A Q&A guide to employment and employee benefits law in China.
The Q&A gives a high level overview of the key practical issues including: permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; pensions; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits Country Q&A tool.
The Q&A is part of the PLC multi-jurisdictional guide to employment and employee benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-mjg.
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
There are two ways foreign nationals can work in the People's Republic of China (PRC):
The foreign national is directly employed by a PRC entity which acts as the legal employer of that foreign national (direct hiring).
The foreign national is employed by a foreign entity and then seconded to work in a PRC entity (secondment).
Under direct hiring, the employment of foreign nationals is subject to all aspects of PRC employment laws, including terms concerning (but not limited to):
Execution of the employment contract.
Rest and vacation.
Social insurance.
Termination.
Under secondment, PRC employment laws are not generally applicable. However, the following matters must still comply with PRC employment law:
Minimum wages.
Working hours.
Holiday entitlement.
Labour safety and hygiene.
Regulations on work permits and social insurance.
The employment relationship between a PRC national working abroad and a foreign entity is not governed by PRC employment law.
There is no special restriction on age for managers or directors, though they are generally considered to be the company's employees so are subject to the usual restrictions on retirement age (60 years old for men, 55 or 50 years old for women). A person serving as a director on a company's board of directors is not generally regarded as an employee as so is not subject to the retirement age restrictions.
There are no nationality restrictions, but foreign nationals working as managers or directors must follow any legal requirements concerning work permits.
Under PRC company law, the following persons cannot be senior managers of a company or directors on a company's board:
Persons with limited or no capacity for civil conduct (for example, minors or mentally ill persons).
Persons sentenced to prison for certain crimes (for example, bribery or embezzlement), or deprived of political rights as a result of a criminal conviction, where five years have not elapsed since any penalty was imposed in connection with that sentence, or a criminal conviction was completed.
Persons who have served as a general manager or director of a company that went into bankruptcy liquidation, where the liquidation was a result of mismanagement for which that person was personally responsible, and that company liquidation was less than three years ago.
Persons who have served as the legal representative of a company or enterprise whose business licence was revoked as a result of its violation of the law, where that person was personally responsible for the revocation and it occurred less than three years ago.
Persons in default of a significant amount of personal debt.
The government provides hiring employers with tax preferences or special subsidies to encourage the employment of certain groups of people (for example, disabled people or unemployed people).
Tax preferences. Certain tax deductions for VAT, business tax and income tax are available for employers hiring disabled employees. Employers must apply to the competent local tax authority with supporting documentation evidencing the employment of disabled people in order to claim the preferential tax treatment.
Employers in certain industries (for example, trading enterprises, service enterprises, and so on) can enjoy tax deductions in prescribed limits on business tax, urban maintenance and construction tax and educational surtax when they recruit persons holding an Unemployment Registration Certificate (usually held by people who have been laid off or registered as unemployed). Local regulations prescribe different requirements for the application of these tax deductions, and their amount.
Special subsidies. These are granted by the government and are available to employers hiring disabled people. The subsidiary payments available vary in amount from region to region.
A variety of other subsidies are also available for employing certain other groups of people. These groups, and the amount of the subsidies available, vary from region to region, for example:
In Shenzhen, a subsidy is available to local employers hiring local residents who have had difficulty finding employment.
In Xiamen, a subsidy is available to employers hiring migrant workers from other cities to work in local factories.
Employers must file evidence of the employee's recruitment in order to receive tax preferences or special subsidies (see above, Grants or incentives). In addition, the following documents are usually required to be submitted to and reviewed by the government authorities:
Employment contracts executed with disabled employees.
Records of paying social insurance for disabled employees.
Records of paying salary to disabled employees.
Prior approvals are required for:
Foreign nationals directly employed by a PRC entity.
Foreign nationals employed by a foreign entity who are then seconded to work in a PRC entity for more than three months.
The PRC entity must apply for the necessary prior approval.
Procedure for obtaining approval. Generally, the PRC entity must apply for an Employment Licence and obtain an official Z visa invitation letter for the foreign national before the foreign national enters the PRC.
After obtaining the Employment Licence and the Z visa invitation letter, the foreign national must apply for a Z visa with a PRC embassy or consulate in their home country. Usually, the foreign national must undertake a medical examination before entering the PRC.
After obtaining the Z visa, the foreign national can enter the PRC. The foreign national must then apply for a Residence Permit from the local public security bureau within 30 days after entering the PRC. The duration that the foreign national can stay in the PRC will be dictated by the Residence Permit. The foreign national can leave or enter into China multiple times within the approved time period indicated in the Residence Permit.
Cost. The government filing fee for obtaining an Employment Licence varies from region to region, though its issuance is usually free of charge.
The government filing fee for a Z visa varies depending on the nationality of the person obtaining the visa.
Time frame. Where correctly completed applications have been received by the government authorities, the following time frames usually apply (though this can vary from region to region):
The Employment Licence generally takes approximately ten working days.
The Z visa generally takes between four to six weeks.
Procedure for obtaining approval. After obtaining the Employment Licence and the Z visa, the PRC entity must apply for an Employment Permit within 15 days after the foreign national enters the PRC. Usually, the Employment Licence, the employment contract and the foreign national's valid passport are required for the application.
The foreign national holding an Employment Permit must apply to the local public security bureau for a Residence Permit within 30 days after entering the PRC.
When the Employment Permit is about to expire, the PRC entity can apply for an extension to the local labour administrative department 30 days prior to the expiry date. Where the Employment Permit is extended, the foreign national's Residence Permit will also usually need to be extended accordingly.
