China: China (Mainland): Employment And Labor Update

In China,1 employment relationships are governed mainly by the Labor Law of the People's Republic of China (LLPRC) and the Employment Contract Law of the People's Republic of China (ECLPRC) The LLPRC was enacted on January 1, 1995, and the LCLPRC was enacted on January 1, 2008. Additionally, the Social Insurance Law of the People's Republic of China (SILPRC), enacted on July 1, 2011, requires employer and employees to purchase social insurance. Discrimination, salaries and benefits, and labor protection are also governed by other relevant statutes and regulations, some of which are discussed below. In addition, district regulations and policies of every province and city are valuable and persuasive resources, particularly because local judges often consider the regulations and policies of the forum's provincial government.

I. Discrimination

Pursuant to the Employment Promotion Law of the People's Republic of China (EPLPRC), the employer should not discriminate against any candidate because of his or her ethnic background, race, gender, religious beliefs or other protected status. Employers may not discriminate while advertising, interviewing or hiring employees. For example, advertising that only males are allowed to apply for an open position would be illegal, unless a law or regulation provides that females are unsuitable for that specific position.

II. Employment Contracts

Entering into a contract: Under the LCLPRC, the statute of frauds requires both the employee and employer to sign a written contract within one month of the start of employment. Otherwise, the employer will owe the employee double the wage rate for time already worked. In addition, after one year of the employee working without a written contract, an unfixed-term employment contract shall be deemed to have been established between employer and employee. (Article 82)

The employment contract should: (i) identify the name, domicile and legal representatives or managers who are in charge of the company; (ii) identify the name, domicile and resident ID card number or other valid identifying documents of the employee; (iii) specify the contract period; (iv) describe the job and the place of work; (v) specify the salary; (vi) provide the terms of social insurance; (vii) provide the terms of labor protection, working conditions and protection against occupational hazards; and (viii) include a number of other required provisions (Article 17).

Recognized types of contracts: Employment contracts are divided into three types: (i) fixed-term, (ii) unfixed-term, and (iii) ends upon completion of a specific project.

  • The fixed-term employment contract identifies a specific end date.
  • The unfixed-term employment contract does not specify a specific end date.
  • The employment contract ending upon completing a specific project is an event-defined fixed-term contract where the employment relationship ends upon the completion of a specific project or, if the project consists of multiple phases, a specific phase, if that is made clear in the contract.

Unfixed-term employment contract by operation of law: in case of any of the following circumstances , the employer must enter into an unfixed-term employment relationship with its employee upon the employee's request , unless the parties reach an agreement:

  • The employee has consecutively worked for the employer for no less than ten years;
  • The employer and employee have consecutively entered into fixed-term employment contracts at least twice; and
  • The employer does not enter into a written employment contract with the employee within one year of the employee starting to work for the employer.

Termination of employment contracts: In Mainland China, employment is not at-will and the employer must comply with the Fourth Chapter of the ECLPRC, which governs the "termination and ending of employment contracts." An employer and employee may not stipulate any clause regarding the termination or ending of the contract that is not governed by the ECLPRC. Additionally, if the employer dismisses its employee unilaterally and an employee files a lawsuit in response, the employer shall bear the burden of proof in the lawsuit.

III. Salary

The employer and employee should negotiate salary based on the principle that equal work shall be equally paid of fair pay for work performed. Additional factors that are also relevant include, but are not limited to: working years, position, practice area, and market supply and need. Also, the district governments distribute their policies regarding annual raises to adjust for minimum salary.

The salary must be paid in official currency (i.e., renminbi) and the employer may not pay the employee with things such as property or stock. Daily salary: Workers are paid monthly. To arrive at their daily salary, divide the monthly salary by the number of paid days per month, which averages 21.75. (365 days minus 104 weekend days divided by 12 months).

Minimum salary: If a full-time employee performed normally, the employee's monthly salary must not fall below the minimum salary of local province or city. By way of example, the minimum salary of some provinces are as follows:

Average salary: For Shanghai, the average salary in 2016 was RMB 6,504 per month. For Beijing, the average monthly salary in 2016 was RMB 7,706.

IV. Hours

Normal working hours: As a general rule, employees work 8 hours per day, 40 hours per week, with 2 full days off. Additionally, the employer must provide paid time off for 11 national holidays.

  • Working days per year: 250 (365 days minus 104 weekend days2 and 11 national holidays)
  • Working days per month (avg.): 20.83 (250 divided by 12)

Overtime: Employees who work more than the statutory working hours in a week (40) are to be paid for overtime according to law. Exempt employees (e.g., managers, salespersons) do not have to be paid for overtime unless the OT occurs on a statutory public holiday.

