China is more open to foreign companies that want to enter and start a business in the country.
Companies entering China have to deal with different aspects related to how to set up a company, taxes, and sooner or later they will have to hire employees.
The challenge for many foreign companies is understanding the China labor law and the differences between this one and other countries’ labor laws.
Employment contracts, social insurance, wages, are some of the aspects that companies have to understand in order to be compliant in China.
This guide will show you the different parts that compose the labor law and how you can effectively manage the workers in China.
The labor law of the People’s Republic of China is designed to protect the legitimate rights of workers, adjust labor relations, establish and maintain a labor system, and promote economic development and social progress.
The labor law gives citizens legal rights for equal employment, the possibility to choose a career, and gaining labor remuneration.
The law is various and complex to enterprise management and is especially challenging for human resource management.
In accordance with Article 2 of the Labor Contract Law of the People’s Republic of China, this Law shall apply to all enterprises, individual economic organizations, private non-enterprise units, and other organizations within the territory of the People’s Republic of China that establish labor relations with laborers.
That is to say, as long as the employer is within the territory of China, no matter the nationality, and no matter whether the laborer is Chinese or foreign, regardless of whether the labor contract is concluded, performed, changed, or terminated at home or abroad, the Labor Contract Law shall apply.
The labor law has made a clear regulation about working time and overwork time:
- Article 36 – The state applies a working hour system under which laborers shall work no more than eight hours a day and no more than 44 hours a week on average;
- Article 41 – The employer may extend the working hours due to the needs of its production and operation after consultation with the trade union and laborers, but the working hours shall not exceed one hour per day in general. When the extension of working hours is necessary for special reasons, the extension shall not exceed three hours a day under the condition that the health of the workers is guaranteed, but shall not exceed thirty-six hours a month.
The most common concern of employers and employees is what vacation benefits workers should have, especially annual leave.
According to the Regulations on Paid Annual Leave for Employees, the leaves depend on the accumulative working years:
- If the accumulative working years are more than 1 year but less than 10 years, the annual leave is 5 days;
- If the accumulative working years are between 10 and 20 years, the annual leave is 10 days;
- If you have been working for more than 20 years, the annual leave is 15 days.
National holidays and weekends are not included in the paid annual holidays.
However, the annual leave of the current year shall not be enjoyed under any of the following circumstances:
- Employees enjoy winter and summer vacation days in accordance with the law, and the number of vacation days exceeds the number of annual vacation days;
- If the employee asks for personal leave for more than 20 days and the company does not deduct his salary according to the regulations;
- Employees who have worked for more than 1 year but less than 10 years and ask for sick leave for more than 2 months;
- Employees who have worked for more than 10 years but less than 20 years and ask for sick leave for more than 3 months;
- Those who have worked for more than 20 years and ask for sick leave for more than 4 months.
Employers can arrange the annual leave centrally or separately according to production, specific circumstance in work, and considering worker oneself wish but should be arranged within 1 year.
Based on labor law regulation 72, companies need to contribute social insurance for employees. Employers and employees must attend social insurance and pay social insurance premiums lawfully.
Article 100 says that when an employer fails to pay social insurance premiums without reason, the labor administrative department shall order it to pay within a time limit. In case of overdue payment, a fine for late payment may be imposed.
Article 86 says that when an employer fails to pay social insurance premiums in full and on time, the institution that collects social insurance premiums shall order it to pay or make up the difference within a prescribed time limit, and from the day when the payment is in arrears, it shall collect a fine for late payment of 5,000/10,000 per day.
If the payment is still overdue, a fine of not less than one time but not more than three times the amount in arrears shall be imposed by the relevant administrative department.
The probation period is an essential stage for every worker to enter the company.
According to the existing laws and policies, the following five provisions shall be implemented in the labor contract:
- The probation period in the labor contract shall be agreed upon by the employer and the employee through consultation and shall not be imposed by the employer;
- The probation period shall not exceed 6 months at most;
- If the term of the labor contract is more than three months but less than one year, the probation period shall not exceed one month. If the term of a labor contract is more than one year but less than three years, the probation period may not exceed two months. If the labor contract has a fixed term of not less than three years or without a fixed term, the probationary period may not exceed six months;
- The probation period shall be included in the term of the labor contract, and shall not be counted beyond the labor contract, that is, the labor contract shall be signed after the expiration of the probation period. If only a probation period is stipulated in a labor contract, the probation period shall not be established and shall be the term of the labor contract;
- The same employer and the same worker can only agree on a probation period. The probation period is applicable to the workers who change their positions or types of work after first or second employment and can only be used once for the workers whose positions have not changed. When renewing a labor contract, if the laborer changes the type of work, the probation period may be renewed; if the laborer does not change the type of work, the probation period will no longer be agreed upon.
