Introduction
China’s economic growth rate is projected to rebound to 4.6% in 2023 and 4.1% in 2024. This growth rate is good news for all global companies seeking to expand operations in China. But before you go ahead with your expansion plans and book the next Beijing flight, you must first understand China’s labor laws.
Labor laws in China, like in other countries, seek to protect employees and employers, so they operate in a mutually beneficial way without one entity exploiting the other. However, Chinese labor laws are complex and fast-changing, and you can quickly get stuck in a legal mess if you don’t grasp pertinent employment laws well.
But keeping up with China’s labor laws and legal processes, such as registering your company, is time-intensive. Navigating China’s complex legal framework while sourcing employees and setting up other logistical aspects singlehandedly can be an uphill task.
That’s why most global employers partner with a global employment and payroll platform like Skuad to help them hire, pay, and manage employees in China and other countries without dealing with the legal complexities.
As you consider how Skuad can help you build your global team in China and other countries, let’s discuss the most crucial Chinese labor laws you must know.
Labor Laws of the People’s Republic of China
For starters, you must register your company in China before you’re allowed to hire employees. You can register your company as a wholly foreign-owned entity (WFOE) or a joint venture. However, both processes are time-intensive and take a couple of months to complete.
Completing a WFOE registration is even more protracted because you have to cooperate with these three local authorities:
- Ministry of Commerce (MOC)
- National Development and Reform Commission (NDRC)
- State Administration for Industry and Commerce (SAIC)
Partnering with a global HR platform is the fastest and most convenient way to set up your company in China without limitations. But whichever way you use, you must abide by the following labor laws in China:
Workers' Rights
The Labor Contract Law of the People’s Republic of China, enacted in 2008, details employees’ rights and employers’ obligations and is one of the two primary sources of China labor laws. The other source is the 1995 Labor Law of the People’s Republic of China. The labor laws outline provisions governing:
Working Hours, Overtime, and Work Conditions
- China’s legal work week is 40 hours a week, i.e., eight hours per day. The average working time is capped at 44 hours a week.
- If you agree with your workers or their pertinent trade union, you can extend work time by 1-3 hours per day and 36 hours per month.
- Overtime work is compensated at 1.5 times the worker’s typical wage.
- Weekend overtime is paid twice the employee’s regular working wage.
- Work during a Chinese national holiday is compensated at three times the worker’s working wage.
- Employers must provide a clean and safe workplace, satisfying all relevant laws governing workplace safety and hygiene.
Annual Leave in China
- Workers employed for more than a year but less than ten years are entitled to five days of annual paid leave.
- Workers employed for 10 to 20 years are entitled to 10 days of annual paid leave.
- Workers employed for more than 20 years are entitled to 15 days of annual paid leave.
- Mandatory maternity leave is 98 days but may increase depending on the region. In some provinces, it’s 190 days.
- Mandatory paternity leave is 14 days but may vary regionally.
Social Contribution
Employers in China must make social contributions to the following schemes:
- Medical expenses
- Pension
- Maternity benefits
- Unemployment
- Work-related incidents.
Employment Contracts in China
There are three employment contracts under China labor laws:
Fixed-Term Labor Contracts
These are the most common labor contracts detailing the term limit of employment. They state whether a worker is engaged on a full-time or part-time contract. Typically, a part-time contract has the following terms:
- Four work hours per day or 20 hours per week
- Wages paid by the hour
- Zero severance pay
- Insurance for only work-related incidents
These are the full-time contract terms:
- Eight work hours per day or 40 hours a week
- Wages paid monthly
- Social security benefits included
- Severance pay in case of termination
Open-Ended Contracts
These contracts don’t provide a term limit for employment. Employers and employees can terminate their work relationship anytime by mutual agreement.
Project-Based Contract
The employment time is determined by how long it takes to complete a project. The contract terminates once the project is completed.
Probation time is an equally important aspect of employment contracts. China labor law states that the probation duration should be agreed upon by employers and workers but must not exceed six months, and the employee must earn a salary.
No matter what contract you offer your employees in China, the contract terms must adhere to the mandatory employee benefits under Chinese labor law, like paid maternity and paternity leave.
Minimum Wage
There’s no fixed minimum wage rate for the entire country of China. Instead, provincial governments set and review their minimum wage every two years, subject to the prevailing economic development level and the cost of living in their areas.
This means one province can have different minimum wage rates across its geographical areas. Typically, the minimum wage is higher in developed cities and lower in rural areas.
In early 2022, Shanghai recorded the highest monthly minimum wage at RMB 2,590, equivalent to $400 per month, while Anhui had the lowest monthly minimum wage at RMB 1,340, equal to $212 per month. Beijing had the highest hourly minimum wage rate at RMB 25.3, equaling $3.9 per hour, while Yunnan had the lowest hourly wage at RMB 13, equal to $1.85 per hour.
Note that the monthly minimum wage rates apply to full-time workers, while the hourly minimum wage rates apply to part-time workers in China.
Employee Termination in China
China labor law protects workers to the full extent, making employment termination a long, drawn-out process. It’s even harder to terminate an employee without severance pay unless the worker severely violated employment terms. Legally, you can only dismiss an employee under the following grounds:
- Employee performance below the expected standards during the probationary period
- Gross misconduct by an employee
- Severe employee negligence that causes you damages
- Employee involvement in criminal activities outside work
- Employee's use of deception, coercion, or position to force you into offering an employment contract
- Severe professional incompetence, even after proper training or job rotation
- If you declare bankruptcy, lose your employer’s license, are ordered to shut down by the government, or undergo voluntary liquidation
- If an employee is unable to resume original duties after suffering injury and exhausting their medical treatment leave
- If an employee dies or the court declares them missing or dead
- When an employee starts receiving a retirement pension
If the above conditions don’t apply, you can only terminate employment once the agreed contract term expires or if the employee initiates termination talks and consents to dismissal terms.
Labor Unions in China
All-China Federation of Trade Unions (ACFTU) is China’s only government-sanctioned trade union. Any other form of labor union in China is under ACFTU authority. The labor law in China empowers labor unions to negotiate, mediate, and protect employees’ rights and interests.
Too Many Details to Process? Leave the Hard Work to Skuad
It's understandable to feel overwhelmed by the complexity of China labor laws. China goes to great lengths to protect workers from exploitation and discrimination and is big on job security. Thus, compliance involves a lot of paperwork and due diligence before, during, and after hiring employees.
When you’re new to China and the country’s labor laws, navigating these legal complexities can be time and resource-intensive, thereby delaying your operation's kickoff. But with Skuad in your corner, you can rest easy and leave all the legal and human resource operations to us.
This way, you can focus on enhancing your company’s core activities, like product innovation and growth strategy, putting you in a prime position to capitalize on the world’s second-largest consumer market.
Schedule a demo today, and see how Skuad can expedite and improve your company’s operations in China.
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