Employment/labor contracts are one of the first steps in the process of hiring employees in China. Getting the employment contract right needs to be prioritized considering the complexities of labor laws in China and the number of liabilities that are incurred when a foreign entity hire staff in China.
You should understand the guidelines below that govern the Chinese labor law sector in regard to properly and comprehensively preparing employment contracts in order to hire staff in China.
We have cataloged some tips for those who have already registered a company in China and need to rapidly hire employees. If you only have a representative office in China or you don’t have any sort of legal equity status in China, the only established route to make an employment relationship is if you follow the process with the help of a licensed PEO & Employment agency like us that can ensure that everything is completed legally.
Before we go any further, it’s important to mention that a direct employment contract between the employee and the foreign entity is not compliant in China if you do not follow the correct process.
Establishing an Employment Contract in China
Here is a short guide to establishing a contract of employment in China that is simple if you complete the following instructions:
- You will need a written employment contract agreement.
- The said employment contract needs to be agreed upon by both the employee and the employer and that should come into effect immediately after the contract is signed by both parties and the correct employer affixes are used such as seals and so forth.
- An original copy of said contract needs to be kept by both the employer and employee.
Chinese Employment Contract Mandatory Clauses
- Names and addresses and the details of any person or legal representatives in charge of the employer,
- Names and living addresses and the ID number or details or other valid employee ID certificates;
- The term and length of the contract;
- Any job responsibilities and work location details;
- Any work hours, vacation details, or rest time;
- Remuneration and social insurance;
- Any occupational safety, environmental, and occupational prevention measures; and
- Any other issues where the regulations and laws need to be included in the employment contract.
Chinese Employment Contract Types
There are three different types of employment contracts in China so you can make the best-informed decisions. These three employment types are fixed-term employment contacts, employment contracts on non-fixed terms, and employment contracts that are project-based where a number of specific tasks need to be completed.
Please see a more in-depth explanation of the three contract types below:
Fixed-Term Employment Contracts – These are employment contracts where the employer and employee both have the chance to stipulate and agree on the contract’s expiration date.
Non-Fixed-Term Employment Contracts – This employment contract type is when both the employee and employer do not stipulate the length and expiration date of the contract.
As long as the employer and employee can reach an agreed consent on the contract details, a non-fixed-term employment contract can be established. If the employee agrees or even proposes or renews the employment contract based on the following circumstances unless this is to complete an employment contract of a fixed-term nature, then it will need to be listed as a non-fixed-term employment contract as follows:
If the employee for a consecutive time period of not less than 10 years has already been working for the employer;
When an employment contract is being implemented on the system for the first time by the employer or when state-owned companies change or renew the structure of said ownership in regards to an employment contract if the employee has been consecutively working for the said employer for not less than 10 years or is under 10 years away from their official retirement age; or When a renewal happens in the aftermath of two consecutive fixed-term employment contract conclusions, and when the employee does not fall under the details that are specified in Article 39, alongside Item 1 and Item 2 of Article 40 that is listed in the Employment Contract Law of the Republic of China.
A failure to sign a written employment contract from the employer’s side with the employee during the time period of one year from the day when the employee commences working, it will be automatically determined that the employer and employee have signed a non-fixed term employment contract.
Project-based employment contracts where the time period is already stipulated by the employer and employee will be based on the specific tasks in the contract that need to be completed.
Probationary Periods in China Employment Contracts
- When employment contracts have terms that are not less than three months but fewer than one year, then a probation period should not exceed 1 month;
- When employment contracts with terms that are not less than one year but are less than three years, a probation period of two months cannot be exceeded;
- When employment contracts with terms not less than three years or if they are non-fixed term contracts, a probation period of six months should not be exceeded.
A one-month probation period can be stipulated by an employer with one employee. In regard to project-based employment contracts or employment contracts that are less than three months, no probation period is stipulated.
The salary of an employee during the probation period should not be under 80% of the minimum wage for that same post of the employer or it should be 80% of the stipulated salary rate in the employment contract and in this instance should not be less than the minimum wage rate in the location of the employer.
Invalid Employment Contracts in China
The employment contract is partially or fully invalid if;
The employer or employee uses deception, coercion, or tries to take advantage of the other party to get them to conclude the contract or to make amendments that go against their will or best interests;
If an employee’s rights are denied or liabilities are disclaimed by the employer; or A violation of administrative regulations or mandated law provisions takes place.
If one part of the contract is invalid, it doesn’t necessarily affect the validity of other parts of the contract that shall still remain valid.
When an invalid status is given to an employment contract, it’s the employer’s responsibility to pay any compensation if the employees have been working for the employer. How much compensation the employer must pay to the employee will be directly equivalent to the compensation rate that is in line with the same or similar positions of the employer.
Legal Employment Relationship Risks Without Employment Contracts
If you do not sign or agree on some kind of employment contract, there are lots of legal risks that could arise. If an employee starts work but doesn’t already have an employment relationship or employment contract in place, these below legal issues will come into play:
When an Employee Fails to Sign the Labor Contract
If employees fail to complete their written employment contract after being notified by the employer in the period of one month from their start date, the employer has the right to terminate the employment relationship in writing. When this happens, the employer does not have to pay any severance money to the employee but must still pay for the time the employee worked.
When the Labor Contract is not Completed by the Employer
In cases where the employment contract is not completed by the employer in a time period longer than a month but less than one year from the employee’s stipulated start date, it’s the employer’s responsibility to pay double the monthly salary to the employee in line with their monthly wage rate in accordance to Article 82 of the Employment Contract Law of the People’s Republic of China and that concludes the written contract negotiations with the employee.
Non-Established, Non-Fixed-Term Employment Contract Liabilities
If a violation of the law by an employer happens, they will need to pay double the monthly salary rate to the employee to conclude the non-fixed-term employment contract. The double-salary law should only begin from the date that is already stipulated in the non-fixed-term contract if it had been concluded.
Amending Employment Contracts in China
It is possible to legally amend an employment contract in China if all parties agree to a consensus via consolation. This amendment can only be made in writing.
A copy of the amended employment contract needs to be kept by both the employer and the employee.
If an oral agreement was given instead of a written one and that has already been in place for over one month, and the laws, administrative regulations, public order, national policies, and good customs have not been violated by the oral amendment, an annulment of the amendment will not be supported by the People’s Court on the basis that is was not a physical written amendment.