Fixed-term VS Non Fixed Term
Labor contracts are divided into fixed-term labor contracts, non-fixed-term labor contracts, and labor contracts whose term is to complete certain tasks.
A fixed-term labor contract refers to a labor contract in which the employer and the employee agree on the date of termination of the contract. A company and a laborer may conclude a fixed-term labor contract upon reaching a consensus through consultation.
A labor contract without a fixed term refers to a labor contract in which the employer and the employee have agreed not to determine the date of termination. A company and a laborer may conclude a labor contract without a fixed term upon reaching a consensus through consultation.
Full Time and Part-Time Contracts
[Part-time employment is a flexible form of employment, which is different from full-time employment in the following aspects:
- Working hours – Standard full-time workers shall work no more than eight hours a day and no more than forty hours a week. Part-time workers are generally four hours a day and no more than twenty-four hours a week;
- Oral agreements – The oral agreement is considered sufficient for part-time labor. For full-time employment, the employer and the employee shall conclude a written labor contract;
- Termination labor relationship – The contract of part-time workers can be terminated at any time without paying severance pay. For full-time employment, the employer shall pay compensation to the employee in case of termination of the employment contract, except in certain special circumstances;
- Social insurance – Non-full-time employment generally only pay work-related injury insurance. Full-time employers must pay various social insurance fees;
- Remuneration – For non-full-time labor shall be calculated on an hourly basis, and the settlement and payment cycle shall not exceed 15 days. Full-time labor shall be paid to the laborer regularly on a monthly basis in monetary form. For part-time employment, the employer just pays to the laborer on a regular basis in the form of currency. However, the pay cycle is shorter than that of full-time employment, i.e. once every half a month at least.
According to Labor Law, it is illegal for the employer to terminate labor contracts with laborers without legal procedure.
If the employer proposes to terminate the labor contract through negotiation, the employer shall pay compensation according to article 47 of the Labor Contract Law. If the employer illegally terminates the labor contract, it shall pay severance pay according to the provisions of article 48 of the Labor Contract Law.
Below you can find more explanations about the articles:
- Article 47 – Severance compensation shall be paid to the laborer on the basis of the number of years he/she has worked in the company, at the rate of one month’s salary for each full year. If it is more than six months but less than one year, it shall be counted as one year. If the working time is less than six months, compensation of half a month’s salary shall be paid. When the monthly salary of a laborer is three times the average monthly salary of workers of the region in the previous year, the standard for compensation shall be three times the average monthly salary of workers, and the maximum number of years for which compensation shall be paid should not exceed 12 years;
- Article 48 – When an employer revokes or terminates a labor contract in violation of the provisions of this law and the laborer requests continued performance of the labor contract, the employer shall continue to perform. When the laborer does not require continued performance of the labor contract or the continued performance of the labor contract is no longer possible, the employer shall pay compensation in accordance with the provisions of article 87 of this law.
Understanding the labor and contract laws in China is of prime importance for all companies looking to hire employees.
But this is not enough if you want to hire employees. Bringing a business in China is a prerequisite to recruit employees in the country, either Chinese or foreigners.
However, starting a business in China, as the labor law, can be complex and full of procedures that the company has to follow to be fully compliant and legally hire employees.
The Professional Employer Organization (PEO) is a solution adopted by many companies that want to focus on the growth of the company in China.
A PEO/EOR is a company that provides services under which an employer can delegate employee management tasks such as payroll, employee benefits, and workers’ compensation.
Simply put a PEO/EOR solution legally employs your staff in China on your behalf while you don’t have a legal entity established in China and seconds them back to you under a service agreement.
Through PEO services a foreigner may launch his business easily and keeps a presence or sales office in China while minimizing their risk-avoiding the long and expensive process of an in-house hire.
HROne can help your company with PEO services, taking care of HR, benefits, employees, payroll, while you focus on the growth of your business in China. Contact us to know more.