China: Analysis on questionable points of paid annual leave

Labour Law Newsletter
Last Updated: 18 February 2015

by Maggie Kong, Shane Lou, Susan Shan, Kent Xu, Grace Yang, Anderson Zhang and John Zhou

It is certain that many employees have used paid annual leave and the statutory holiday in combination during the National Day Holidays. Pursuant to relevant regulations like the Regulations on Paid Annual Leave of Employees, how should the company handle with questions such as: how many leave days does an employee have? Can the company arrange an employee to take a leave? How to make payment of annual leave not yet taken? Combining relevant articles of laws and regulations, our team hereby presents a brief analysis as below for your reference.

  1. Definition of Consecutive Working Time
  2. Article 3 of Measures for the Implementation of Paid Annual Leave for Enterprise Employees regulates that: "an employee that has worked consecutively for over twelve months is entitled to paid annual leave." Many HR may think that consecutive means working in the same employing unit for over twelve consecutive months, then a new employee or an employee under probation period does not get paid an annual leave. In fact, it is a misunderstanding.

    In April 2009, the office of MOHRSS replied to Shanghai Human Resources and Social Security Bureau in regard to this question, reading that: "the conditions for paid annual leave regulated in Article 3 of Measures for the Implementation of Paid Annual Leave for Enterprise Employees include working in different employing units for over twelve months except for working in the same employing unit for over twelve months." Hence, as long as an employee has already worked for over twelve months, irrespective of in the previous employing units or spanning over two employing units, the employee is entitled to the paid annual leave first day upon on-boarding to the present employing unit.

  1. Proof of Accumulated Working Time
  2. Article 4 of Measures for the Implementation of Paid Annual Leave for Enterprise Employees regulates that: "the number of days of the paid annual leave is determined by the accumulated working time of an employee." As for HR, it is difficult to determine the accumulated working time, especially for an employee who once worked in different provinces. According to Article 2 of the said reply: "the accumulated working time of an employee can be determined by records of the files, contribution records of the social security fee paid by the employing unit, employment contract and other proof materials with legal effect." On this basis, if an employee claims the accumulated working time, the employing unit could require the employee to supply proof materials like file records, payment certificate of the social security fees, etc., or the employing unit could offer paid annual leave according to the years of service that have been confirmed by the employing unit.

  1. Can the employing unit arrange an employee to take a leave?
  2. Generally, employees apply for the paid annual leave. Pursuant to the Regulations on Paid Annual Leave of Employees, the employing unit shall make payment of at 300% of daily salary for an employee whose annual leave has not yet been taken, so there might be some employees refusing to take the leave and require an employing unit to pay higher salary calculated for the annual leave. As for this, in judicial practice, an employing unit has the right to co-ordinate and arrange annual leave on the basis of considering the will of the employees other than arrange according to the application of the employees. As a result, an employing unit can control the workforce cost by controlling the salary calculated for the annual leave.

  1. Calculation of Salary for Paid Annual Leave
  2. In practice, when the employee resigns, the employer will pay 300% daily salary for the annual leave not yet taken pursuant to Item Three of Article 5 of the Regulations on Paid Annual Leave of Employees: "with regard to an employee's unused annual leave days, the employer shall pay remuneration at the rate of 300% of the employee's daily salary income."

    As for this, it needs to be clarified that the employing unit has already paid 100% salary than required. Pursuant to Article 10 of Measures for the Implementation of Paid Annual Leave for Enterprise Employees: "the employer shall pay remuneration to the employee for the number of the days of the annual leave that is not taken. The daily remuneration for such days shall be 300% of his or her daily salary income, including his or her salary income during normal working hours paid by the employer." Therefore, the remuneration to the employee for the number of the days of the annual leave that is not taken shall be calculated at the rate of 200% of the employee's daily salary income, the remaining 100% has been already paid in the monthly salary and the payment in repetition is not necessary.

  1. Calculation of Salary Basis for Paid Annual Leave
  2. The calculation of salary for the annual leave uses "daily salary" as the unit of account and is this daily salary calculated by standard monthly salary divided by 21.75? The answer is no. In practice, some employees do not have agreed standard salary or are implementing piecework wage or performance wage. The monthly salary varies. From the perspective of protecting employees, Measures for the Implementation of Paid Annual Leave for Enterprise Employees regulates that: "the calculation basis is the monthly average salary of the preceding twelve months less the overtime salary of the twelve months, then dividing the monthly average salary by 21.75 to get the daily salary.

    After the long holidays, the year is going to reach an end and many employing units will conduct timely examination of the remaining annual leave and make timely payment. We hope this newsflash could be helpful.

Case Study: the Compensation Dispute of Paid Annual Leave

Ms. Chi has been working for a medical corporation for 9 consecutive years. The last employment contact agrees that Ms. Chi has annual leave of 15 days. At the same time, the staff handbook regulates that if the employee takes a sick leave, it can be handled as taking annual leave as long as the employee has paid annual leave.

In 2012, Ms. Chi took a sick leave for 14 days because of enterogastritis and the company handled this as annual leave. At the beginning of 2013, Ms. Chi resigned and required the company to pay the salary for the unused annual leave, but the company quoted the staff handbook and only paid one day's salary for the annual leave. Ms. Chi was not satisfied and applied labor arbitration, claiming the company to pay 14 days' salary for the annual leave.

The labor arbitration commission held that pursuant to the Regulations on Paid Annual Leave of Employee, the home leave, marriage and funeral leave and other holidays that an employee is entitled to in accordance with state regulations as well as the period of suspension of work, but reservation of salary due to occupational injury cannot be counted into the paid annual leave. Sick leave is a statutory holiday and cannot be counted into the paid annual leave. Hence, although Ms. Chi has signed the staff handbook, it goes against Article 26 of the Employment Contract Law: "An employment contract shall be invalid or partially invalid if the employer disclaims its legal liability or denies the worker his rights". The arbitration commission ruled that the company shall pay Ms. Chi 14 days' salary for the unused annual leave.

The Company dissatisfied with the arbitration award and sued at the people's court of first instance. After trial, the court ruled that the company shall pay Ms. Chi the said salary.

We are in the opinion that sick leave is a statutory leave. An employee can enjoy sick pay during the period of medical care, and the paid annual leave is a fully-paid holiday. Unless the sick leave exceeds a certain period of time, these two kinds of leaves do not reject each other. In this case, the regulation of the staff handbook equivalently deprives the right of the employee to enjoy the treatment during the period of medical care, which goes against Article 26 of the Employment Contract Law, so both the arbitration commission and the court of first instance ruled against the company. From this case, we advise that the employer shall strictly be in compliance with the employment laws and regulations, or even agreed in the staff handbook or the employment contract, if the employee applies labor arbitration or sues in the court, the company may face the risk of losing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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