Guide to Hiring in Mainland China

Labour Law – Basics

What are the basic requirements for employers in China?

• China has several legislations on labour law, such as the Labour Law of the People’s Republic of China which came into effect on 1 January 1995 and the Labour Contract Law of the People’s Republic of China that was enforced from 1 January 2008. Over time, other key laws have been passed to supplement these basic legislations such as the newly passed Women’s Protection Law and the Production Safety Law of the People’s Republic of China.These laws cover key areas such as working hours, statutory contributions by the employer and protective measures for women in the workplace.

• Social Security Payments
  • Social security payments are to be made from the employer’s statutory accounts. It is the employer’s legal obligation to set up these accounts with the respective local authorities i.e., the social insurance company account and housing fund company account.

• Individual Income Tax (IIT)
  • Employers are also responsible for calculating and withholding accurate income tax payments for their employees. Take note that for the year 2023, the preferential tax rate for annual bonuses and the tax exemption for expatriates have been extended to 31 December 2023.For a detailed breakdown of income tax rates, refer to the ‘What to note for existing employees?’ section.

• Compliance With Personal Data Protection Laws
  • READ MORE: What China’s PIPL (Personal Information Protection Law) Means for HR teams? – An HR PIPL Compliance Checklist

What to note for existing employees?

• Individual Income Tax (IIT) for Employees

Residents and non-residents have different tax rates.

Residents are those who are:
i. domiciled in China, or

ii. not domiciled in China but have resided in China for an aggregate of 183 days or more within a tax year.

On the other hand, non-residents are those who are:

i. not domiciled in China and do not reside in China, or

ii. not domiciled in China but have resided in China for less than 183 days in aggregate within a tax year.

Residents – calculated based on a cumulative amount of a 1 year

Residents must complete the Annual Tax Reconciliation process, which means they must recheck their IIT paid and deducted in the tax year, calculate the refundable or supplementary tax payable, report to the tax authorities, and make the tax settlement. This is usually done between March to June of each year.

Non – residents – calculated on a monthly basis

Non-residents are not required to complete the ATR process.

• Social Insurance Contributions

Please refer to the ‘Is employment insurance compulsory in China?’ section for a detail list of social insurances in China and their contribution rates across various regions.

What to remember when hiring new employees?

It is critical to note that Employment law is relatively employee friendly in China and employers need to be very careful when deciding which contract type to engage workers under.  For white collar workers, typically employers will use two back-to-back 3-year fixed term contracts to hire employees in order to give the employer a 6-month probation period and defer the employee becoming an indefinite or open-ended employee (once an employee completes two back-to-back fixed term contracts, they generally become indefinite employees).

• Types of labour/employment contracts
  • Employers can offer employees 1 of 3 types of labour contracts: Fixed-term labour contracts, open-ended labour contracts, or labour contracts that are special to certain tasks.

• Requirement of written labour contract
  • Employers must provide a written Chinese labour contract with employees to formally begin the employment relationship.
  • This contract must be signed no later than 1 month from the start of the employee’s service.
  • Employers who fail to adhere to this can be penalised by being made to pay a double salary.

• Terms of labour contract
  • The contract between employer and employee should cover major items such as:
    i. Employer information
    ii. Employee information
    iii. Contract term
    iv. Job description and work location
    v. Working hours
    vi. Salaries and wages
    vii. Social security
    viii. Health and safety policy
  • Other optional terms that can be covered include probation, training, confidentiality, and other benefits.

What are the different discrimination laws in China?

• China’s Constitution of the People’s Republic states that all citizens are equal and that ethnic minorities, people with religious beliefs, and women are not to be discriminated against in any aspect of civil life – including employment (covering recruitment, salary, social benefits, etc.)
  In addition to that, the All-China Federation of Trade Unions (ACFTU) published a Manual for Promoting Gender Equality at Work in 2019. The manual was published to promote better treatment of women in the workplace. The Ministry of Human Resource and Social Security also released the Regulation on Employment Service and Employment Management to highlight that employees cannot be discriminated against due to disability or for migrating from rural areas.One of the biggest changes China made to its laws on equality was in October 2022, when it passed the highly anticipated Women’s Protection Law. This law which took effect from 1 January 2023 had 30 new provisions covering a wide range of issues such as gender equality in recruitment and contract negotiation, the employer’s obligation in sexual harassment prevention, as well as relief measures for women should their rights and interests be affected.

What are the working hours in China?