Cost. The government filing fee for obtaining the Employment Permit varies from region to region, though its issuance is usually free of charge. The fee for a Residence Permit depends on its duration. For those granted for a year or less, the fee is CNY400, and the fee increases where the Residence Permit is granted for longer than one year (as at 1 August 2012, US$1 was about CNY6.3).
It is usually free of charge to extend an Employment Permit, though a similar charge for extension will be made to a Residence Permit as is charged for its issuance, depending on the length of the extension.
Time frame. Processing time varies from region to region, but generally the following time frames apply:
Obtaining an Employment Permit takes between five and seven working days.
Obtaining a Residence Permit takes approximately five working days.
Extending an Employment Permit takes approximately three working days.
Extending a Residence Permit takes between five and ten working days.
The process for obtaining prior approvals for a foreign national who works with a PRC representative office of a foreign company is slightly different.
Procedure for obtaining approval. The foreign national must be registered with the local administration for industry and commerce as the representative office's representative or chief representative and obtain a Representative Certificate.
The representative office must also apply to a competent local labour administrative department for an official Z visa invitation letter.
After obtaining the Representative Certificate and the Z visa invitation letter, the foreign national must apply for a Z visa to a PRC embassy or consulate in their home country.
The foreign national can enter the PRC with the Z visa, and must then apply for an Employment Permit. The foreign national must also apply for a Residence Permit to the local public security bureau.
A medical examination is usually required before a foreign national can enter the PRC.
Cost. See above, Visa: Cost.
Time frame. See above, Visa: Time frame.
A written employment contract must be executed between the employee and the employer when a full-time employee is recruited. The following matters must be included in the employment contract:
The name, domicile and legal representative or main person in charge of the employer.
The employee's name, domicile and ID number (or other valid documentary evidence of identity).
The term of the employment contract.
The job description and the place of work.
Working hours, rest and leave.
Remuneration.
Social insurance.
Labour protection, working conditions and protection against occupational hazards.
Any other matters that are legally required to be included in employment contracts under applicable laws and regulations.
Certain legal requirements are implied into the employment relationship, irrespective of whether or not they are covered in the written contract, including (but not limited to):
Grounds for employment termination.
Minimum wages.
Calculation of statutory severance.
Currently, collective agreements are more common in enterprises in the manufacturing and retail industries. Recently, the use of collective agreements has been encouraged for all types of enterprises. The PRC government and the All China Federation of Trade Unions (ACFTU) jointly published a "Rainbow Plan", which sets the goal of having all companies which have set up an enterprise-level trade union covered by a collective agreement by the end of year 2012. Currently, most collective agreements are negotiated at company level between the company's management and its employees. To enhance employees' bargaining power, the ACFTU and the government have promoted the establishment of enterprise-level trade unions, because enterprise-level trade unions can represent employees in collective bargaining.
Generally, an employer cannot unilaterally change the terms and conditions of employment without the employee's written consent. However, an employer can unilaterally change an employee's job position if either:
The employee is incompetent in performing their role.
The employee is unable to perform their role after a statutory period of medical treatment has expired.
The local government of each region announces its local minimum wage, which is normally updated at least every two years and applies to all employees, regardless of their age, position and experience. The minimum wage generally includes a monthly minimum wage and an hourly minimum wage. The monthly minimum wage applies to all full-time employees, while the hourly minimum wage applies to all part-time employees.
Full-time employees. There are three types of working hour systems applicable to full-time employees:
Standard working hours system.
Comprehensively calculated working hours system.
Flexible working hours system.
Under the standard working hours system, an employee should work no more than eight hours per day and 40 hours per week. The employee is entitled to at least one rest day every week. If the employee is required to work over the above limits, then they will be entitled to overtime pay to be calculated as follows:
For overtime worked on a working day, the employee is entitled to 150% of their normal salary for the overtime worked.
For overtime worked on a rest day (normally Saturday and Sunday), the employee is entitled to alternative rest time, or 200% of their normal salary for the overtime worked if the alternative rest time cannot be arranged.
For overtime worked on a public holiday, the employee is entitled to 300% of their normal salary for the overtime worked.
Under the comprehensively calculated working hours system, working hours are within a certain calculation period (for example, a month, a quarter or a year). The average daily working hours and the average weekly working hours must not exceed the statutory maximum (no more than eight hours a day and no more than 40 hours a week). The comprehensively calculated working hours system is generally applicable to certain special industries requiring long shifts (for example, employees in transportation, airlines, fishery industry, offshore oil exploration and so on). The employees working under this working hours system usually work intensively for one period and then take continuous days of rest. The employer must obtain approval from the competent authorities before adopting the comprehensively calculated working hours system.
Under the flexible working hours system, an employee can perform their duties on a flexible schedule, provided that they properly complete the work assignment in a timely manner. The flexible working hours system is only applicable to certain job positions (for example, executives, sales personnel, taxi drivers and so on). Similarly, the employer must obtain approval from the competent authorities before adopting the flexible working hours system.
Part-time employees. An employee who works with an employer for no more than four hours per day on average and no more than 24 hours per week accumulatively is considered to be a part-time employee.
There are no specific legal requirements concerning rest breaks during a working day, though it is common practice to give employees working under the standard working hours system a one-hour lunch break.
Shift workers are subject to the same regulation of working hours as full-time employees (see above, Working hours). Additionally, in some cities (for example, Shanghai and Tianjin) the employer must pay an additional allowance for employees working on a night shift.