Flexible working hours: Employers do not have to count the hours of exempt employees, whose working hours are flexible, the same way they count hours for other employees. To adopt an alternative method of counting hours for exempt employees, the employer should get the approval from the Department of Labor and Employment.

Integrated working hours: To pay an employee according to an Integrated Working Hours calculation, two conditions must exist: (i) as a result of having the employee work unusual hours due to particular circumstances , the employer has to calculate the employee's hours based on week, month, quarter, or year; and (ii) the employer gets approval from the Department of Labor and Employment. When using this method of hours calculation if the actual working hours are longer than the usual working hours of the employee, the additional hours are regarded as overtime hours and the employee must be paid overtime.

V. Holidays and Benefits

The employees are entitled to be paid their salary for legal holidays. The salary is paid either by the employer or the social insurance.

VI. Social insurance

According to the Social Insurance Law of the People's Republic of China, social insurance is comprised of five components: (i) basic endowment/statutory pension insurance, (ii) medical insurance, (iii) work-related injury insurance, (iv) unemployment insurance, and (v) maternity insurance. These insurance categories must be purchased as a package.

By way of example, the requirements in Shanghai are broken down as follows:

Employer=R; Employee=E

VII. Compliance and corporate policies

Staff handbook: Under Article 4 of the ECLPRC, the employer must establish, and modify as needed, internal rules and regulations, and take actions to ensure that employees' rights are protected while they perform their jobs. In addition, under Article 39, if an employee materially disobeys the rules and regulations of the employer as set forth in the Staff Handbook, the employer may terminate the employment contract. Thus, creating the Staff Handbook is a valuable and efficient way to govern the employee's conduct.

Confidentiality, non-competition & non-disclosure: In addition to government protection of trade secrets and intellectual property, employers are allowed to create regulations to protect trade secrets. These regulations can be as broad as the employer desires, as long as they do not contradict any currently established statutes. The employer may also sign confidentiality agreements with the employee, to prevent the employee from disclosing trade secrets or intellectual property. In addition, the employer may request that the employee sign a non-compete agreement. Such an agreement may provide that, for a reasonable period (no more than two years after employee's departure), the employee is not allowed to do any business or work for any company that competes against the employer. Notably, considerable compensation to the employee is required for the non-compete agreement to be considered valid. If the employee violates the agreement, the employee may be required to pay the employer for damages as a result of the breach—the amount of which is typically included as part of the initial non-compete agreement.

Obeying the district laws and policy: To establish a company and hire employees in Mainland China, the employer must obey LLPRC and ECLPRC. Additionally, the employer must also adhere to local labor regulations and policies in its jurisdiction, including, without limitation, the applicable minimum wage standards and sick leave wage calculation. Marital leave and maternity leave is also governed by local regulations and standards.

VIII. Foreigners personnel employment management

Application of employment license: According to law, foreigners6 (foreign personnel) who work in mainland of China must also apply for "alien employment license of the People's Republic of China."

Participation in social insurance: According to the Social Insurance Law of the People's Republic of China, an employer must participate in social insurance for foreigners (basic endowment insurance, basic medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance). The social insurance fee is paid proportionally between the employer and the employee.

Recently, China entered into the "Agreement between the People's Republic of China and the Federal Republic of Germany on Social Insurance" with Germany. Additionally, China entered into "Interim measures agreement between the People's Republic of China and the Republic of Korea for Endowment Insurance Premium Absolution" with Korea. These two bilateral agreements stipulate that if an employee from Germany or Korea who works in China is able to provide an "Insurance Certificate" issued by designated Germany or Korea agencies, a German employee may waive the basic endowment insurance and unemployment insurance fee, and a Korean employee in China may waive the basic endowment insurance fee.

Footnotes

1. In this article, "China" means mainland China, excluding Taiwan, Hong Kong, and Macanese.

2. There are 52 weeks a year and employees get 2 days off per week, so in total the yearly two-day weekends amount to 104 days per year.

3. Depending on employee's social length of service.

4. Maternity leave is 98 days, but if there is dystocia then the maternity leave shall be extended for another 15 days. In the case of a multiple birth, the maternity leave shall be extended by 15 days for each additional infant.

5. The minimum amount is 60% of the entire city employees' previous year average wages. The maximum amount is 300% of the entire city employees' previous year average wages.

6. Refers to those who do not possess Chinese nationality.

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