• Chinese labour law states that a standard work day should be eight hours’ long, with a maximum of 44 hours a week. If an employee works beyond this, they are entitled to overtime payments.
• Overtime Payment Calculation –
  • Overtime on a working day: 150%
  • Overtime on a weekend: employer to grant compensation leave or pay 200% overtime
  • Overtime on a public holiday: 300%

What is the legal probation period in China?

• An employee’s probation period would depend on the type and duration of the employment contract.

Employers are allowed to either pay 80% of the employee’s salary during probation – so long as it meets the minimum wage requirement.

What are the minimum wage requirements in China?

• The minimum wage in China varies between each region. Monthly minimum wage rates typically apply to full-time employees, while hourly rates apply to casual employees and interns. The rates in some of the key cities at present are as follows:

Termination of Employment – Employment Insurance, Tax, Severance Payment & Long Service Payment

• In China, a labour contract can be either terminated or discharged.  It is critical to note that Employment law is relatively employee friendly in China and employers need to be very careful when terminated or discharging labour contracts in China to avoid the risk of an employment dispute. Once the employee is past probation, separations tend to be mutually agreed upon between the employer and employee. and include an element of severance payment based on the employee’s years of service.

Termination of Labour Contract

Circumstances for terminations are limited and reasons include the following:

• • The terms of the contract have expired.
  • The employee has retired and is receiving a pension.
  • The employee has passed away.
  • The employer is bankrupt or must close the business.

In the case where the terms of a contract have expired or employer is bankrupt or must close the business, a severance pay must be given by the employer.

Discharge of Labour Contract

A labour contract can be discharged due to the following reasons:

• • Mutual agreement between employer and employee.
  • Raised by the employee
    i. Must give 3 days’ notice if under probation
    ii. Must give 30 days’ notice if under regular working period
    iii. Immediate discharge in the event the employer breaks the law.
    Severance pay must be given in this instance.
  • Raised by employer without severance pay
    i. Employee proves to be unsuitable/unqualified during probation
    ii. Employee has broken internal regulations or caused major damage
    iii. Employee has fostered an employment relationship with another company
    iv. Employee has been convicted of a crime
  • Raised by employer with severance pay and a 30-day notice*
    i. Employee is sick and the medical period has expired. The employee can no longer work, or can they be transferred to other roles.
    ii. Employee proves to be unqualified and cannot be trained or transferred to other positions.
    iii. The labour contract cannot be performed due to change its in condition and both parties cannot come to a mutual agreement after consultation.
    iv. An economic layoff where a notification has been sent to the government in advance. In this case, there is no need for a 30-day notice.

* Employers have the option of offering one month’s salary instead of adhering to a 30-day notice.

Note: Labour contracts cannot be terminated for the following reasons:

• • When employees are diagnosed with occupational diseases
  • Partial or totally disability from a work injury
  • Sicknesses that crop up during their medical leave period
  • Pregnancy, childbirth and breastfeeding
  • The employee has worked over 15 years in the company and is less than 5 years away from retirement

Calculating Severance Pay

Severance pay upon termination or discharge of a labour contract can be calculated
using the following formula:

                       Average Monthly Salary x Years of Service of current employer

Average Monthly Salary definition: 12 months before the labour contract is terminated,
with a cap of 3x the local monthly salary in the previous year – adhering to minimum wage requirements

Years of Service definition:

• • Less than 6 months = 0.5 month’s pay
  • 6 months to a year = 1 month’s pay
  • Over 1 year = 1 month’s pay for each year

What is the retirement age in China?

In March 2023, China announced that it had plans to change its retirement age – one of the lowest in the world. However, the amendments have not been formally made yet, and at present, these are the retirement ages that apply to men and women:

• 60 years for men
• 55 years for white-collar women
• 50 years for women who work in factories

Employment dispute channels

China opened its first specialised labour court in Suzhou, Jiangsu in July 2021. In other regions, cases may be heard in ‘regular’ courts. However, litigation – going to court – should be the last resort.

Under the Labour Law of the People’s Republic of China, employers are expected to resolve disputes through either mediation or labour arbitration first. Parties can only file a case in court once the options of mediation and/or arbitration have been explored.

Is employment insurance compulsory in China?

Under China’s Social Security System, there are 6 types of mandatory insurance schemes:

• pension fund
• medical insurance
• industrial injury insurance
• unemployment insurance
• maternity insurance
• housing fund (optional for foreigner employees)

Contributions are made by both employers and employees – these amounts vary by region. As an example, below is the table of contribution rates in Shanghai, Beijing and Guangzhou.

Shanghai

Beijing

Guangzhou