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Key Aspects of Employment Contracts in China: A Comprehensive Overview

Key Aspects of Employment Contracts in China

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Key Takeaways

  1. Worker rights refer to the entitlements and protections granted to employees by labor laws, ensuring fair treatment, safe working conditions, fair wages, and access to benefits. The structure of worker rights includes legal frameworks, unions or labor organizations, and enforcement mechanisms to uphold and safeguard workers’ rights.
  2. How employers in China must put together a written employment contract covering statutory items
  3. What is a grace period and double-wage penalty and what implications it has on failing to comply with the grace period
  4. Notice period for terminating an employee in China

Embarking on an employment journey in China is exciting but navigating the complexities of employment contracts requires careful consideration. Whether you’re a seasoned professional or a company expanding into China, understanding the key elements of an employment contract is crucial. Let’s delve into the intricacies to ensure a smooth and compliant employment experience.

Worker's Rights in China

China’s comprehensive legal structure affords workers various rights and safeguards against exploitation and discriminatory practices. Employees are entitled to:

  1. A minimum wage
  2. A formal employment contract
  3. A 40-hour workweek with specified overtime rates
  4. Social security benefits encompassing pensions, healthcare, unemployment support, coverage for work-related injuries, and severance pay in the event of termination
  5. Access to a housing fund
  6. Annual leave entitlements

What Are the Types of Employment Contracts?

Article 12 of the Labor Contract Law from 2008 outlines three categories of employment contracts:

  1. Fixed-term labor contracts:

    • These are the standard employment agreements in China, establishing a defined employer-employee relationship for a specific duration, whether for part-time or full-time roles.
  2. Open/Indefinite contracts:

    • Termination dates are not predetermined in these contracts. The agreement can only be concluded through mutual agreement between the employer and employee.
  3. Project-based contracts:

    • These contracts are delineated by a particular task or project rather than a set time frame for the employee’s tenure with the company. Upon completion of the project, the contract comes to an end.

Minimum Requirements for Employment Contracts

Employers in China must execute a written employment contract with full-time employees, covering statutory items such as names, contract terms, job details, working hours, remuneration, social insurance, and workplace protection. Additional agreements on probation, training, confidentiality, and other matters can be included. Part-time employees, working no more than 24 cumulative hours per week, may be employed under an oral contract. 

What is the Probationary Period in China?

Chinese labor laws allow both domestic and foreign companies to incorporate probationary periods into their employment contracts, provided they adhere to the stipulations set by the Chinese government.

According to Chinese employment law, the maximum duration of the probationary period is linked to the length of the employment contract. An employee can undergo only one probationary period, and if the employer chooses to renew the contract, a new probationary period cannot be established.

Here’s an illustration of the probation period under different scenarios:

  1. Employment contract lasting less than three months: No probation period
  2. Employment contract with no fixed term: Up to a 6-month probation period
  3. Employment contract for three months to one year: Up to a 1-month probation period
  4. 2-year labor contract: Maximum 2 months of probation
  5. 3-year or indefinite (open-ended contract): Maximum 6 months of probation.

While a common practice is to provide a three-month probationary period, it’s essential to note that a 3-month probation period, or any specific duration of probation, is not mandatory in Chinese employment contracts.

Employers desiring a 3-month probation period or any other duration must explicitly state this information in the employment contract, and both parties must mutually agree to this clause.

Certain classes of employees are exempt from probationary periods as per Chinese law. These include part-time employees, temporary employees with a tenure of fewer than three months, and employees engaged in specific task-based employment.

Salary During a 3-month Probationary Period

During the probationary period, employers may negotiate a reduced pay rate, provided that this information is clearly outlined in the employment contract. Moreover, the salary during the 3-month probationary period must adhere to the following criteria:

  1. Not less than 80% of the minimum wage for the same position
  2. Not less than 80% of the standard wage specified in the employment contract
  3. Not less than the minimum wage applicable to the employer’s location.

What Are the Benefits You Must Include In an Employment Contract?

An employer must mention the salary structure and additional benefits in an employment contract which includes:

Salary Structure:

  1. Base Salary:

    • Clearly articulate the employee’s base salary, which represents the fixed monetary compensation for their role. This amount is typically stated on an annual or monthly basis, depending on the agreed-upon payment frequency.
  2. Variable Components:

    • If applicable, specify any variable components such as bonuses, commissions, or performance incentives. Clearly outline the criteria and conditions under which these components will be awarded or calculated.
  3. Frequency of Salary Payments:

    • Define the frequency of salary payments to provide clarity on when employees can expect to receive their compensation. Common frequencies include monthly, bi-monthly, or other agreed-upon intervals.

