How Enterprises Can Take Compliant Measures to Reduce the Labor Costs in China

The outbreak of COVID-19 as of the end of 2019 has brought adverse impacts on many enterprises’ production and operations as well as business opportunities to different extents.

The sustainable development of enterprises is inseparable from the efforts of employees; however, if the enterprise cannot survive the difficult times, the employee’s employment relationship will have to be terminated.

So, in this article, we talk about how enterprises can take compliant measures to reduce the labor costs in China during the post-COVID-19 period, the period during which the epidemic has been controlled and the production and operation of enterprises have been gradually restored.

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Salary Adjustment

According to the Labour Contract Law, the employer and the employee may agree to amend the contents of the employment contract in written form.

Enterprises adversely impacted by the epidemic may decide to not increase the salary of the employees. Where the employment contract or internal remuneration policy explicitly specifies that the salary increase is granted on a yearly basis, the enterprises may negotiate with employees on not granting the salary increase.

Where the employment contract or internal remuneration policy has no such provisions, or alternatively it specifies that the employer has its sole discretion to determine whether to increase an employee’s salary, it is generally subject to the employer whether to grant salary increase for the employees.

Enterprises having difficulties in production and operation may also consider negotiating and agreeing with employees on reducing the employees’ salary for a short period, and alternatively, the enterprises may go through the democratic procedure mentioned above to reduce the salaries. In fact, there have already been cases of management staff or all the employees of some enterprises reducing their salary by a certain percentage.

However, reducing salary is indeed a sensitive matter for employees. Before determining the salary reduction, the enterprises should assess the extent of adverse impact on their production and operation due to the epidemic, whether they have the justifiable reason to reduce the salary and determine the scope of staff for salary reduction, the reasonable and fair range of salary reduction and a fair time period for the salary reduction (for example, generally it shall not be longer than the duration of the epidemic).

Unpaid Vacations and Shortening of Working Hours

Affected by the epidemic, enterprises with reduced business demand and suffering difficulties in production and operation may consider arranging for employees to take their entitled statutory paid annual leave first and the additional welfare leave granted to employees, and negotiate with employees for taking unpaid vacations and shortening working hours so as to temporarily reduce employment costs.

During such vacations, enterprises shall still contribute social insurance premiums for employees according to the laws and regulations.

Outsourcing

Part of the businesses of an enterprise, especially those auxiliary businesses or project-based businesses, may be outsourced to third parties so as to avoid the cost of long-term employment (including remunerations, social insurance premiums, statutory severance for termination of employment).

Production / Operation Suspension

Enterprises may suspend the production and operation for a certain period.

Taking Shanghai as an example, according to the Measures on Salary Payment by Enterprises in Shanghai, the enterprises may agree with the employees who provide labor on salaries standards starting from the second payroll period, which shall not be less than the local minimum salary.

According to the Guidance Relating to Dealing With Employment Disputes Under Epidemic Impacts by Shanghai High People’s Court and Shanghai Human Resources and Social Security Bureau, when the suspension lasts for longer than one payroll period, during which the employees provide labor for the employer, the enterprises may pay salaries as agreed with employees based on the amount of workload offered and pay certain living costs when employees do not work during the suspension.

Conclusion

As you could see, the post-COVID-19 period, caused some problems with the production and operation of enterprises. Even if the businesses have been gradually restored, there are still some problems with employees. But there are also compliant solutions that your enterprise can use to reduce employment costs.

How HROne can be beneficial to you

Our service can handle the complete employee benefits for your company in compliance with the local policies. As a non-state-owned consulting firm, we can directly hire employees for a company not having a legal entity in China by our specialized Employee Leasing / Talent dispatching services.

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