Hiring employees in China requires stringent compliance with Chinese labour laws and an understanding of employer obligations.
China has national and local-level labour laws and legal frameworks that employers must comply with. Compliance regulatory is strict and employers must continuously navigate, and emphasizes the importance of compliance when hiring, firing or managing employees in China.
Written Contracts and Governing Laws
Employers in China are required to provide full-time employees, those working more than 24 hours per week, with official written employment contracts governed under Chinese labour law within one month of the employment commencing. Employees who do not receive an official contract within one month can claim double their salary for the period they have worked without an official contract.
National and Local Employment Regulations
Chinese labour laws have mandatory provisions that cannot be excluded or overridden through contracts. Both national-level and local laws and regulations are applied. National-level law takes precedence, although local regulation and practices can sometimes contradict the national-level law.
No At-Will employment
China does not recognize the concept of at-will employment. Employers can only terminate employees on specific and limited grounds defined by Chinese labour law. For example, termination due to incompetence is valid grounds, but employee underperformance is not. Redundancy is only considered lawful in the event of a mass lay-off of 20 employees or more.
Fixed-Term and Open-Term Contracts
Employment contracts in China can be either fixed-term or open-ended. Due to the limitations on employers’ abilities to unilaterally terminate employees, fixed-term contracts give employers more flexibility. If lawful grounds to terminate an employee during a fixed-term arise, the employer does not need to wait until the expiry of the fixed term. After two consecutive fixed terms, employees are entitled to an open-ended contract.
Employee Probation periods
Employee probation periods can be included in Chinese employment contracts, however, the length of the probationary period legally allowed depends on the duration of the employment contract.
One month is the maximum probationary period for a contract of less than one year; two months for contracts of more than one year but less than three years; and six months for contracts of three years or more or open-term contracts.
Working hours and overtime
Employees are entitled to receive overtime pay or compensatory time off after working beyond 40 hours per week. There are exemption schemes that can apply to specific categories of employees, such as management staff, travelling sales staff, and security personnel. The exemptions normally need to be registered with the local labour bureau.
Employee Handbooks, Rules, and Policies
The introduction of employment documentation, such as employee handbooks, workplace rules, and internal policies, is subject to a consultation process with employees before being implemented.
Non-compete Clauses
Employees who have access to confidential information can be subject to non-compete clauses for up to two years, however, the employer must pay compensation monthly to the employee during this period
Employee Discrimination
While there is no official definition of what constitutes to employment discrimination, discrimination on the grounds of nationality, race, sex, religious beliefs, and disability is recognised and prohibited.
Employee Disputes and Labour Arbitration
Labour and employment disputes in China are first addressed by the labour arbitration commission, but may also be appealed to the local People’s Court. Outcomes can be unpredictable as there is no system of binding case law precedent in China. One of the available remedies for unlawful termination is reinstatement of the employee their position.
Employee Labour unions
Employees can demand that their employer establish a labour union. Unions must be registered with the All-China Federation of Trade Unions. Union representatives can attend board meetings on HR related matters and represent employees.
M&A Employee Business Transfer
Employees do not automatically transfer with a business or asset. For employees to move with the business, they must consent to terminate their current employment with the seller and enter into a new contract with the buyer.
Hiring Foreign Nationals
Foreign nationals can be employed directly by an entity established in China (under a contract governed by Chinese law) or employed overseas and assigned to the entity in China. The international assignment structure has potential China tax consequences for the overseas employer. In either scenario, the foreign national requires a China work permit and residence visa and will be subject to Chinese individual income tax.
Employee Tax and Social Insurance
Employees must pay individual income tax on their salary on a monthly basis. Employers have a separate independent obligation to withhold and pay employees tax to the tax authorities. Both employers and employees are obligated to make contributions to mandatory social insurance funds. The exact funds and calculation of contributions vary by location, but typically include: housing, medical, pension, unemployment, work-injury, and maternity.
Employee Whistleblowers
Employees have a right and obligation to report unlawful activities to the relevant Chinese authorities.
Companies must understand and diligently adhere to China’s complex and stringent labour laws, foreign companies can significantly mitigate a wide range of risks that could otherwise jeopardize their business in China.