An employee who has worked continuously for more than 12 months is entitled to statutory paid annual leave. The amount of statutory paid annual leave is determined by the employee's accumulative working years (which are calculated using the employee's length of time in work as a total, not just for the employer with whom the employee is currently working), and is as follows:
One year or more but less than ten years' working time: five working days' statutory paid annual leave.
Ten years or more but less than 20 years' working time: ten working days' statutory paid annual leave.
20 years or more working time: 15 working days' statutory paid annual leave.
There are 11 public holidays in total, as follows:
A one-day holiday for New Year's Day (1 January).
A three-day holiday for Spring Festival (New Year's Eve of the lunar year, New Year's Day of the lunar year, and the second day of the first month of the lunar year).
A one-day holiday for Tomb-sweeping Festival (the lunar Tomb-sweeping Day).
A one-day holiday for Labour Day (1 May).
A one-day holiday for Dragon Boat Festival (the Dragon Boat Day of the lunar year).
A one-day holiday for Mid-Autumn Festival (the Mid-Autumn Day of the lunar year).
A three-day holiday for National Day (1, 2 and 3 October).
The public holidays are not included in the statutory paid annual leave.
An employee who needs medical treatment for an illness or non-work related injury can take a medical treatment period of leave which ranges from three months to 24 months (depending on the employee's total length of time in employment and their service period with their current employer).
During the medical treatment period, the employer cannot unilaterally dismiss the employee, unless the employee falls within one of the circumstances provided in Article 39 of the PRC Employment Contract Law (for example, the employee has committed severe misconduct).
If an employee suffers a work-related injury or occupational disease, the employee is entitled to their normal salary and welfare benefits paid each month by the employer during their medical treatment period. The suspension-of-work-with-pay period should normally not exceed 12 months.
If the employee suffers disability after receiving medical treatment, the normal salary and welfare benefits will stop being paid once an assessment has been made of the employee's disability. The employee will then be entitled to disability payments, including a one-off and/or monthly payment under the Provisions on Work-related Injury Insurance. Different payments are made for varying degrees of disability.
If the illness or injury is not work-related, the employee is entitled to sick pay during the medical treatment period under the employer's internal policy and the local regulations. Sick pay must not be less than 80% of the local minimum wage.
For work-related injury or occupational disease, the employer and the work-related injury insurance fund (operated by the government) assume their liabilities respectively under the Provisions on Work-related Injury Insurance. The costs incurred by the employer in this respect cannot be recovered from the government, and sick pay cannot be recovered where it has been paid for non-work related illness or injury.
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
Female employees are entitled to maternity leave of 98 days (which includes 15 days of antenatal leave). An extra 15 days' maternity leave can be granted where there are complications during labour. Female employees who bear more than one baby in a single birth will be granted an extra 15 days' maternity leave for each additional baby born. In addition, where a pregnant employee who is 24 years old or above gives birth to her first baby, she will be given additional maternity leave (normally 30 days) subject to local regulations.
For one year after the child is born, the female employee is given a one-hour break per day for breastfeeding. Female employees who bear more than one baby in a single birth are granted an extra one-hour break for each additional baby born.
During the pregnancy, maternity and breastfeeding period, the female employee's salary must not be changed by the employer. Additionally, the employer cannot unilaterally terminate her employment during these periods, unless one of the circumstances provided in Article 39 of PRC Employment Contract Law applies (for example, the employee's severe misconduct).
Some local regulations provide that the father of a newly born child can enjoy a certain number of paid days leave, though there is no national provision covering paternity rights.
There are no specific regulations concerning surrogacy in China's employment laws.
There are no specific regulations concerning adoption rights in China's employment laws.
The parents of a child who dies are entitled to between one to three days' paid bereavement leave.
There are no specific regulations concerning carers' rights in China's employment laws.
A period of continuous employment influences an employee's entitlement with regards to:
The medical treatment period.
Statutory paid annual leave.
Statutory severance.
The longer the period of continuous employment is, the more favourable these entitlements become.
Where an employee has been working with an employer for a consecutive period of ten years or more, they are entitled to an open-ended contract (an open-ended contract cannot be terminated by the employer upon the expiration of a certain contract term, unlike a fixed-term contract). Where an employee has been working for the employer continuously for at least 15 years and is less than five years away from statutory retirement age, the employer cannot unilaterally dismiss the employee unless one of the circumstances provided in Article 39 of the PRC Employment Contract Law applies (for example, the employee's severe misconduct).
Where an employee is transferred to work for a new employer for reasons that are not attributable to the employee, their service period with the former employer also transfers and is counted as part of their service with the new employer. However, if the former employer made a severance payment to the employee at the time of transfer, the employee's service period with the former employer will not be taken into account when calculating any severance payments to be made by the new employer.
There are no statutory requirements regarding the method of transfers. The employer can agree with the employee to either:
Terminate the employment with the former employer and sign a new employment contract with the new employer.
Enter into a third-party agreement to change the former employer to the new employer.
Temporary workers are entitled to the same statutory benefits as permanent employees (for example, social insurance and housing fund), and are entitled to the same statutory severance pay in the case of termination.
Agency workers are entitled to the same statutory benefits as permanent employees (for example, social insurance and housing fund), and are entitled to the same statutory severance pay in the case of termination. They are also entitled to receive the same pay as permanent employees engaged in the same position.
The Social Insurance Law provides that an employee's social insurance record must be kept confidential by the social insurance administrative centre. Only the employee and their current employer can view the employee's social insurance record.
