Labour Legislation
In China, the legal framework for workplace issues is based on a statutory, civil law system. In China, there is no such thing as a “at will” employer, therefore employees may only be let go in accordance with the terms of a contract or for other reasons allowed by law, which usually include showing reasonable cause. No employee, regardless of rank, is immune from protections against unfair dismissal. In most cases, employees are entitled to a severance package when they are let go. In order to avoid legal issues, it is essential for businesses to terminate employees in accordance with established policies. It’s possible to incur costly settlements if you don’t follow the rules.
In most cases, firing an employee is a cumbersome and time-consuming process. Therefore, it is normal practice to hire people on short-term contracts. At the conclusion of a certain period of employment, the employer is free to let the worker go. There will be monetary restitution required, nevertheless.
Following the completion of two consecutive fixed-term contracts, employees are entitled to an open-term contract, under the “two fixed-terms rule” implemented in 2008. If an employee refuses to extend their contract on the same or improved conditions as before, then the company will have to terminate their employment. If you need to fire an employee, you should get some professional help.
A Written Agreement Regarding Employment
Most importantly, China has the Employment Contract Law, which regulates the relationship between an employer and an employee. In addition to local Chinese workers, this regulation covers the hiring of foreign nationals. Whether a company is based in China or is a Wholly Foreign-Owned Enterprise, it must comply with the rules set out in this legislation (WFOE). The purpose of China’s Employment Contract Law is to foster mutually beneficial working partnerships while also safeguarding the legal interests of China’s employed citizens.
In China, an agreement has to be in writing. There are a number of dangers that might affect an organization if employment agreements are not put in writing. If an employer does not provide an employee with a written contract during the first month of work, the firm must pay the employee double the monthly rate of pay.
After a year has passed without a formal employment contract being executed between the employer and employee, the employee will be considered to have engaged into an indefinite or permanent employment relationship with the employer. This frequently results in the company having to keep the worker on until retirement age. In addition, the employer may be subject to penalties from the Chinese labor authorities for failing to comply with the rules on written contracts. Given that there is no concept of “employment at will” in China, the employer would be required to pay severance in the event of a termination of employment.
Renewals are subject to the requirement requiring a documented contract. In actuality, the vast majority of companies and workers agree to work together for a certain period of time. After an employee’s contract with the company has expired, some of those companies may refuse to sign a new one. Instead, it will be automatically renewed as long as the individual is actively employed. In this case, the employer’s failure to renew the contract might result in compensation requirements.
The legislation mandates the use of employment contracts. Terms need clarification.
Short-term or long-term – An Employer of Record China Approach
Definitions of Probationary Period Lengths
Details about your employment, such as your name, length of contract, salary, paid time off, and retirement package.
Aside from the required Chinese language, an English translation of the contract is also customary. In the event of a legal challenge, only the Chinese version will be accepted.
The Standard Working Hours System is widely used by Chinese workers. The standard workweek for a full-time employee is 40 hours, divided into eight-hour shifts. Monday through Friday is the standard workweek. Some businesses use something called a “flexible working hours system,” which implies that employees may come in anytime between 8:30 and 10:30 in the morning and leave between 5:30 and 7:30 in the evening.
Only two things deviate from this system:
Extensive coverage of time spent at work outside of normal business hours
Abnormally sporadic schedule
Only when all requirements of the applicable local legislation are satisfied may an employee be assigned to work under any of the alternative systems.
The Chinese system of irregular working hours is analogous to the salary system in the United States. Workers under this arrangement are not guaranteed to be excused from receiving any overtime compensation, however.
An employer may typically ask an employee to work longer hours without overtime compensation under the all-encompassing working hours of non-standard working hours scheme. However, within a given “comprehensive computation” period (for example, a quarter), the sum of all employees’ hours worked does not exceed the statutory cap.
A handbook for workers is not something that must be provided by employers. However, providing one is advisable in case a legal disagreement develops. The onus of evidence is on the company or organization. Workplace regulations must be registered by both employers and workers.
Workers in China may retire at the age of 60 if they are male, 55 if they are white collar, and 50 if they are blue collar.
Recently, proposals have been made to progressively increase the retirement age. According to a newly suggested five-year strategy, the following terms will be in effect:
Female workers born in 1965 will have to wait an extra year to start collecting their pension. Those who were born in 1966 will be held back for another year, and so on. Pension eligibility for female workers and residents will rise to 65 by 2030, while for male workers born in 1960, the age of eligibility will be pushed back by six months. Male workers and residents will be eligible for pensions beginning at age 65 by the year 2030.
Rules for Paying Taxes and Contributing to Social Security with a Global PEO
Any director who is also employed at the same time is often treated for tax purposes as a resident worker in the jurisdiction in which the business is located.
Most perks (cell phone allowance, travel allowance, etc.) are taxed at the employee’s cost.
Taxes are not due on legitimate fapiao (invoice) reimbursements (e.g. for business travel).
Paying Income Taxes (National Tax)
Starting at 3% for taxable monthly revenues of RMB 5,000 and up to 45% for taxable monthly incomes of RMB 85,000, the Individual Income Tax (IIT) is collected at a progressive rate. Companies deduct the IIT from their workers’ monthly paychecks and remit the money to the Chinese government on their behalf. Monthly, this Internal Revenue Service installment is paid out of the withheld IIT.
Monthly IIT filings and withholding are the responsibility of the employer. Through the country’s e-tax system, the IIT owed will be taken straight out of the business’s bank account.
IIT payments for the year are due between March 31 and June 30 of the following year. Staff members with a wide variety of revenue streams are eligible for the yearly settlement. Anyone who took a pause in their professional lives and so did not take advantage of the full personal deduction is also eligible for this extension.
Individual residents who receive a one-time yearly bonus or 13th month pay before December 1, 2023 will be eligible for the preferred apportionment tax rate.
In China, neither foreign nationals nor locals are subject to any kind of taxation.
