💼 China Labor Law — Essential Guide for Foreign Employers

1. Employment Contract Requirements

Under Chinese labor law, all employees must have a written employment contract. Key requirements include:

• Written form: Oral contracts are not recognized. The contract must be in writing within 30 days of employment commencement.
• Language: The contract should be in Chinese. Bilingual contracts (Chinese-English) are common but the Chinese version prevails in disputes.
• Mandatory clauses: Party information, contract period, job description, work location, working hours, compensation, social insurance, and termination conditions.
• Probation period: Maximum 1 month for contracts under 1 year; 2 months for 1-3 year contracts; 6 months for contracts over 3 years or indefinite term.
• Contract types: Fixed-term (definite period), open-ended (indefinite), or project-based.
• Open-ended contracts: After two consecutive fixed-term contracts, or 10 years of continuous service, the employee is entitled to an open-ended contract.

2. Social Insurance and Housing Fund

Employers in China must contribute to the "Five Insurances and One Housing Fund" (五险一金):

• Pension insurance: Employer contributes ~16% of salary, employee ~8%
• Medical insurance: Employer contributes ~6-10%, employee ~2%
• Unemployment insurance: Employer contributes ~0.5-1%, employee ~0.5%
• Work injury insurance: Employer pays 0.2-1.9% (varies by industry)
• Maternity insurance: Employer pays ~0.8%
• Housing fund: Employer contributes 5-12%, employee matches at the same rate

Contributions are based on the employee's actual salary, subject to minimum and maximum caps set by each city.

3. Working Hours, Overtime, and Leave

Standard working hours

The standard workweek is 40 hours (8 hours/day, 5 days/week).

Overtime compensation rates:

• Weekday overtime: 150% of regular wage
• Weekend overtime (no compensatory leave): 200% of regular wage
• Public holiday overtime: 300% of regular wage

Statutory leave entitlements:

• Annual leave: 5 days (1-10 years service), 10 days (10-20 years), 15 days (20+ years)
• Public holidays: 11 statutory public holidays per year
• Sick leave: Paid at 60-100% of salary depending on length of service
• Maternity leave: 98 days minimum (local regulations may add more, e.g., 128-178 days in many cities)
• Paternity leave: 7-30 days depending on the province
• Marriage leave: 3 days minimum
• Family bereavement leave: 1-3 days

4. Termination Rules and Severance Pay

Types of termination:

• Resignation by employee: 30 days written notice (during probation: 3 days). No severance required.
• Mutual agreement: Severance is required (see below).
• Employer-initiated (with cause): No severance for serious misconduct, criminal liability, or material breach of company rules.
• Employer-initiated (without cause): Severance is required. Includes layoffs, restructuring, medical incapacity, or incompetence after training.
• Illegal termination: Double severance (2N) if the termination is found to be unlawful.

Severance pay calculation (经济补偿金):

Severance = 1 month's salary × number of full years of service

• "N" = the number of complete years of service (partial years are pro-rated)
• "N+1" = N months severance + 1 month's salary in lieu of notice (for certain no-fault terminations)
• "2N" = double severance (for illegal termination ordered by court)
• Monthly salary cap: 3x the local average monthly wage (for high earners)
• Severance period cap: 12 years maximum (for high earners only)

5. Trade Unions and Collective Bargaining

Trade unions (labor unions) are present in most Chinese companies. Key points for foreign employers:

• Unions are recognized under Chinese law and exist in most enterprises
• The All-China Federation of Trade Unions (ACFTU) is the sole national trade union organization
• Union dues: 2% of total payroll (employer contribution)
• Unions have consultation rights on matters affecting employee interests
• Collective contracts can be negotiated but are less common than individual contracts

6. Non-Compete and Confidentiality

Non-compete clauses: Enforceable in China but with restrictions:

• Limited to senior management, technical staff, and others with access to trade secrets
• Maximum duration: 2 years after termination
• Employer must pay monthly compensation (typically 30-60% of average monthly salary)
• Scope must be reasonable (industry, geography, duration)

Confidentiality clauses: Broadly enforceable and do not require additional compensation.

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