Whilst there is no specific legislation covering data protection issues in China, there are both judicial interpretations and laws which protect an individual's privacy.
Under the Opinions of the Supreme Court on Several Issues concerning the Implementation of the General Principles of PRC Civil Law (For Trial Implementation) and the Interpretation of the Supreme Court on Several Issues about the Trial of Cases Concerning the Right of Reputation, privacy violations are treated as an infringement of reputational right.
The Tort Law and the Interpretation of the Supreme Court on Problems regarding the Ascertainment of Compensation Liability for Emotional Damages in Civil Torts both stipulate that privacy violations are considered to be a tort and can lead to liability to pay compensation for any emotional distress caused.
As a result, employers are obligated to keep an employee's personal information confidential. If an employer shares an employee's personal information without that employee's consent, the employer can be subject to civil liability for violating the employee's privacy.
Employees must not be discriminated against based on their:
Nationality.
Ethnicity.
Race.
Gender.
Religious belief.
There are also legal regulations prohibiting discrimination against:
Female employees.
Disabled employees.
Carriers of an infectious disease.
Immigrant employees from rural areas.
Employers must both prevent and prohibit the sexual harassment of female employees in their workplaces. Women who suffer sexual harassment have the right to:
Bring a civil claim against the harasser.
Report the harasser to their employer.
Report the harasser to the relevant authorities.
Whistleblowers who report their employer's violation of labour and employment laws are awarded grants by the labour administrative departments. Any employer who retaliates against a whistleblower can be subject to punitive measures issued by the labour administrative departments.
If the employer unilaterally dismisses an employee for any of the following reasons, it must give 30 days' prior written notice or one month's pay in lieu of notice to the employee:
The employee suffers from an illness or a non-work related injury and is unable to take up the original work (or any other work) assigned by the employer to them after the statutory medical treatment period expires.
The employee is incompetent in their job duties and remains incompetent after training or a change of job position.
A major change to the objective circumstances under which the employment contract was executed has occurred and rendered the contract unable to be performed, and the employer and employee fail to reach an agreement on amending the contract after consultation.
Under the national laws and regulations (excepting the circumstances above) the employer is under no obligation to give prior notice or payment in lieu of notice when dismissing an employee. However, some local regulations (such as those that apply in Beijing) do require the employer to give prior notice or payment in lieu of notice when dismissing an employee upon expiration of the employment contract.
Entitlement to severance. Under the Employment Contract Law (effective as of 1 January 2008), if the employment contract is terminated for any of the following reasons, the employee will be entitled to severance pay:
The employee resigns as a result of the employer's infringement of the employee's labour rights.
The employment contract expires.
The dismissal is agreed between the employer and employee, and the employer initiates the dismissal.
The employer unilaterally terminates the employment (unless the termination is for one of the grounds stipulated in Article 39 of the Employment Contract Law, which includes the employee's severe misconduct).
The employment is terminated upon the employer's bankruptcy.
The employment is terminated because the employer's business licence has been revoked, or the employer has been ordered to close down/deregister, or the employer has elected for early liquidation.
Calculation of severance. Generally speaking, statutory severance is one month's salary for every year of service. Since the Employment Contract Law took effect on 1 January 2008, severance pay must be calculated in two parts:
For the service period before 1 January 2008: severance pay will be calculated in accordance with the applicable laws and regulations before 1 January 2008 (these can vary from the calculations that apply after 1 January 2008).
For the service period after 1 January 2008 severance pay will be:
one month's salary for every year of service (a service period of at least six months but less than a year will be counted as one year);
half a month's salary for a service period of less than six months.
The one month's salary will be calculated based on the employee's average monthly salary during the 12 months prior to termination. However, in any event this amount is capped at three times the average monthly salary of the local employees, as determined by the local government.
An employee who is left unemployed upon the termination of the employment contract is entitled to unemployment insurance benefit, provided that:
They have participated in the unemployment insurance scheme.
They have paid the unemployment insurance contributions for more than one year.
The termination was not within their control.
They have registered as unemployed and have been actively seeking work.
Notifying the trade union of the reason for the termination. An employer unilaterally dismissing an employee must notify its trade union of the reason for the dismissal in advance. If the employer does not have an enterprise-level trade union, the employer must notify and deal with a higher-level trade union regarding the unilateral termination. If the employer fails to fulfil this obligation, the validity of the termination can be challenged and denied by the arbitrator or the judge.
Delivering the termination notice to the employee in the case of unilateral termination. A termination notice must be properly delivered to the employee. Both the factual basis and legal ground of the termination should be clearly stated in the notice. If the employer fails to fulfil this obligation, the validity of the termination can be challenged and denied by the arbitrator or the judge.
Registering the termination with the authorities if the local regulation so requires. In certain cities, (for example, Tianjin and Shanghai) there is a mandatory filing requirement when terminating/ending an employment relationship, and the employer must, within a specified time period, register with the local labour administrative authority to change the employee's status from "employed" to "unemployed". If the employer refuses to complete this registration without justification, the employee will be entitled to file a labour arbitration against the employer, requiring the employer to complete the registration. If the employer still refuses to do so, then the employee can register the termination with the local authorities in person under the arbitral award.
Transferring the social insurance account, the housing fund account and the personnel file. On termination of the employment contract, the employer must transfer the employee's social insurance account, housing fund account and personnel file within 15 days under the PRC laws. Generally, only once the employee's social insurance account and personnel file are successfully transferred to the agent designated by the local labour administrative authority can the employer and the employee apply for unemployment insurance benefit for the employee. Where an employer delays or refuses to complete the transfer, and the employee loses unemployment benefits as a result, the employer must compensate the employee for that loss of benefits.
