employment Law Legislation
1. What legislation governs employment law in China?
Employment law in China is governed by a relatively comprehensive set of laws, more recently supplemented in late 2007 to strengthen workers’ rights.
Major laws include:
- Labour Law of the People’s Republic of China (1994) (“Labour Law”)
- Labour Contract Law of the People’s Republic of China (2007) (“Labour Contract Law”)
- Labour Arbitration and Dispute Resolution Law of the People’s Republic of China (2007) (“Labour Arbitration Law”) (effective May 1, 2008)
- Trade Union Law of the People’s Republic of China (1994)
These laws and then supplemented by a myriad of national and local laws, regulations, measures and circulars.
2. Are there different laws which govern foreign-invested employers and domestic Chinese employers?
The Regulations on Labour Management in Foreign Investment Enterprises (1994) governs employment by Sino-foreign equity and cooperative joint ventures, along with Sino-foreign joint stock companies. The Regulations very much mirror that of the Labour Law. Additionally, as any inconsistency with the Labour Law will be resolved according to the higher-level law, little reference is made to these Regulations.
II. LABOUR AGREEMENTS
1. What are the different types of employment contacts?
Employment in China, like most other jurisdictions, is divided into full-time and part-time. According to the Labour Contract Law, part-time employment is defined as a labour relationship in which the employee works, on average, no more than 4 hours per day and no more than the aggregate of 24 hours per week.
Employment relationships which exceed the hours in this definition are termed full-time employment, which is further divided into 3 types:
1) fixed term: expiry date agreed upon at outset;
2) open-ended / non-fixed term: no expiry date stipulated; or
3) project-based / completion of defined task: contract to expire on completion of pre-defined project or task.
2. What are the requirements of a labour contract?
According to the Labour Law and the Labour Contract Law, other than part-time employment, all labour contracts must be in writing and contain the following terms:
- name, address and legal representative of the employer;
- name, address and identification number of the employee;
- term of labour contract;
- job description and work site;
- working hours, rest and vacation;
- labour remuneration;
- social insurance;
- labour conditions, working conditions and occupational hazard prevention; and
- other matters stipulated by laws and regulations.
If the labour contract contains a probationary period only (sometimes called “a probationary period contract”), then the probation term set out therein is deemed to be the term of the labour contract and the probationary period is invalidated.
3. What are the penalties associated with not signing a written employment agreement?
A labour relationship commences on the date on which the employee commences work for the employer, and by law, it is required that a written labour contract be concluded within one month of this time.
If a labour contract is not concluded within the one month of commencement, the employer will be liable to the employee for double labour remuneration, of up to 1 year. After 1 year with no written labour contract, fixed-term labour contracts are deemed to be open-ended.
4. What is the maximum probationary period allowable by law?
Maximum probation periods allowed by law are as follows:
- less than 3 months: no probation period;
- 3 months to 1 year: 1 month;
- 1 year to 3 years: 2 months; and
- 3 years or more or open-ended: 6 months.
III. WAGES, BENEFITS AND SOCIAL SECURITY
1. What are the components of wages or salaries?
According to the Provisional Regulations for the Payment of Wages (1994), wages or salary are composed of:
- wages based on time;
- wages based on piece-work;
- bonuses;
- subsidies;
- allowances;
- overtime payments; and
- wages paid under special circumstances.
According to the Minimum Wages Provisions (2004) and based on the minimum wage standards promulgated locally, employers may not pay their employees less than the current minimum wage standard.
2. What are the standard working hours and when am I required to pay overtime?
The standard working hours in China are 8 hours per day, 5 days per week, for a maximum working period of 40 hours, with 2 rest days (typically Saturday and Sunday). Any additional requirements by the employer must be compensated according to the standard set out below:
- Working days: 150% standard wages;
- Rest days: 200% standard wages; and
- Holidays: 300% standard wages.
