The Employment Contract Law is the most important law in China relating to an employer and employee relationship. This law is applicable to the employment of foreigners as well as local Chinese employees, and applies to local Chinese companies as well as WFOE's. This law has been constructed to protect the rights of the workforce hired in China and build harmonious employment relationships.
If you have your own business in China, at some point in time, you may feel the need to hire local Chinese personnel. There are a set of rules that every employer in China has to abide by while considering recruitment of local Chinese or foreign employees .
→ Employment Contract
Under the People's Republic of China's (PRC) Labor Law, all employees are required to sign employment contracts with their companies. Nevertheless, only limited companies are allowed to sign employment contracts directly with local employees. If the company is a Representative Office (RO) , then it can only Hire local employees through a Licensed HR Agency like HROne by using Employee Leasing / Talent dispatching services. The Licensed HR Agency Also May be granted the Responsibility of the Employee's Payroll, Benefits mandatory, Individual Income Tax etc. based on the local policies.
While there is no standard template for the form, the agreement should include the following points:
Date of signing, Term of Contract and Probation period
Employee and employer address details, official identification and signatures.
Job title, job description and work location
Labor protection and working conditions
Compensation, benefits and insurance information
Breach of contract provisions & disciplinary rules
Other provisions such as Training Bond, Non-disclosure agreement and Non-compete agreement
→ Nature of Employment
Employees may be hired on a permanent or temporary basis. A temporary employment can be of fixed-term or task-based term. Permanent employment can be without a specified term. Also, if the term of employment contract is 3 months to 1 year, the probation period can be maximum 1 month. If the term of employment contract is 1 year to 3 years, the probation can be maximum 2 months. If the employment contract has no fixed term, the probation can be maximum 6 months. If the employment contract is of a fixed term or less than 3 months, there is no probation period.
→ Hiring Expatriate Employees
Not every company in China has the necessary permissions to hire foreigners. The hiring power of the company wrt expatriate staff s is directly proportional to its registered capital. If your company is empowered to hire expatriates, it is the responsibility of the company to get a work permit and work visa for its expat recruits. Depending on the job role, expats may be hired on Work Visa (Z) / Priority Talent Visa (R) / Internship Visa (X2 / M).
→ Individual Income Tax and Mandatory Benefits
Being an employer in China, certain obligations have to be followed relating to tax and welfare contributions for your employees.
Individual Income Tax
Depending on their salary, all employees in China pay Individual Income Tax on their income. The employer is responsible for deducting the Individual Income Tax from the salaries every month and submit the tax deduction to the tax authority. This is only an employee contribution and applicable to both expat and Chinese employees.
Mandatory Benefits contributions are made by both employer and employee and applicable to both expat and Chinese employees. Mandatory Benefits contributions consists of 5 mandatory insurance schemes (pension fund, medical insurance, industrial injury insurance, unemployment insurance and maternity insurance) + a housing fund ( only applicable to Chinese employees).
The following explains the contributions in Shanghai in 2015, it varies from city to city:
Employer contribution: 21%, Employee contribution: 8%
Employer contribution: 11%, Employee contribution: 2%
Employer contribution: 1.5%, Employee contribution: 0.5%
Employer contribution: 0.5%, Employee contribution: Not required
Employer contribution: 1%, Employee contribution: Not required
Employer contribution: 7%, Employee contribution: 7% (Equal contribution by both)
→ Public Holidays in China
Currently, seven official public holidays are observed in China every year. The detailed holiday periods would be adjusted per year.
New Year's Day, 1 day off (January 1st)
Spring Festival, 3 days off (the 1st, 2nd, and 3rd day of the first month of the lunar calendar)
Tomb Sweeping Festival, 1 day off (the Tomb Sweeping Festival of the lunar calendar)
Labor Day, 1 day off (May 1st)
Dragon Boat Festival, 1 day off (the Dragon Boat Day of the lunar calendar)
Mid-Autumn Festival, 1 day off (the Mid-Autumn Day of the lunar calendar)
National Day, 3 days off (October 1st, 2nd and 3rd)
Additionally, Half Day leave for Women is granted on International Women's Day on March 8th and Half Day leave for Youth (age 14 years to 28 years) is granted on Youth Day on May 4th . Apart from these, the Employee May choose to Apply for sick leave / Maternity leave / Paternity leave / leave Marriage / Funeral leave, if and when required for China 2016 Calendar & Public Holidays, Please click here .
→ Paid Annual Leave for employees
Employee has more than 1 and less than 10 years of cumulative work experience: 5 days annual paid leave
Employee has more than 10 and less than 20 years of cumulative work experience: 10 days annual paid leave
Employee has more than 20 years of cumulative work experience: 15 days annual paid leave
The National Statutory Holidays and rest days shall not be included in the Annual leave.
→ Employment Termination
Employers need to Pay severance (Severance payment = One month's salary × Years of service) unless the Employee failed to satisfy the Conditions of the recruitment under the probation or seriously Violated Company Regulations or committed a Civil Crime and the Employer has Clear Evidence to prove the same. Else, the employer needs to give a 30-day advance notice to the employee and part ways with mutual consent. The employer may pay one month salary over and above the severance pay in case the employer does not want to serve a 30-day advance notice period.
→ How HROne can be beneficial to your business
HROne's service Offering Ranges from cost-Effective Payroll Management solutions, the Total Handling Employee Benefits for your Company, Handling Relocation and Visa for your Company's Expatriate employees to Employee Leasing / Talent dispatching services for your Representative Office (RO).
Globalization does affect China in a way. However China is taking action to maintain the economic growth such as laying out some policies related to the foreign investment to boost the national economy. This CEO survey report comes from PWC which comprehensively reveals that China could be the main stage for market entry. Moreover CEOs emphasize the recent problem about talent gap which can be solved by man and machine work together and it could be a long way to go. Yet finding an agency can be one of the best ways to narrow the talent gap. Talent Spot can help you with your HR solutions in China as well as Asia Pacific Region includes Singapore, Hong Kong, Taiwan, Japan, Korea, Thailand and Vietnam.