Issuing a separation certificate. The employee is entitled to require the employer to issue a separation certificate to them on termination of the employment contract, evidencing the termination of the employment contract. If the employer fails or refuses to issue the certificate, the employee can report the employer to the labour administrative authority, who can request that the employer rectify the matter. The employer may also have to compensate the employee for any loss suffered as a result.
Limited statutory ground for termination. As a general rule, the employer cannot dismiss an employee unless the reason for the termination falls into one of the statutory grounds, which includes:
The employee fails to meet the recruitment requirements during the probation period.
The employee commits severe misconduct.
The employee commits a serious dereliction of duty or engages in corrupt practices, causing substantial damage to the employer's interests.
The employee is subject to criminal liabilities.
The employee uses such means as deception or coercion, or taking advantage of another's vulnerable position, to cause the employer to enter into the employment contract, or to make an amendment to the employment contract, that is contrary to the employer's true intent.
The employee suffers from an illness or a non-work related injury and is unable to take up the original work or any other work assigned by the employer upon the expiration of their medical treatment leave.
The employee is incompetent in their job duties and remains incompetent after training or a change of their job position.
A major change to the objective circumstances under which the employment contract was executed has occurred and rendered the contract unable to be performed, and the employer and employee have failed to reach an agreement on any amendment to the employment contract after consultation.
The employment contract expires.
The employee has commenced receiving their basic retirement pension under PRC law.
The employee dies, or is declared dead or missing by the Chinese Court.
The employer is declared bankrupt.
The employer's business licence has been revoked, or the employer has been ordered to close down/deregister, or the employer has elected for early liquidation.
In all other cases, the employer must negotiate with the employee and obtain their consent to terminate employment.
Supervision of the termination by trade unions. The trade union must be notified by the employer when they are intending to unilaterally terminate an employment contract. If the employer violates employment laws or the terms of the employment contract, the trade union can demand that the employer rectify the situation. The employer must consider the trade union's opinions and notify the trade union in writing of the final decision on the termination.
Legal remedy. If the employee considers that they have been wrongfully dismissed, they have the right to file labour arbitration against the employer, claiming for either:
A double severance payment.
Reinstatement.
In order to protect employees, it is national policy that:
The filing of a labour arbitration is free of charge.
The burden of proof to establish that a termination was legal and justified falls on the employer.
In addition, where the employee disagrees with the arbitral award and that award is not a final ruling, the employee can file a lawsuit with the competent first instance court within 15 days after the award is given. Further appeal can be made (within 15 days of the date the judgment is given) to the second instance court from the first instance court's decision, though this second instance court decision is final.
An employer cannot unilaterally terminate the employment of employees in the following circumstances (unless that termination is based on the ground within Article 39 of the Employment Contract Law, which includes the employee's severe misconduct):
The employee is engaged in operations which expose them to occupational disease hazards and has not undergone a pre-departure occupational health check-up, or is suspected of having contracted an occupational disease and is being diagnosed or is under medical observation.
The employee has been confirmed as having lost (or partially lost) his capacity to work as a result of contracting an occupational disease or sustaining a work-related injury with their current employer.
The employee has contracted an illness or sustained a non-work-related injury, and the statutory medical period has not expired.
The employee is a female employee in her pregnancy, maternity or breastfeeding period.
The employee has been working for the employer continuously for at least 15 years and has less than five years before their statutory retirement age.
In addition, if an employee falls into any of the above categories when the term of their employment contract expires, the employer cannot terminate the employment at the end of the contract term. Instead, the employment contract must be extended until the relevant circumstance ceases to exist.
Redundancy is defined as the situation where an employer reduces it workforce by 20 or more people, or by 10% or more of the total number of its employees, under any of the following circumstances:
The employer is restructuring under the Enterprise Bankruptcy Law.
The employer is experiencing serious difficulties in production and/or business operations.
The employer changes production techniques, introduces a major technological innovation or revises its business method, and, after amending existing employment contracts, still needs to reduce its workforce.
The employer is experiencing other major changes to the economic circumstances that originally formed the basis of the employment contracts at the time when they were executed.
National law does not cover the situation where less than 20 people, or less than 10% of the total workforce, are laid off. As a result, local practice varies in different cities.
Before the redundancies are conducted, the employer must complete the following procedures:
Explain the circumstances to its trade union or to all of its employees 30 days before making any redundancies.
Consider the opinions of the trade union or the employees.
Report the workforce reduction plan to the competent labour administrative authorities.
In addition, the following categories of employees must be retained with priority during the redundancies:
Those with long fixed-term employment contracts.
Those with open-term employment contracts.
Those who are the sole income earners in a family with dependent children or elderly people.
Employees who are made redundant must be paid statutory severance pay. Since the Employment Contract Law took effect on 1 January 2008, the statutory severance pay is calculated in two parts:
For the service period before 1 January 2008: severance pay will be one month's salary for every year of service (a service period of less than one year will be counted as one year). The one month's salary will be calculated based on the employee's average monthly salary during the 12 months prior to termination under the employer's normal business circumstances. If the employee's average monthly salary is less than the average monthly salary of the employer's employees, the one month's salary will be calculated based on the average monthly salary of the employer's employees.
For the service period after 1 January 2008 severance pay will be:
one month's salary for every year of service (a service period of at least six months but less than a year will be counted as one year);
half a month's salary for a service period of less than six months.