3. What are the national public holidays?
National public holidays (as of 2008) are set out below:
- New Year’s Day (January 1): 1 day;
- Spring Festival (lunar new year, typically January or February): 3 days;
- Women’s Day (March 8): half day for women;
- Qingming Festival (April 5): 1 day;
- May Day (May 1): 1 day;
- Dragon Boat Festival (5th day of 5th lunar month): 1 day;
- Mid-autumn Festival (15th day of the 8th lunar month): 1 day; and
- National Day (October 1 – 3): 3 days.
4. What are the social security payments required by law?
Employers are obligated to provide the following benefits and social security payments to employees:
- Basic old age insurance;
- Unemployment insurance;
- Medical insurance;
- Maternity insurance; and
- Work-related injury insurance;
The employee and employer jointly contribute to the first 3 types of insurances, while the employer alone contributes to the latter 2, with rates varying based on location of employment.
IV. NON-COMPETE AND CONFIDENTIALITY
1. Can all employees be subjected to non-compete obligations?
Not all employees can nor should be bound by non-competition obligations. The Labour Contract Law limits employees who may be bound by non-compete obligations to:
- senior management;
- senior technical personnel; and
- those employees who have access to business secrets of the employer.
It is required that the employee and employer conclude a written agreement, either separately or in the labour contract, with regards to term, scope, territory, compensation during the non-compete period and liquidated damages for employee breach.
The maximum term is 2 years.
2. What are the typical compensation requirements for non-competes?
Although it is required that compensation be paid on a monthly basis to the employee during the non-compete period, the law does not state a standard amount. In practice, it is common to pay at least 50% of the employee’s wages.
3. Are liquidated damages permissible for breach of non-compete obligations?
Yes.
This is the first part of the Grandall Legal Group Guide to Employment Law in China, next week we will publish the second part.
Gregory M. Sy is a partner / foreign counsel with Grandall Legal Group. His practice includes general business advisory for SME’s in China, particularly in the areas of international corporate structuring and transactions. Representative clients include the Consulate of the United States of America in China (Shenyang), Embassy of Brazil, various publicly listed companies (NYSE, LSE, DAX, and BSE), along with numerous other SME’s operating in a wide range of industries. Mr. Sy obtained an LL.B. from the University of Victoria, and is admitted to the New York bar. Gregory publishes extensively on a variety of China legal issues for international and local publications, and has recently acted as chief editor for Martindale’s China Law Digest. You can contact Gregory at gregsy@grandall.com.cn or learn more about the firm at www.grandall-profile.com.
April 23rd, 2008 at 3:12 am
Dear Gregory,
Thank you very much for your in-depth analysis on labour law.
I would like to aks you of your could specify if the lenght of the probation periods varies according to different cities
Thank you very much
Giorgio
April 30th, 2008 at 9:10 am
Dear Giorgio,
The probation period is based on national law (the Labour Contract Law) and does not vary with region.
If you have any other particular questions, please contact me at gregsy@grandall.com.cn.
Regards,
Gregory Sy
July 20th, 2008 at 7:03 am
Dear Gregory,
i was hoping you could clarify for me whether or not days off must be given in lieu if they fall on a national holiday, i.e my employees regular days off are Monday, Tuesday and a national holiday also falls on this/these day/s .
thanks,
C Merriman
July 30th, 2008 at 12:20 am
Hi there,
Where can I get the latest english version of the Chinese Labour Law?
I want to know about weekends and if Saturdays is normal working day of the week?
How many hours is a normal working week?
Regards
Gabriel
Foreigner in China
August 5th, 2008 at 7:34 pm
Dear Gabriel,
There you find an english version of the Chinese Labour Law:
http://www.lawinfochina.com/law/display.asp?db=1&id=705&keyword=%C0%CD%B6%AF%B7%A8
I am not qualified to answer your other questions but take the following guess: Article 38 Labour Law sets a minimum guarantee of one day off a week. Pursuant to a Communication dated 3 January 2008 (关于职工全年月平均工作时间和工资折算问题的通知), there are 20.83 working days a month, i.e. Saturdays and Sundays are off. Article 36 Labour Law only sets some average limits for work hours.
December 30th, 2008 at 2:56 am
Given the above labor laws, what recourse does an employee have if an employer violates the the law? How likely is it (sueing?) to work? and how costly is it?
