Expansion into new international markets can be an exciting opportunity, but hiring can be a challenge, particularly if you’re unfamiliar with the labor laws in your target countries. If you are looking to expand operations into China, it’s important to be aware of the various statutes and regulations governing employment.
China labor laws covered in this article will include:
- China labor law overview
- Employment contracts
- Working conditions
- Minimum wage
- Labor unions
- Termination
- Employee benefits
- Employer of record
Labor laws of the People’s Republic of China
Employers and workers must abide by the Labor Law of the People’s Republic of China.
In China, there are legal frameworks that serve as an overview for employers, covering a range of subjects, including employment contracts, working hours, salary, labor disputes and negotiations, and more. Technically speaking, these rules are protective of workers’ rights. But the issue for many workers is that, historically, rigorous enforcement has been the exception and not the rule.
The laws that have been codified over several different documents and resolutions include:
- Chinese Constitution
- 1995 Labor Law of the People’s Republic of China
- 2008 Labor Contract Law of the People’s Republic of China
- Law of the People’s Republic of China on Labor Dispute Mediation and Arbitration
- Labor Union Law of the People’s Republic of China
- Law of the People’s Republic of China on Work Safety
- Social Security Law
Regulations promulgated by the Ministry of Human Resources and Social Security (the “MOHRSS”) and other ministries and commissions of the State Council
For foreign-registered employers and employees, the China labor laws and regulations are not applicable to the employment relationship. But for employers interested in hiring in China, you must abide by the rules and register the company with the Chinese Communist Party in order to avoid permanent establishment.
The entity registration process with the state can be a complex and time-consuming process, filled with applications for registration, permits and licensing. In addition to the complexity of Chinese employment law, the regulatory waters become muddied by the fact that the laws are regularly changed or updated by the government.
Staying up to date can be a significant undertaking, to say the least. This is why many foreign companies opt to partner with an employer of record that is knowledgeable of the most current legal and labor standards.
Employment contracts
In China, an employment relationship must involve a written contract to be legal.
After an employee’s first day of work, an employer has a 30-day grace period to provide the contract. Failure to do so will result in a penalty of double wages to the employee for every month that goes by without them having a written contract. If a year goes by without a contract, it automatically is classified as an open-ended contract.
Common elements of an employment contract in China include:
- Contact information of employer and its legal representatives
- Contact information of the employee, along with an ID card number
- Contract terms
- Expected work responsibilities
- Work location
- Work hours
- Vacation and sick time
- Compensation
- Social insurance
- Workplace safety protections
In China, there are three types of employment contracts:
- Fixed-term labor contracts The standard contract in China. These set a specific term limit on employment, regardless of whether it's full-time or part-time work.
- Open-ended contracts There is no set date of determination. The contract can only end via mutual agreement.
- Project-based contract The work timeline is defined by the undertaking and completion of a specific task or project. Once it’s complete, the contract is absolved.
Regardless of the contract, it must satisfy statutory benefits and paid leave requirements, such as maternity leave, vacation time, holidays, sick leave, health coverage, workers’ compensation and pensions.
Working conditions
Chinese law states an employer is expected to provide its employees with a clean and safe working environment, meaning it should comply with all applicable regulations and laws about workplace safety and hygiene.
The workweek was known colloquially as 996, which was shorthand for a week that went 9 a.m. to 9 p.m., six days a week. Not only did these hours exceed standard maximums, but employees also were rarely compensated for the overtime work.
As TechCrunch notes: “Though technically mandating overtime pay for anything surpassing a standard five-day/40-hour work week, employers are known to avail themselves of a plethora of formal and informal methods for evading their legal obligations.”
In August 2021, the Supreme Court and Ministry of Human Resources issued guidance that imposed limitations on this common work practice. Now, the legal workweek in China is supposed to be 40 hours a week and eight hours a day, with a cap of 44 hours in a week.
According to China labor laws, employers may extend employees’ work hours by an hour per day, if agreed upon by the applicable trade union. That said, the China labor law also states that the maximum number of extra hours can’t exceed three hours per day or 36 hours in a month. And employees must be given at least one rest day for every week of work.
That said, it’s still too early to see whether the changes to the law will be upheld and enforced by Chinese authorities.
Minimum wage
Employees are expected to receive salaries at least once a month. And that salary cannot be less than the minimum wage set by one of the 22 provincial governments. These wages are updated every few years and are adjusted to account for the region’s cost of living, level of development and local conditions.