The one month's salary will be calculated based on the employee's average monthly salary during the 12 months prior to termination. However, in any event this amount is capped at three times the average monthly salary of the local employees, as determined by the local government.
Board of directors. Limited liability companies invested in and established by two or more state-owned enterprises, or two or more state-owned investment entities, must include employee representatives on their board of directors. The board of directors of other limited liability companies may also include employee representatives. Companies limited by shares must also include employee representatives on their board of directors.
Employee representatives must be company employees who have been democratically elected by congress, assembly or some other similar form.
Board of supervisors. Limited liability companies and companies limited by shares must have a board of supervisors, comprised of at least three members. The board of supervisors must include shareholder representatives and employee representatives, and the employee representatives must comprise at least one third of the board's membership.
As with the board of directors, employee representatives must be company employees who have been democratically elected by congress, assembly or some other similar form.
Under the Company Law (effective as of 1 January 2006), companies should utilise the employee representatives to practice democratic management in accordance with the law. Companies should seek advice from their trade union when discussing and deciding on important issues concerning the restructuring or operation of the company, or formulating rules and regulations within the company. Employee representatives should also be utilised to seek advice and suggestions from employees in these circumstances.
The Employment Contract Law also explicitly specifies that employers must have discussions with employees (or the employee representatives) where they intend to formulate, revise or make decisions on internal rules or policies that will directly and substantially affect employees. These policies should be made through consultation with the trade union or the employee representatives.
Major transactions will be considered to be an important issue affecting the restructuring or operation of the company, and will therefore require consultation (though the employees' or employee representatives' consent is not required).
There are no specific remedies for employees if their employer fails to comply with their consultation duties, and employees cannot veto the employer's major business/operational matters. However, where there has been a failure to consult before implementing internal policies that are directly related to the employees' major interests, those policies are likely to be deemed invalid and not constitute a legal basis for taking disciplinary action against the employees (for example, dismissal).
Employees can challenge the validity of an employer's decisions which are made without consultation and concern major business/operational matters, though this is very rare in practice.
Where the employer has failed to consult on internal policies directly related to the employees' major interests, employees can challenge the validity of those policies in labour arbitration or litigation, which can result in the policies being declared invalid as a basis for enforcing disciplinary action against the employees (this is more commonly used).
In the event of company merger or division, the employees' existing employment contract remains valid and will continue to be performed by the succeeding employer, who takes on the rights and obligations of the former employer. The employees are therefore automatically transferred to the new employer after the merger or division.
If the business transfer only involves a share transfer, the employer and employees remain the same and there is no automatic transfer of employees.
Generally speaking, on a business transfer (for example, a merger, division or share transfer) the employees are protected against dismissal.
However, a business transfer other than a merger, division or share transfer which takes place (for example, an asset transfer or a sale of a business division) can lead to a major change to the objective circumstances under which the employment contract was executed, rendering the employment contract unenforceable. In that instance, if, after consultations, the employer and the employees are unable to reach agreement on amending the employment contract, the employer can unilaterally terminate the employees by giving 30 days' prior written notice, or one month pay in lieu of notice. In that case, the terminated employees are entitled to statutory severance pay.
In addition, where a business transfer results in a redundancy situation (see Question 19), the employer can reduce its workforce by following the procedural requirements. Employees made redundant in this situation are entitled to receive statutory severance pay.
The new employer and the transferred employees can negotiate between themselves on harmonising the terms of employment with that of the new employer's existing employees.
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
The PRC Tort Law (effective as of 1 July 2010) explicitly states that employers are liable to third parties for any harm caused by their employees while performing employment activities. However, where an employee is dispatched to work for a third party employer, that third party employer will be liable for harm caused by the employee whilst performing their duties (unless the dispatching employer is also at fault, in which case there will be joint liability between the two employers).
"Employment activities" include (judicial interpretation of the Supreme Court, 1 May 2004):
Activities falling within the scope of employment.
Activities falling outside the scope of employment, where those activities could still be deemed to be employment activities, or where those activities have a close relationship with employment activities.
Where harm arises from the employee's wilful misconduct or gross negligence, both the employee and the employer will be liable (though the employer may then seek an indemnity from the employee).
Employees acting outside of the scope of their authority (for example, in executing contracts with third parties) can also render their employers liable to perform that unauthorised contract where the employee had "apparent authority" and it was reasonable for the third party to believe that the employee had authority to execute that contract (Article 49, Contract Law).
Generally, a parent company is not liable for either the acts of the company in which they invest (the subsidiary) or the actions of the subsidiary's employees. Only under the following limited circumstances will the parent company assume liability for the subsidiary's employees:
Where the subsidiary has not obtained a valid business licence or the subsidiary's business licence is revoked so that the subsidiary cannot be deemed an independent legal person, the parent company may potentially be regarded as a defendant to participate in arbitration or litigation proceedings, and may assume liability for the duties performed by subsidiary's employees.
Where the parent company, as the shareholder, makes false a capital contribution or unlawfully withdraws their capital contributions, it must assume joint and several liability with the subsidiary for the debts caused by the subsidiary's employees during the course of performing their duties.
The employer must provide its employees with safe, hygienic and appropriate working conditions, adequate facilities and equipment and necessary protective equipment in accordance with the law.
Where employees are engaged in work that exposes them to occupational diseases, the employer must take measures to prevent and control the risk of occupational diseases and protect the employees' legal rights and interests in accordance with the law.