Thank You,
Alex
December 30th, 2008 at 2:57 pm
Hi there Alex,
Are you having or experiencing the same problems than me?
Hope to hear from you soon!
Regards
December 30th, 2008 at 5:14 pm
No, I am looking out for friends.
A close friend of mine worked for a year without a contract, among other things. And another friend of mine has worked with a contract (for more then a year) that said they would be given health insurance, but they never were, despite repeatedly asking for it.I was asking on their behalf, what they could do (the insurance one is a foreigner and the other is Chinese), how much it would cost, and how certain the outcomes are.
-Alex
December 31st, 2008 at 7:44 am
Alex,
A labor dispute must generally be filed with the local arbitration committee, but this is a relatively simple process. The outcome depends on the case, but reading your above summary, I would say that your Chinese friend in patricular has a good chance of getting something out of it.
Costs of the arbitration filing are very low, though how much you pay for your lawyers depends on who you hire, and the complexity of your case. I suggest that your friends approach professional counsel to review their case and provide a fee proposal.
If you would like more detailed advice, send me an email: mjroos@wjnco.com
December 31st, 2008 at 11:10 am
Hi Maarten,
Thanks for your posting. It is valuable and straight to the point.
I am also having extreme difficulties with my current employer. It is a Chinese company with some foreign involvement.
Have been told not too long ago that they do not need my services anymore. They gave some reasons for letting me go, that I think is totally absurd. Problems with having an only Chinese contract is quite a big headache to me because I cannot read or understand it in any way. Until now, no English contract whatsoever!
Have been to the Labour Department about this issue, but it seems as if nothing will be happening in my favour.
They will be cancelling my work permit ASAP. What happens then? Will my Z-visa and my Residence Permit be cancelled at the same time? Or can I still be on the safe side with the Residence Permit that is in my Passport? The RP only expires in July 2009. I do not have the Alien Employment Book or any other documents. They still have it in their possesion.
I am really dissapointed with this whole situation.
I feel that I was treated unfairly and that I should be obeying the Chinese Labour Law at all times while I am legally here in China. I just want some help in this regard.
Any suggestions?
I can send you more information if needed!
Any help and guidance in this regard will be much appreciated.
Thanks
December 31st, 2008 at 11:30 pm
Gabriel, employment contracts for foreigners are different to those for locals and are only required to be submitted to the local government bureau in chinese…if you were worried when you signed it then you would have been best to get a friend to translate it for you…but thats water under the bridge now. frankly their only purpose is to allow the lao wei to get a visa. your contract should have a validity period…and if they are not renewing your contract then i suspect that you are out of luck, if they are terminating your contract before its expiry then you may have a case for compensation but it isnt going to be much. once the employer ends their contract with you then they are required to advise the local psb and you would be asked to return the alien work permit …but it sounds like they never gave that to you in the first place which is very strange.
your visa and your work permit are not related, you can stay here till that expires. if the foreign “involvement” (not sure what that means…invested?) part are western (EU USA) then get them to help…if they are asian forget it. regarding your earlier thread about weekends then i’m afraid a foregners labour contract does not stipulate the working hours or days or overtime payments. my view is that foreigners are her to do a job and if that means working weekends then thats what we do..we dont get paid by the hour for being here in china, if we want to get paid by the hour we can go back home. i write this as a foreign (EU) factory owner here in china with other foreigners (and of course chinese) working for me so this is practical advice…it may not be what the labour law says but it’s what happens down on the street. if you are or want to be in southern china then i have a vacancy for a foerigner in my factory at the moment..contact me david@foreverbright.cn. and i promise i would not shaft you on your contract!
January 4th, 2009 at 2:09 am
Regarding the post above from david. I would just like to clarify my understanding. Does this mean that the Labour Law is of no protection for a foreigner and the conditions of contract terms do not apply? (ie max of 2 fixed term contracts then Open Ended contract?)
January 5th, 2009 at 7:45 am
David,
Thanks for the response regarding my problems. I think mine is a little bit too complicated to write here. So I will stick to the very important stuff.
