China Employment Contracts

Once a company becomes eligible to hire employees, the most important aspect that comes next is to prepare the employment contract. An employment contract is mandatory and it should be finalized within the employee’s first working month.

Investors should try to understand China labor law, although China (PRC) labor laws do not outline specific situations that might be regarded as a breach of company policy. Therefore, it is advisable for companies to put in place a staff handbook (company policies and procedures manual). In the handbook it should describe policies specific to the company, such as working hours, employee benefits, and other details that should be clarified to the employees but are not stated in the contract.

Employment contracts in China may be fixed-term or open-ended; a fixed-term contract is the most commonly used norm in the employment relationship. Employer and employee can choose to sign a one-, two-, or three-year contract under the fixed-term arrangement. At the end of the fixed term, either party can terminate the contract legally.

Under Chinese labor law, employers can sign two fixed-term contracts with each employee. At the end of the second fixed-term contract, employers need to sign an open-ended contract indicating the company’s willingness to hire the employee for a longer period without a fixed term to terminate the contract.

A probation period can be included in a contract if the employee works full-time and also has a contract term lasting over three months. This set period can only be included once; however, wages during any probation period may not fall below 80% of agreed wages. For a one- or two-year contract, the probation period can be two months; for a three-year or open-ended contract, the probation period can be as long as six months.

Subject to the specific industry and situation, besides mandatory information such as salary and starting date, we suggest employers also consider including the following important clauses in the contract:

After both parties have agreed on the employment contract, make sure the contract is properly executed by having employees sign on each page, and on the very last page employers shall put the company chop on the last page, and a chop across all pages.

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 do not have any sort of legal entity status in China, the established route to create an employment relationship is to follow the process with the help of a licensed EOR and employment agency like us that can ensure that everything is completed legally.

It is 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.

Here is a short guide to establishing a contract of employment in China that is simple if you complete the following instructions:

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 contracts, employment contracts on non-fixed terms, and employment contracts that are project-based where a number of specific tasks need to be completed.

Fixed-term employment contracts 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 are 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 agreed consent on the contract details, a non-fixed-term employment contract can be established. If the employee agrees or even proposes to renew the employment contract based on certain 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-for example: if the employee has already been working for the employer for a consecutive period of not less than 10 years; when an employment contract is being implemented for the first time by the employer or when state-owned companies change or renew ownership structure, if the employee has been consecutively working for the employer for not less than 10 years or is under 10 years away from official retirement age; or when a renewal follows two consecutive fixed-term employment contract conclusions and the employee does not fall under the circumstances specified in Article 39, alongside Item 1 and Item 2 of Article 40 of the Employment Contract Law of the People’s Republic of China.

If a written employment contract is not signed by the employer with the employee within one year from the day the employee commences working, it will be automatically determined that the employer and employee have entered a non-fixed-term employment relationship as prescribed by law.

Project-based employment contracts stipulate a time period based on specific tasks in the contract that need to be completed.

When employment contract terms are not less than three months but fewer than one year, the probation period should not exceed one month.

When employment contract terms are not less than one year but less than three years, a probation period of two months cannot be exceeded.

When employment contract terms are not less than three years or the contract is non-fixed term, a probation period of six months should not be exceeded.

A one-month probation period can be stipulated by an employer with one employee. For 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 80% of the stipulated salary rate in the employment contract-and in either case should not be less than the minimum wage in the employer’s location.

The employment contract is partially or fully invalid if:

If one part of the contract is invalid, it does not necessarily affect the validity of other parts of the contract that shall still remain valid.

When an employment contract is invalid, it is the employer’s responsibility to pay compensation if the employees have been working for the employer. How much compensation the employer must pay will be aligned with the compensation rate for the same or similar positions of the employer.

If you do not sign or agree on an employment contract, many legal risks can arise. If an employee starts work but does not already have an employment relationship or employment contract in place, the issues below can come into play.

If employees fail to complete their written employment contract after being notified by the employer within 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 severance to the employee but must still pay for the time the employee worked.

Where the employment contract is not completed by the employer in a period longer than one month but less than one year from the employee’s stipulated start date, it is the employer’s responsibility to pay double the monthly salary to the employee in line with their monthly wage rate in accordance with Article 82 of the Employment Contract Law of the People’s Republic of China and to conclude the written contract with the employee.

If a violation of the law by an employer occurs, they may need to pay double the monthly salary rate to the employee to conclude the non-fixed-term employment contract. The double-salary obligation should begin from the date stipulated in the non-fixed-term contract if it had been concluded.

It is possible to legally amend an employment contract in China if all parties agree by mutual consent. The amendment should 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 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 it was not a physically signed contract.