Hiring Guide: Employment Contracts in China
When it comes to hiring employees in China, the employment/labor contract is the first priority an employer should prepare before hiring foreign or Chinese employees in China. Considering the complexity of Chinese labor laws and high employer liabilities a foreign entity shall undertake in hiring employees, the below guidelines and practices regarding employment contracts are extremely important and helpful for foreign companies preparing a comprehensive employment contract for hiring employees in China.
- Employment contract establishment in China
- Mandatory clauses within an employment contract in China
- Types of employment contracts in China
- Probationary period in China
- Invalid employment contract in China
- Legal risks of hiring an employee without a labor contract
- Employment contract amendment in China
The below tips and guides are primarily for clients who have already registered a company in China and would like to hire the employees directly. If you are a representative office in China or you don’t have a legal entity status in China, an employment relationship shall only be established through a licensed PEO & Employment agency. A direct employment contract between a foreign entity and employees in China is not compliant. For more information regarding establishing employment relationships without a legal entity in China, please click below.
Employment Contract Establishment in China
- A written employment contract is required.
- An employment contract shall be agreed upon between the employer and the employee and shall come into effect after the employer and the employee affix their signatures or seals to the employment contract.
- Both the employer and the employee must keep an original copy of the employment contract.
Mandatory Clauses within an Employment Contract in China
- The name, address, and legal representative or person in charge of the employer;
- The name, living address, and ID number or the number of other valid identity certificates of the employee;
- The term of the employment contract;
- The job responsibilities and the work location;
- Working hours, rest time, and vacation;
- Social insurance;
- Occupational safety, environment, and occupational hazard prevention; and
- Other matters which laws and regulations require to be included in employment contracts.
Types of Employment Contracts in China
There are three types of employment contract terms: fixed-term employment contract, non-fixed-term employment contract, and project-based employment contract when the term is based on the completion of a specific number of tasks.
- Fixed-term employment contract: refers to an employment contract in which the employer and the employee stipulate the date of the expiration of the contract.
- Non-fixed-term employment contract: refers to an employment contract in which the employer and the employee stipulate no certain time to expire the contract.
An employer and employee may establish a non-fixed-term employment contract upon reaching a negotiated consensus. If an employee proposes or agrees to renew his/her employment contract under any of the following circumstances unless the employee proposes to conclude a fixed-term employment contract, a non-fixed-term employment contract shall be concluded:
- The employee has been working for the employer for a consecutive period of no less than ten years;
- When an employer is implementing the employment contract system for the first time, or when a state-owned company changes the ownership structure and renews the employment contracts, if the employee has been working for the employer for a consecutive period of no less than ten years and is less than ten years away from his/her statutory age of retirement; or
- If the renewal occurs after the consecutive conclusion of two fixed-term employment contracts, and the employee does not fall under any of the circumstances specified in Article 39, and Item 1 and Item 2 of Article 40 of the Employment Contract Law of the People’s Republic of China.
If the employer fails to sign a written employment contract with the employee within one year from the day when the employee starts working, it will be determined that the employer has signed a non-fixed term employment contract with the employee.
- A project-based employment contract refers to an employment contract in which the employer and the employee stipulate that the time period of the contract shall be based on the completion of a specific task.
Probationary Period in China
- If an employment contract has a term of no less than three months but less than one year, the probation period may not exceed one month;
- If an employment contract has a term of no less than one year but less than three years, the probation period may not exceed two months;
- If an employment contract has a term of no less than three years or is non-fixed-term, the probation period may not exceed six months.
An employer may stipulate only one probation period with one employee. A probation period shall not be stipulated in a project-based employment contract or an employment contract with a term of fewer than three months.
Salary During Probation Period in China
An employee’s salary during probation shall not be less than 80% of the minimum wages for the same post of the employer or 80% of the wages stipulated in the employment contract and shall not be less than the minimum wage of the employer’s location.
Invalid Employment Contract in China
The following employment contract is invalid or is partially invalid:
- Either party uses deception, coercion or takes advantage of the other party in order to ensure the other party concludes the employment contract or makes the relevant amendment, which is contrary to his/her genuine will;
- An employer disclaims its liability or denies the employee’s rights; or
- The mandatory provisions of laws or administrative regulations are violated.
- The invalidity of any part of an employment contract does not affect the validity of the other parts of the contract. The other parts shall remain valid. [fusion_menu_anchor name=”legal” class=””][/fusion_menu_anchor]
If an employment contract has been deemed to be invalid, the employer shall pay compensation to employees who have worked for the employer. The amount of the compensation shall be equivalent to the compensation paid to employees with the same or similar positions of this employer.
Legal Risks for an Employment Relationship without an Employment Contract
There are legal risks associated with initiating an employment relationship without an employment contract for both the employer and employee.
Failure from the Employee to Sign the Labor Contract
If any employee, after being notified by the employer, fails to conclude a written employment contract with the employer within one month from the date he/she starts working, the employer shall terminate the employment relationship with the employee by notifying the employee in writing. In this case, the employer is not required to make any severance payment to the employee but shall pay the employee for his/her actual working time.
Employer Fail to Complete the Labor Contract
If an employer fails to conclude a written employment contract with an employee after the lapse of more than one month but less than one year from the date when he/she starts working, the employer shall pay to the employee double the amount of his/her monthly salaries according to Article 82 of the Employment Contract Law of the People’s Republic of China, and shall then conclude a written employment contract with the employee.
Liability of Non-established, Non-Fixed-Term Employment Contract
If an employer fails, in violation of the Law, to conclude a non-fixed-term employment contract with their employee, it shall pay to the employee double his/her monthly salaries. This double-salary rule starts from the date on which a non-fixed-term employment contract should have been concluded.
Employment Contract Amendment in China
The contents of the employment contract can legally be amended if the parties reach a consensus through consultation. The amendment shall be in writing.
The employer and the employee shall both keep a copy of the amended employment contract.
If the amendment is not made in writing but is given orally, has already been in operation for more than one month, and the oral amendment is not in violation of the laws, administrative regulations, national policies, or public order and good customs, the People’s Court will not support the annulment of the amendment solely on the basis that said the amendment is not made in writing.