It may be surprising to discover that Chinese labor laws are highly protective of employees and the regulations greatly differ from that in many other countries. This makes it important to be familiar with employment rules and procedures in China, as a lack of understanding in this area can lead to ramifications that may put you and your business at a disadvantage. This guide aims to walk you through the aspects you need to be aware of when taking on a new team member, along with the steps to follow if and when you need to terminate employment.
The guide covers the following aspects:
- Drafting the contract
- Setting out company rules and regulations
- Grounds for termination with notice
- Grounds for termination without notice
- Termination procedures
- When not to fire?
- Making a position redundant
Hiring
Whilst a Representative Office (RO) cannot directly hire a Chinese national, recruitment is still possible through the use of a labor agency. Moreover, Wholly Foreign Owned Enterprises are free to engage in direct employment without having to resort to an external organization.
Drafting the contract
When hiring a new employee, it is essential that you draft an employment contract in Chinese before the employee’s first working month. If there is no contract, the employer will be expected to pay double salary until the day a contract is created, and if there continues be no contract for over a year, the employer and the employee will then be deemed to have an open-ended contract with the employee having the right to double pay.
Two types of contracts are commonly entered into: a fixed-term contract, whereby an individual is hired for a certain period of time, or an open-term contract which has no employment end date specified.
You may specify a probation period for a full-time employee with a contract term exceeding three months. The maximum probation period that can be specified is dependent on the contract length:
- Contract ranging from 3 months – 1 year: One month
- Contract ranging from 1 year – 3 years: 2 months
- Contract over 3 years or an open-ended contract: 6 months
Setting out the company rules and regulations
It is also suggested that the employer provide the employee with written rules and regulations of the company as to allow a clear understanding of the actions that may constitute a serious breach and give cause for termination. This can be done by providing employees a detailed company handbook. Acadia assists clients draft and modify employment handbooks in accordance with the company policy.
Note that any subsequent modification of rules that relate to the employment terms would need to be discussed with the employee.
Termination
Chinese labors laws are quite well-developed and afford employees many protections, therefore, you should take all necessary pre-cautions when terminating employment and ensure you consider important aspects such as dismissal notice and severance package. As in the many other countries, if you dismiss an employee without being in compliance with the law, there may be dire consequences.
Grounds for termination with notice
In order to unilaterally terminate a worker, the employer must provide a 30-day written notice or one-month salary and the cause for termination must fall under at least one of the following categories:
- Employee is incompetent and remains so after training or readjustment of position.
- Employee cannot continue working after receiving medical treatment for a health issue incurred outside of work.
- Employee cannot perform the duties that were originally agreed to in the original employment contract, and the parties cannot come to an agreement.
Grounds for termination without notice
The following situations often occur and allow for immediate termination without notice:
- If the employee is on probation and does not meet the expected standards.
- If the employee is employed on a part-time basis.
- If the employee seriously breaches company rules and regulations.
Termination procedures
An employer is generally expected to provide a severance package which is one month’s salary for each year the employee has worked and half a month’s salary for each partial year. The following situations require the employer to pay severance:
- The employee is dismissed under the situation that require a 30-days notice.
- The employee’s fixed-term contract has expired.
- The employee agrees to the termination of his/her contract but such termination was initially proposed by the employer.
- The employee is dismissed due to issues with operations of the business.
When not to fire?
There are certain situations under which you cannot dismiss an employee. Upon termination of employment, the company is generally expected to give notice or payment along with a severance package. However, there are situations that allow for immediate dismissal without compensation.
A company may not terminate employment if an employee has one of the medical issues outlined below:
- 1. The employee cannot perform his/her duties due to a work-related injury or is on a period of statutory medical leave.
- 2. The employee is receiving medical treatment for a non-work-related medical issue.
- 3. The employee is pregnant, on maternity leave or nursing the child up to its first birthday.
Making a position redundant
A business come across a significant loss or face serious difficulties which force the employer to undertake the difficult decision of laying off employees. In such a scenario, the law prioritizes the types of workers who should be retained in the following order:
- Employee with the longest tenure with the company.
- Employees with fixed term contracts.
- Employees with non-fixed term contracts.
- Employees who are the only breadwinners of the family.
- Employees who are responsible for looking after elders and/or minors.
As you can see, there are many requirements that need to be complied with in relation to correctly hiring and firing employees. It is a complicated area which is rapidly evolving, and being up-to-date is highly important. The most important advice would be to document all communications and information while ensuring there are clearly defined rules and regulations in the company handbook. Moreover, the risk of finding yourself in an awkward situation of firing an employee can be minimized by conducting reference checks.
