China stands as a cornerstone of global trade with unparalleled economic significance. Renowned for its dynamic economy and strategic positioning, China offers continued opportunities for international businesses into 2024. However, expansion to this market can be difficult because of the complex nature of Chinese labor law and the requirements that companies must meet.
As the world’s most populous nation, China’s market potential is immense, serving as a crucial hub for global trade. China’s diverse and skilled workforce plays an essential role, but knowing how to safely and effectively employ workers in China remains a key point of understanding for foreign companies.
Chinese Labor Law Regulations
Chinese labor law regulations play a crucial role in ensuring fair and equitable treatment of employees. Key labor laws and regulations in China that all employers must know include:
Labor Contract Law (2007) – Governs the conclusion, modification, and termination of employment contracts, ensuring workers’ rights and employer obligations
Minimum Wage Regulations (2004) – Sets minimum wage standards, varying across regions, to protect workers from exploitation.
Working Hours Regulations (1994) – Defines standard working hours, overtime rules, and rest days to prevent employee overwork.
Social Insurance Law (2010) – Mandates employers to contribute to social insurance funds covering pensions, medical care, unemployment, work-related injury, and maternity.
Employment Promotion Law (2007) – Promotes equal employment opportunities, forbidding discrimination based on gender, ethnicity, or religious beliefs.
Occupational Disease Prevention Law (2001) – Ensures a safe working environment and health protections for employees.
Trade Union Law (1992) – Regulates the establishment and operation of trade unions to safeguard workers’ rights.
Adherence to these laws is vital for employers in China to maintain compliant work environment, avoiding legal complications and safeguarding the rights of their workforce.
Employment Contracts in China
In China, labor laws include explicit reference to the forms employment contracts can take. The most common types of contracts in China are:
- Indefinite contracts, which have no fixed end date and provide job security
- fixed-term contracts, which specify a duration and are often renewable
Probation Periods
The maximum probation period length in China varies based on the contract duration. For contracts lasting less than 3 months, no probation period is allowed. For 3 months to 1 year, the maximum is 1 month, while for contracts spanning 1 to 3 years, it is 2 months. Contracts exceeding 3 years can have a maximum probation period of 6 months.
Working Hours and Overtime in China
Overtime regulations under Chinese labor law stipulate that work exceeding 8 hours per normal workday is paid at 1.5 times the agreed hourly wage.
Similarly, weekend work, or work done on a typical rest day, is compensated for at 2 times the hourly wage, and work on statutory holidays should be compensated at 3 times the standard rate.
Legal limits cap overtime at 3 hours per regular workday and 36 hours per month. Despite the perceived complexity of overtime pay, some companies may be able to modify terms with local labor council approval.
Employers can negotiate specific overtime clauses in contracts which work outside the limits set according to Chinese labor laws. In this way, companies can adopt systems like Comprehensive Working Hours or Flexible Working Hours to make work simpler or more cost-effective.
Types of Leave in China
Chinese labor law outlines rest days, statutory holidays, and annual leave. Employee entitlements in China appear less favorable than global averages, approaching the minimum set by the International Labor Organization.
Employees must receive one full rest day per week, typically on Saturday or Sunday.
Statutory public holidays include New Year’s Day, Chinese New Year, and others. Generally, there’s a minimum of 11 days of public holidays each year. However, China uses a system of “swapped days” in which employees will work on weekends around a 3-day national holiday in order to extend the holiday to a full week.
Holiday pay, equivalent to the average daily wage, is mandatory. Minimum annual leave, based on experience, ranges from 0 to 15 days. Unused leave warrants 200% compensation, increasing to 300% if leave isn’t granted.
Come companies may exceed the legal leave minimums according to Chinese labor law to attract quality staff in competitive markets, though this is not widespread.
Sick Leave
Chinese labor law mandates paid sick leave for all employees, with rates varying based on seniority and regional regulations. Employees receive 60-100% of daily wages during sick leave, determined by the continuous working period and city or province regulations.
For less than 6 months of sick leave, percentages range from 60% to 100%, increasing with longer service. For sick leave exceeding 6 months, percentages are reduced, starting at 40% for less than 1 year of continuous service and increasing with longer tenures.
Marriage Leave
Local governments may not mandate marriage leave for foreign companies, but many choose to provide it. Typically, companies offer up to 10 days of marriage leave.
Maternity Leave
Maternity leave in China is subject to national rules, with the national minimum being 98 days. However, cities have administrative autonomy, causing variations, with the average being between 128 and 190 days.