There is special protection for female and minor workers:
It is prohibited to allow female workers, especially those female workers during their menstrual periods or pregnancy or breastfeeding period, to engage in certain types of work (for example, work that is high above the ground, under low temperatures, or in cold water), or work above a certain degree of physical labour intensity as stipulated by the government.
It is prohibited to allow minor workers to engage in:
work down the pit of mines;
work that is poisonous or harmful;
work with Grade IV physical labour intensity (as stipulated by the government);
other work that should not be conducted by persons under a certain age.
The employer must also provide regular physical examinations to minor workers.
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Determination of tax liability. With respect to foreign individuals who are not domiciled in China but are working in China, their tax liability is determined by both:
The duration of their residence.
Whether the income originates within or outside of China in a tax year.
Foreign individuals will be liable to taxation on the following basis:
Where resident for no more than 90 or no more than 183 days:
income originating from within China that is paid by employers within China will be subject to tax, and income paid by employers outside China is exempt from tax;
income originating outside of China that is paid by employers within China is not subject to tax, and income paid by employers outside of China is not subject to tax.
Where resident for more than 90 or 183 days, but not more than one year:
income originating from within China paid by employers either within or outside China is subject to tax;
income originating outside of China paid by employers either within or outside China is not subject to tax.
Where resident for more than one year but less than five years:
income originating from within China paid by employers either within or outside China is subject to tax;
income originating outside of China paid by employers within China is subject to tax, and income originating outside China paid by employers outside of China is exempt from tax.
Where resident for more than five years, all income, whether received inside or outside of China, by employers inside or outside of China, is subject to tax.
Determination of taxable income. Taxable income includes:
Wages.
Salaries.
Bonuses.
Year-end additional payments.
Profit shares.
Subsidies.
Allowances earned by individuals by virtue of the holding of any office or employment.
Other incomes earned by individuals relating to the holding of any office or employment.
The following deductions can be applied to income:
A total monthly deduction of CNY4,800, including CNY3,500 standard deduction applicable to PRC nationals, and an additional deduction of CNY1,300 for foreign nationals working in the PRC.
For a taxpayer who has obtained income outside the PRC, the amount of individual income tax already paid outside the PRC may be deducted from the tax amount payable (limited to the tax amount payable for foreign-originated income under PRC laws).
PRC nationals working abroad are subject to PRC individual income tax on their worldwide income.
The rate of taxation on employment income depends on which bracket the employee's monthly taxable income falls into. The monthly standard deduction is CNY3,500 for PRC nationals and CNY4,800 for foreign nationals. The corresponding tax rates for different levels of monthly taxable income are as follows:
Income not exceeding CNY1,500: 3%.
Income above CNY1,500 but not more than CNY4,500: 10%.
Income above CNY4,500 but not more than CNY9,000: 20%.
Income above CNY9,000 but not more than CNY35,000: 25%.
Income above CNY35,000 but not more than CNY55,000: 30%.
Income above CNY55,000 but not more than CNY80,000: 35%.
Income above CNY80,000: 45%.
Employers within the territory of the PRC and employees who are PRC nationals are subject to a mandatory PRC social security scheme, which includes payments for:
Pension insurance.
Medical insurance.
Work related injury insurance.
Unemployment insurance.
Maternity insurance.
Housing fund.
Employers and employees make contributions under schedules determined by the local authorities. Except for maternity and work related injury insurance contributions (which are only paid by employers), employers must withhold the employees' social security contributions. Contribution rates vary across different cities, and are usually calculated on the basis of the employee's average monthly salary for the previous year (capped at three times the local average monthly salary for the previous year). For example, the rates for Beijing are currently as follows:
Pension insurance: employer contributes 20%, employee contributes 8%.
Medical insurance: employer contributes 10%, employee contributes 2%.
Work related injury insurance: employer contributes between 0.5% and 2%, employee contributes 0%.
Unemployment insurance: employer contributes 1%, employee contributes 0.2%.
Maternity insurance: employer contributes 0.8%, employee contributes 0%.
Housing fund: employer contributes 12%, employee contributes 12%.
There are special rules applicable to foreign nationals working within the PRC. Foreign nationals from countries with bilateral or multilateral social insurance treaties with China are exempt from participating in the PRC social insurance scheme (at the time of writing, Germany and Korea are the two countries with such arrangements). Under a Regulation issued on 6 September 2011 by the PRC Ministry of Human Resources and Social Security, other foreign nationals are subject to mandatory participation in the PRC social insurance scheme (though implementation varies across cities and participation in certain cities remains optional). However, foreign nationals do not have to participate in the PRC housing fund scheme.
An employer and its full-time employees must participate in the PRC social insurance scheme, which includes pension insurance. Each month, the employer must pay its own pension insurance contribution and withhold the employees' applicable contributions. Contribution rates for employers and employees are set by local regulations, and vary from city to city.
The employee's pension contribution is not taxable for individual income tax purposes. The employer's pension contribution can be deducted as an expense from the employer's pre-tax income, and so is not taxable for enterprise income tax purposes.
The monthly amount of the government pension varies by city and by person, and is calculated using a complex formula. In basic terms, the amount of pension that the employee will receive after retiring depends upon the following three factors:
The employee's average salary.
The number of years the employee has made contributions.
The amount of the employee's contribution base.
Is linked to the employee's salary?
Is linked to employer and/or employee contributions and investment return on those contributions?
It is not compulsory for employers to provide supplementary pension schemes for their employees, though they are free to do so.
Supplementary pension schemes can be linked to the employee's salary, the employee's contributions and/or the employer's contributions.
