Legal bases. An overview

For companies that want to operate in the Chinese market, it is essential to familiarize with common practices and laws. All companies and employees should be aware of their rights in relation to contractual agreements, hiring, termination, as well as other matters of labour law, such as the risks of individuals and companies in the event of violations of the law.

Employment contracts

An employer must enter into an individual written employment contract with each full-time employee. If the employment contract was not concluded within one month of starting work, the worker is entitled to 200 per cent of the salary. If no contract was signed within one year of the start of work, it is anticipated that the parties have entered into a permanent employment contract. Representative offices are not authorized to employ their employees directly. Instead, they must claim the services of temporary employment agencies.

The minimum wage

In most cities, the minimum wage is about 30 percent of the average wage, while it is only 24 percent in the capital Beijing. Workers who receive the minimum wage can sometimes double their basic income by accumulating a lot of overtime.

Working hours

Chinese laws set standard working hours: Workers are not supposed to work more than eight hours a day and 40 hours a week. However, alternative working time systems are also possible.

Holiday period

Workers are entitled to five to 15 days of annual leave, depending on the length of employment. However, it is common practice for foreign investors to

automatically grant workers ten days of annual leave from the start. In addition, employees are entitled to eleven public holidays per year.

Maternity leave

Female employees receive at least 98 days of maternity leave, starting 15 days before the calculated date of birth. In the event of a difficult birth, maternity leave is extended for an additional 15 days. If more than one child is born at birth, there is an additional 15 days of maternity leave for each additional child.

Social security law

Companies must join the social security system and register at the local social security institution. The employees’ contribution is deducted from the employee’s wage and paid to the responsible authorities.

Personal income tax

In China personal income tax is levied according to a progressive quota, with foreigners subject to an allowance of 4,800 yuan and Chinese of 3,500 yuan.

Employment of foreign nationals

The pay structure for posted employees as well as compliance with the laws is very important for Chinese-based companies. If the employee violates laws, the employer is also affected, which can lead to high penalties.

Companies should therefore review the agreements with their foreign workers.

Dismissal, compensation, employment disputes

Chinese employees can cancel with explanation at any time as long as they meet the deadline. Generally three days during the trial period and 30 days after written notification after the probationary period.

It is difficult to fire a Chinese employee after the probationary period. The employment termination requires a good reason and compensation. The employer is subject to an obligation of proof, since Chinese jurisdiction is worker-friendly. There is a one-year deadline for making claims and a three-step approach applies:

  • Voluntary mediation of the company
  • Arbitration procedure before a government arbitration court on labour law issues
  • Court process for the examination of arbitration awards