Multiple births grant 15 extra days per child.
Prenatal Checkups
Mothers receive paid leave for prenatal checkups starting from the 12th week of pregnancy.
Abortion and Miscarriage
For an abortion before 4 months, employees get at least 15 days of paid leave. After 4 months or miscarriage, the entitlement extends to at least 42 days.
Contract Notice Periods
Employers must give notice before termination, with periods ranging from 3 days to 3 months based on service length.
For fixed-term contracts, early termination requires compensation. Specific contracts address part-time, seasonal, and temporary work, each with distinct terms.
Termination in China – Key Rules for Different Types of Termination
Chinese labor laws and the courts that govern them are severe with companies (in particular foreign companies) that are not seen to be protecting employee rights. This is no more evident than in the rules surrounding contract termination in China.
In most cases of contract termination in China, it must be accompanied by 30 days of notice. However, payment in lieu is often a viable option.
Termination During a Probation Period
If an employee hasn’t reached the end of their probation period and they are not able to adequately fulfill their role, they can be terminated with notice but without severance pay.
Termination by Mutual Agreement
Termination through mutual agreement requires severance payment. Offering additional severance for consent helps avoid legal complications.
Termination Due to the Prohibited Behavior of an Employee
Immediate termination without severance is permitted for serious offenses such as: abandonment of duties, outside employment interference, criminal conviction, and others.
Legitimate grounds for employer-initiated termination still require severance, notice, or a month’s salary in lieu.
Changes in Company Circumstances
If a company needs to downsize, termination is allowed after exploring role adjustments or transfers. In these cases, the involvement of a local labor council may help to reduce the chances of disputes.
Severance and notice are obligatory for economic terminations.
In illness-related termination, a medical care subsidy is required.
Mass Layoffs
Pre-approval from the labor bureau is essential before a company proceeds with mass layoffs. Should a company be able to rehire within 6 months, it must offer priority to previously reduced employees.
Employee-Initiated Termination
A formal resignation with 30 days’ notice is required, reduced to 3 days during probation.
Part-time contracts are at-will in China, meaning no notice is required by either party.
The Expiration of Fixed-Term Contracts
Fixed-term contracts terminate automatically at the end of the fixed period. In this case, no renewal means severance must be paid to employees.
However, after the end of a previously renewed fixed-term contract, new employment must be offered upon request.
Protected Employees
Special categories, such as long-term employees, those awaiting work-related injury diagnoses, and pregnant or nursing employees, have protection against mass layoffs.
Severance Pay in China
Terminated employees are generally entitled to severance, with the amount being calculated based on an average monthly wage per year of service.
Taxability of Severance Pay
Severance pay amounts exceeding 3 times the local average salary are taxable.
Establishing a Legal Entity in China
Establishing a business entity in China involves navigating through a comprehensive process of compliance measures. Foreign businesses can choose from various structures, such as Wholly Foreign-Owned Enterprises (WFOE), Joint Ventures (JV), and Representative Offices, with each structure having its own set of requirements and restrictions.
For foreigners to open a business in China, obtaining the appropriate visa for overseas workers is crucial. Individuals exploring business opportunities, attending trade fairs, and conducting market research can use the Business (M) Visa. A full Work (Z) Visa with a Residence Permit is required for workers taking up long-term employment. Additionally, specialist visa types are available for foreign experts or specific work arrangements.
To establish a business entity like a WFOE, investors usually need to submit a feasibility study, a lease agreement for office space, and a detailed business plan. The process involves gaining approval from authorities such as the Ministry of Commerce (MOFCOM) and the State Administration for Market Regulation (SAMR).
Navigating these procedures requires careful consideration of cultural, legal, and business nuances, making professional assistance valuable for a seamless entry into the Chinese market.
Why Choose INS Global to Smooth your Expansion to China?
Navigating the complicated world of Chinese labor laws laws is crucial for companies seeking to expand to China and find success in the Chinese market. Mistakes in HR practices can have significant consequences. INS Global, an established expert in international business solutions, presents a comprehensive strategy for smooth market entry in China.
With nearly 20 years of expertise, INS Global manages the entire spectrum of employer obligations, ensuring compliance with complex Chinese labor laws and best practices. Our PEO (Professional Employer Organization) and EOR (Employer of Record) in China offer solutions driven by advanced technology and tailored support, so you can expand without the need to establish a new local entity in China.
Tap into INS Global’s extensive international network and expertise for a successful entry into the global marketplace.
Connect with INS Global’s experts today for swift and effective solutions in managing employment and other HR processes in China.
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