The Chinese contract you are referring to might have been used for the Visa purposes as you said. But I have NEVER HAD ANY OTHER CONTRACT THAN THIS CHINESE VERSION. This is the whole point why I am so upset about. When I signed this Chinese contract I was a little bit scared to do so because it was all in Chinese. I then asked her what this is for. She informed me that I do not have to worry about it at all and that I can sign it because this is just a formality for getting the visa done.I was quite scared to sign, but she said that I do not have to worry about it and that they will fix my English contract very soon. On numerous occasions I have enquired about my English contract from her and she said that I do not have to worry about it at all. They will fix it very soon. I do not know what my exact duties is with regards to this Chinese contract because I cannot read the Chinese writing. They have never explained to me either what this Chinese writing in the contract is all about. That is why I asked for my English contract so that I can see what is expected of me during the period that I am employed there. In this English contract it also should have stated my duties, my working hours, rest days, holidays, salary, sick leave, overtime pay, etc… UNTIL TODAY I HAVE NOT SEEN ANYTHING IN ENGLISH WITH REGARDS TO MY EMPLOYMENT CONTRACT WITH THIS COMPANY. So, to sum it up very simply, I DO NOT HAVE ANY ENGLISH CONTRACT FOR THAT MATTER.
Regarding the foreign involvement I can tell you that they are related to each other. A Foreigner married to a Chinese woman. That kind of involvement. So there is absolutely no chance for me to get help there either. It is sad though that this foreigner is coming from the same country as me. I thought that he would have treated me better. But I was wrong big time.
I feel that I am being treated very unfairly here and that I need some protection from the Laws of the People’s Republic of China. I am legally here and therefor I should obey all rules and regulations at all times.
Can you post a sample Employment contract that you have with your foreign employees? Would like to see what is written in there.
I will take this labour related matter further to the local disputes arbitration committee in Shanghai then.
Regards
January 6th, 2009 at 3:24 pm
to david (i’m the david that posted 31 december…yes no automatic open ended contract for lao wei according to my lawyer in sz
January 6th, 2009 at 3:29 pm
hi gabriel…send me an email to david@foreverbright.cn and i will send you my standard contract (in chinese and english) for my foreign employees. sounds like you are being stiffed…if u want to tall to me please call me i’ll offer whatever help i can…i hate to hear of foreigners cheating foreigners here in china
January 9th, 2009 at 7:10 pm
Hi, Thanks for putting together this website. I wanted to know if the Chinese employer has to pay a minimum salary per month in order to employ a foreigner. For the past 3 years my employer has signed a contract with me for a base salary of 1500 RMB per month, plus commissions. for some reason the labor department accepted this 1500 RMB per month. But now recently the tax board called my employer and said why you hired a foreigner for so little money. 4000 RMB should be the minimum payment if hiring a foreigner? Do you know if this is true? Also does the employer have to pay the salary each month by direct deposit for the tax bureau to verify that I am paid? My boss just pay cash and have me sign a receipt. For me and the employer our agreement works fine, but the tax bureau doesn’t.
any help, would be greatly appreciated.
January 12th, 2009 at 8:08 am
4000 RMB is the threshold for individual income tax above which you should pay income tax. To avoid unnecessary attention your income should appear realistic…..
January 13th, 2009 at 4:54 pm
Hi there,
Can anyone please give the the correct contact address for the Shanghai Labour Department?
Address in English and Chinese please? Even a map direction will also be of great help.
What is the correct procedures for filing a Labour Dispute against a company? What will the costs be for doing this application?
Any suggestions?
Regards
March 4th, 2009 at 5:56 am
Is it true that non-Shenzhen ID holder is not entitled to unemployment assistance, despite that the company has paid for the social insurance?
April 29th, 2009 at 9:06 am
Hi Gregory,
Your site is wonderful and too helpful.Can you please tell me if a employees resigns and is in his/her notice period,is that employee still entitled for Annual Holiday? Company have to approve the leave application under that situation?
Regards
Tania