A rural area will have a lower minimum wage than a developed city. Per the China Briefing: “Currently, Shanghai has the highest monthly minimum wage among 31 provinces (RMB 2,590/US$400 per month) and Beijing has the highest hourly minimum wage (RMB 25.3/US$3.9 per hour). Six regions – Shanghai, Guangdong, Beijing, Tianjin, Jiangsu, and Zhejiang – surpassed the RMB 2,000 (US$308) mark in their monthly.”
While these wages have been set, many regions temporarily postponed adjustment plans, citing the pandemic as the reason for this delay. Despite that, a majority of Chinese workers hired by an international company will command a salary that surpasses minimum requirements. In addition to salaries, employers are expected to provide social contributions to:
- Employee pension
- Medical expenses
- Housing fund
- Unemployment
- Maternity benefits
- Work-related accidents or injuries
Labor unions
Workers do not have freedom of association when it comes to labor unions. They can’t simply form or join a union. As a result, all independent worker unions, organizations and gatherings are prohibited under potential penalty of significant fines or jail time.
There’s a single recognized labor union within China known as the All-China Federation of Trade Unions. This is a government-sanctioned union and is only able to operate within the purview of the Chinese Communist Party. This has led to controversy with certain third parties.
According to the Journal of Labor and Society: “The ACFTU’s strong tie to the Chinese Communist Party and the pursuit of its agenda is a key factor in explaining why the ACFTU has not and will not act in the interests of workers. Indeed, the ACFTU has been an organ of the Communist Party ever since its establishment.”
Local, industry or enterprise-level unions and associations must apply and then submit to the authority of the ACFTU, which in turn, reports to the government. Such unions can technically protect and negotiate for the interests and rights of employees, but their actual power to create change may be stymied by governmental discretion.
Termination
In China, there are four statutory grounds of employee termination. They are:
- Termination by mutual agreement Both the employer and employee agree at any time to revoke the labor contract if they reach consensus through discussion.
- Termination by employee An employee may voluntarily quit. If they do so, they must provide a 30 days’ written notice. An employee is exempt from informing their employer if the company has: - Created unsafe labor conditions - Failed to promptly pay their salary - Used violence, threats or detention to coerce an employee into working - Gives orders that violate the rules of the contract
- Termination by the employer An employer can immediately and unilaterally terminate an employment contract for employee misconduct.
- Automatic termination If any of the following conditions are met, the contract is automatically voided: - Contract term has expired - Employee reached statutory retirement age - Employee is dead or declared “missing” by the government - The employer declares bankruptcy - The employer’s business license is revoked
Employee benefits
Employee benefits requirements can be complicated for businesses expanding into China. Following these regulations will make sure you stay compliant with China labor laws.
Statutory employee leave
The amount of employee statutory leave depends on the number of years that an employee has been employed. Annual statutory leave can range from five days to 15, based on how long someone has been employed.
Maternity leave
Women employees are granted 98 days of maternity leave, but the duration is subject to regional and local regulations. For example, in certain provinces, maternity leave can be extended to 190 days. Similarly, paternity leave also varies across regions.
Sick leave
Both local and foreign employees in China are mandated to receive paid sick leave. The percentage ratio varies (local policies may also be applicable).
If the period of time for sick leave is less than six months, employers are required to contribute anywhere from 60%-100% of the employee salary. And if the duration of sick leave is more than six months, employers are required to contribute anywhere from 40%-60% of the employee salary.
Mandatory social contributions
Salaries are just one component of paying Chinese employees. Employers are also required to provide social contributions to avoid expensive fines and penalties from the Chinese government. Here are just a few contributions employers should expect to pay:
- Medical expenses
- Employee pension
- Housing fund
- Maternity benefits
- Unemployment
- Work-related injuries or accidents
China employer of record
When expanding into China, there are dozens of concerns you need to juggle to ensure your hiring and employment operations are compliant. If you need help wading through these regulatory waters, partnering with a China employer of record can provide your company with the local HR expertise to help ensure compliance with all labor laws and benefits requirements.
Setting up your own legal entity means your business will be responsible for all of the compliance around the local labor laws. An EOR will take the compliance burden off your shoulders to streamline the expansion process.
Learn more about the requirements for hiring in China by speaking with one of our global solutions advisors today.
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