Overview of Chinese Labor Law

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Keep in mind that Chinese labor law is generally more protective of employees than the laws of some Western nations, particularly the United States.

Remuneration

In general, an employee’s gross salary consists of:
* Wages
* Performance-related bonuses
* Fixed/Guaranteed Allowances for meals, transportation, etc.
* Overtime allowance
* Special wages or allowances

Generally, foreign-invested enterprises pay their employees a basic salary that constitutes 80-90% of gross salary, between 5-15% in allowances, and the remaining is 5% in variable bonuses. As can be expected, there are exceptions, and variations usually depend on the employee’s seniority.

The employer is responsible for several employee benefit obligations including health insurance, unemployment insurance, endowment insurance, industrial accident insurance, and labor union funding. These are calculated in proportion to the employee’s wages and all told, they add up to about 30-40% of the employee’s monthly wages. These amounts must be paid in addition to the employee’s monthly paycheck and cannot be deducted from it. Additional (smaller) amounts are borne by the employee must be deducted from the employee’s paycheck.

In particular, industrial accident insurance premiums are divided into several scales according to industrial sector, with the commercial having the lowest premiums and dangerous activities such as coal mining being the largest.

Working Hours and Holidays

China has instituted a standard 8-hour workday and a 40-hour, 5-day workweek. Holidays are usually Saturday and Sunday. Applicable law provides that overtime should not exceed one hour a day under normal circumstances and three hours a day under special circumstances. The law also stipulates that total monthly overtime should not exceed 36 hours. Overtime rates vary from 150% to 300% of normal wages.

There are 10 public holidays per year:

* New Year’s Day (1 Jan.: one day)
* Spring Festival (Jan/Feb.: three days)
* Labor Day (1-3 May: three days)
* National Day (1-3 Oct.: three Days)

Labor Contracts

The employer/employee relationship in China is defined by a mandatory written labor contract (although oral contracts are enforceable for the sake of protecting employees), which may be open-ended or fixed term. Most employers choose fixed term because open-ended contracts are harder to terminate under Chinese labor law. The labor contract must be governed by Chinese law, and include the following essential terms:

* The term of the contract
* Job duties
* Labor protection and working conditions
* Remuneration
* Rules and discipline
* Termination
* Liability for breach of contract

The labor contract can become unenforceable if a “major situation” changes on which the contract relies (this term has not been defined). It is highly advisable to include provisions on intellectual property protection.

Collective contracts can be concluded with the employee labor union (see the “Labor Unions” tab for ore details on unions) to deal with issues affecting all employees, and may include an enterprise minimum wage. Please check this site’s post on the draft Labor Contract Law for soon-to-be-effective provisions on non-compete clauses and other contractual issues.

Health and Safety

Workplace occupational health and safety programs are mandatory required, including offering regular physical examinations for employees engaged in hazardous duties.
Employees between 16 and 18 are protected under special occupational health and safety measures. It is illegal to hire anyone under the age of 16.

Termination

Employers can terminate employees with 30 days notice if:

(1) the employee is not able to perform his/her duties due to non work-related illnness or injury (he/she generally cannot be terminated while still being treated);

(2) the employee was found unsuitable for the work he/she was doing, and is still found unsuitable after retraining or assignment to another position; or

(3) the employee is unable to agree with the employer after mutual consultation on a modification of his/her labor contract when the purpose for which he/she was originally hired has significantly changed or no longer exists.

Employers may not dismiss an employee if:

(1) he/she suffers from a work-related illness or injury medically determined to have
resulted in the employee’s full or partial occupational disability;

(2) he/she is being treated for illness or injury; or

(3) she is pregnant, on maternity leave, or within the designated nursing period

Employers are required to give hiring priority to laid-off employees when recruiting for the same or similar positions within six months after a layoff.

Employees may resign at any time with a 30-day notice. An employee can resign without notice at any time during his/her employment period, or due to employer coercion in the workplace (including violence, threats or illegal restraints on personal freedom), or employer’s failure to provide wages or working conditions according to the terms of the labor contract .
An employer may “lay off” an employee if the company is about to go bankrupt; however, the employee wil be entitled to severence pay of approximately one month’s pay for every year of continuous service to the company (local regulations may vary).

Statutory Leave

Paid leave is mandatory and must be given t employees who have been employed for a year or more. Details vary according to employee qualifications and local regulations, but paid leave normally does not exceed two weeks per year.

Other forms of mandatory leave include:

Funeral Leave: 1-3 days to attend the funeral of a parent, spouse or child
Maternity Leave: following childbirth, 90 days
Matrimony Leave: 1-3 days following marriage
Medical Leave: during the employee’s period of recovery from injury or illness; length may vary.

Wages

In Zhengzhou (central China), the average annual salary in 2005 was RMB16,694 (about US$2,000). In relatively affluent Beijing, the average annual salary was about double that. Labor costs in rural areas and in some of the far western provinces are sometimes even lower. Minimum wages are set by municipalities and vary substantially from place to place. For example, Shenzhen’s minimum wage in early 2006 was RMB 890 per month (less than US$100); while Henan Province (central China) instituted a three-tier minimum wage system, the lowest of which was only RMB 320 per month . Nevertheless, don’t expect to be able to pay these rates to professional or skilled workers, especially in the eastern coastal areas where labor shortages are the rule in many industries.

Foreign Employees

Foreign invested enterprises are permitted to employ foreign nationals, but they must hold work permits and appropriate visas before they can be employed in China. Strictly speaking, work permits are issued if the position requires special skills and a there is a
shortage of qualified Chinese nationals for the position. In practice the Chinese authorities can be quite reasonable (but not lenient) regarding which positions do and do not require the importation of skills from abroad. Obtaining a work permit and a visa can take several months and involves a multi-step procedure.

Foreign nationals who are seconded to China, or who are doing business in China for relatively short periods of time, may obtain a Class F (business) visa. Note that the application fee is high (several hundred US dollars) for Americans, but lower for nationals of most other Western nations. Since Americans and nationals of most Western nations can enter Hong Kong visa-free for up to 90 days, and since Hong Kong is the easiest place to apply for a business visa, most foreign nationals needing business visas fly into Hong Kong from their home countries to apply. Although the holder of a business visa is not supposed to engage in money-making activities in China, enforcement of this restriction has heretofore been sporadic.