Additional Benefits:

  1. Housing Allowances:

    • If the employer provides housing allowances, clearly state the amount or method of calculation. This can include rent subsidies or direct payments to assist employees with their housing expenses.
  2. Insurance Coverage:

    • Outline any insurance coverage provided by the employer, such as health insurance, life insurance, or disability insurance. Specify the extent of coverage and any employee contributions or deductibles.
  3. Retirement Benefits:

    • If the company offers retirement benefits, detail the nature of the plan, employer contributions, and any vesting periods. This is particularly important for employees planning for long-term financial security.
  4. Leave Entitlements:

    • Specify the types of leave available to employees, including annual leave, sick leave, and any special leave provisions. Clearly outline the process for requesting and approving leave.
  5. Education or Training Benefits:

    • If the company provides support for employee education or training, outline the terms and conditions. This could include tuition reimbursement, sponsored courses, or other educational assistance.
  6. Transportation Allowances:

    • If the employer offers transportation allowances, detail the amount or method of calculation. This can include subsidies for commuting or company-provided transportation services.
  7. Other Perks:

    • Highlight any additional perks or benefits offered by the company, such as meal allowances, wellness programs, or flexible work arrangements. These can contribute to employee satisfaction and work-life balance.
  8. Tax Implications:

    • Consider addressing any tax implications related to benefits or allowances to ensure transparency. Some benefits may have tax implications for employees, and it’s beneficial to communicate this clearly.

Grace Period and Double-Wage Penalty

A one-month grace period is granted to employers for executing a written employment contract. Failure to comply within this period results in double wages owed to the employee for each month without a contract, not exceeding 11 or 12 months. A similar penalty applies if a fixed-term contract is not renewed, but the employee continues to work.

Trial Period Restrictions

The probationary period, also known as the trial period, is subject to specific limitations based on the employment contract’s term. For contracts lasting three months to one year, the probationary period may not exceed one month. The limits increase for longer contract terms.

Notice Period for Termination

Employers must give written notice 30 days in advance or provide one month’s salary in lieu of notice to terminate an employment contract in certain circumstances. Employees may unilaterally terminate contracts by providing written notice, with shorter notice periods during the probationary period.

How Can Horizons Help With Employment Contracts In China?

Navigating the complexities of employment contracts in China requires meticulous attention to detail and compliance with local regulations. To streamline this process and ensure adherence to legal requirements, Horizons offers expertise in global employment solutions. With Horizons, employers can confidently navigate the intricacies of Chinese employment contracts, fostering positive employer-employee relationships while ensuring legal compliance from the outset. You can explore Horizons’ global employment solutions for personalised assistance and in-depth insights. The journey to seamless employment in China begins with a comprehensive understanding of contractual and legal obligations.

Signing an employment contract in China demands meticulous attention to detail and adherence to local regulations. For businesses seeking a streamlined and efficient process, Horizons offers expertise in global employment solutions. With Horizons, you can easily navigate the intricacies of Chinese employment contracts, ensuring compliance and fostering a positive employer-employee relationship from day one with our PEO services.

Frequently Asked Questions (FAQs)

China’s social security framework comprises six distinct types of insurance, namely Pension, Medical, Maternity, Work-related injury, Unemployment, and Housing fund. While contributions are mandatory for both employers and employees, it is typically the employer’s responsibility to accurately compute and withhold payments for both parties. The employer’s duty to ensure sufficient and timely contributions remains unaffected and cannot be relieved or exempted through mutual agreements with employees.

Yes, with a 30-day notice period.

Mandatory for termination by mutual agreement, 30 days’ notice, bankruptcy, mass layoff, and contract expiration (if renewed terms are declined by the employee).

Yes, one-off payments like a 13th-month salary can be included. However, caution is advised to avoid binding separate payments in the labor contract, as they become legally obligatory. Consider opting for such payments as an annual bonus instead.

Overtime pay varies based on the employer’s adopted work-hour system. 

  1. For overtime work: Not less than 150 percent of the normal wage.
  2. For work on a rest day (non-postponable): Not less than 200 percent of the normal wage.
  3. For work on an official public holiday: Not less than 300 percent of the normal wage.

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