See above, Linked to the employee's salary.
The Ministry of Human Resources and Social Security (MOHRSS) oversees the operation of supplementary pension schemes.
Before an enterprise annuity scheme operates, it must be submitted to MOHRSS for registration. When the enterprise annuity scheme changes or ends, it must be reported, in advance, to MOHRSS.
Any service providers involved in the provision of a supplementary pension scheme must be authorised by their respective supervisory authorities and must apply to MOHRSS for authorisation before entering into such a scheme.
Employer contributions to a supplementary pension scheme not exceeding 5% of the aggregate salaries of all its employees can be treated as a deductible expense when calculating enterprise income tax (though any amounts above this 5% threshold cannot be deducted).
Employee contributions to a supplementary pension scheme cannot be deducted for income tax purposes.
In an employer's merger or division, the new employer will inherit the old pension plan. In this sense, the pension rights are automatically transferred to the new employer. In a share transfer, since the employer and the employees remain the same, the employees' pension rights will not be affected and there is no automatic transfer of pension rights.
If a business transfer (other than a merger, division or share transfer) has led to the dismissal of an employee and the employee has signed an employment contract with the new employer, the employee's pension will be transferred to the new employer, and their supplementary pension rights will be transferred to the new employer's enterprise annuity scheme. If the new employer does not have such a supplementary pension plan, then the employee's supplementary pension rights will remain in the former employer's enterprise annuity scheme.
Employees who are working abroad?
Employees of a foreign subsidiary company?
The supplementary pension related regulations do not prohibit employees who are employed by a company registered in mainland China but working abroad from participating in the company's supplementary pension scheme. Whether the same tax reliefs referred to in Question 30 are still available depends on each individual situation and the applicable local tax regulations.
The employees of a foreign subsidiary company are not prohibited from participating in the enterprise annuity scheme of a parent company registered under the laws of mainland China. However, the foreign subsidiary company should ensure that the laws of the country in which it is incorporated permits its employees to participate in the enterprise annuity scheme of a PRC parent company. Whether the same tax reliefs referred to in Question 30 are still available depends on each individual situation and the applicable local tax regulations.
Under the regulations, pension scheme benefits must be administrated under trust by a lawful trustee (and the employer cannot be the beneficiary of that trust). As a result, the pension funds are independent from the employer and will not be subject to claims in the event of the employer's winding up.
It is common for employers to reward employees through contractual or discretionary bonuses in China. For example, in many companies, employees are entitled to a "13th month salary" at the end of each full year they have worked for the employer. In addition, many companies provide their salespersons with commissions as an extra reward. In practice, employers tend to award employees bonuses based on the result of their performance review.
Generally, the provision of bonuses is solely at the employer's discretion. However, once the employer promises to provide a certain bonus to the employee in the employment contract or the employer's internal policies, the employer will be obliged to abide by those provisions.
Generally, the copyright in a work created during the course of employment will be enjoyed by the employee, subject to the employer's priority right to exploit the work within the scope of its professional activities. The employee cannot, without the employer's consent, authorise a third party to exploit the work in the same manner that the employer exploits the work within two years of completing the work.
However, for the following copyrighted works, the employee will enjoy the right of authorship whilst the employer will enjoy all other rights associated with the copyrighted work:
Drawings of engineering designs.
Product designs.
Computer software.
Maps.
Works created in the course of employment mainly using the employer's material and technological resources.
Works created in the course of employment where the law or any contract stipulates that the employer owns the copyright.
The employer may compensate the employee (but is not obligated to do so) in these situations.
The patent right in a work created by the employee in the course of employment mainly using the employer's materials and technological resources will be owned by the employer, though the employer must pay the employee a reasonable compensation to exploit the patent right. However, if the employer and the employee have entered into a contract regarding the patent right, the terms of that contract will apply.
The employer can restrict an employee's activities both during employment and after termination (using, for example, non-compete, non-solicitation and confidentiality clauses), and these restrictions are usually incorporated into the employment contract. However, such restrictions must be reasonable.
Non-compete, non-solicitation and confidentiality clauses can be incorporated into the employment contract. However, non-compete clauses are subject to regulatory requirements, including:
They cannot be for a time period of more than two years following termination.
The employer must pay the employee compensation on a monthly basis for abiding by the covenant (reasonable compensation is deemed to be between 30% to 50% of the employee's average monthly salary).
There are several areas of employment law which are currently undergoing revision, including the PRC Employment Contract Law and the regulations concerning working hours. The modified Employment Contract Law aims to further regulate labour dispatch activities (in particular, to discourage the long-term dispatching of employees and strengthen the employment protections of employees that have been dispatched.
Description. The above website links to the section "Laws and Regulations" under the website of the PRC central government, which is maintained by the PRC central government and contains the official up-to-date PRC laws and regulations. The website is also operated in English at: www.chinalaw.gov.cn/article/english/#. However, these English translations of laws are for reference only.
T +86 10 5878 5055
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E jiangjunlu@cn.kwm.com
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Qualified. China, 1994
Areas of practice. Employment; labour law; labour arbitration/litigation; social security.
Recent transactions
T +86 10 5878 5028
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E xuxiaodan@cn.kwm.com
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Qualified. China, 2002
Areas of practice. Labour law; employment; labour arbitration/litigation; international dispute resolution.
Recent transactions
T +86 10 5878 5213
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E zhoujun@cn.kwm.com
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Qualified. China, 2006
Areas of practice. Employment; labour law; labour arbitration/litigation.
Recent transactions
