Labor Law

One of the main reasons to hire a PEO (also known as a "China Employment Representative" or "China EOR") in China is to ensure full compliance with China's labor laws. Below we will explain how Chinese PEOs ensure compliance in the following areas:

01. Comply with China’s employment contract requirements

02. Comply with working hours, national holiday regulations and Chinese social security requirements.

Employment Contract Type

China requires all PEOs to provide employment contracts that comply with regulations and specify employees’ compensation, benefits and termination conditions. Chinese employment contracts should specify wages and any additional compensation to be paid in RMB.

When you work with a PEO and employment representative in China, a team of local experts can help you draft strong employment contracts that comply with local regulations. A PEO in China can provide your company with the following three different forms of labor contracts.

Project Based

Fixed Term

Indefinite

China Working Hours

Chinese standards include a five-day work week, no more than 8 hours a day, and no more than 44 hours a week. The company typically works on an 8am to 6pm schedule, with a one-hour lunch break. China has strict restrictions on overtime. Overtime hours shall not exceed 36 hours per month unless required by emergency circumstances. China EOR ensures that all employment contracts reflect these statutory restrictions.

Overtime must be compensated as follows:

• For normal working days: 150% of the standard hourly rate (also known as the "half hour");
• Rest day: 200% of the standard hourly rate, or a day off (also known as "double time or a rest day");
• Legal holidays: 300% of the standard hourly wage (also known as "triple time").          

Holiday Policy

Paid Time Off    

The amount of paid time off an employee is eligible for depends on how long they have been employed by their current company:

• Less than 1 year of employment  | No leave entitlement
• 1-10 years of work | 5 days of paid vacation per year
• 10-20 years of work experience | 10 days of paid vacation per year
• 20+ years of experience | 15 days of paid vacation per year

Sick Leave

Employees are entitled to three to 24 months of paid leave for medical illness and treatment. The exact length of leave will depend on how long the employee has been with the company. Sick leave pay shall not be less than 80% of the local minimum wage.

Workers' compensation for injuries or illnesses sustained on the job covers an employee's statutory right to take up to one year's leave at full pay to receive medical treatment.

Take a look at the chart below to learn more specific information about China’s sick leave standards:

Sick leave less than 6 months

(percentage of regular wages owed to employee)

• Less than 1 year of employment  - no holiday entitlement
• 1-10 years of service - 5 days of paid vacation per year
• 10-20 years of work - 10 days of paid vacation per year
• Working experience of more than 20 years - 15 days of paid vacation per year

Sick leave for more than 6 months

• Working time less than 1 year - 40%
• Work for 1-3 years - 50%
• Working for more than 3 years - 60%

In order for employees to receive the full wages they are entitled to, workers must provide their employers with a valid medical certificate from a certified physician.

Maternity Leave

China provides 98 days of paid maternity leave to all female employees. They can choose to take leave starting 15 days before delivery. Depending on the city, women over 24 can usually take an additional 30 days of "late maternity leave."

Women usually receive full pay during their leave, which can be paid through social insurance or their employer. China has legal protections against firing women while they are pregnant or breastfeeding.

Legal provisions for paternity leave for fathers vary from region to region, but usually do not exceed 14 days. Men in Shanghai usually get 3 days of paternity leave, while men in Shenzhen usually get 10 days of paternity leave.

Employment representatives in China will ensure that all maternity leave obligations are fully complied with.

Annual Leave

In addition to standard Chinese compensation laws, there are many guaranteed benefits and supplemental options available to employees. China has seven national statutory holidays, and regulations require employees to take paid leave during each holiday. While this is the legal minimum, many employers choose to offer employees greater flexibility during holidays like Chinese New Year.

In addition to national statutory holidays, annual leave is another important employee benefit in China. An employee is entitled to a certain amount of annual leave each year based on how long they have been with the organization. In China, annual leave follows the following standards:

• There is no mandatory annual leave for employees who have worked for the company for less than one year.
• Employees who have worked for the company for 1 to 10 years are entitled to 5 days of annual leave each year.
• Employees who have worked for the company for 10 to 20 years are entitled to 10 days of annual leave each year.
• If employees have worked for an organization for at least 20 years, they are entitled to 15 days of annual leave per year.

For foreign employers looking to hire mid-level or senior managers, more vacation time is often offered. In fact, such offers often come with up to four weeks of vacation per year.

Termination and Severance in China

To fire an employee in China, there must be good grounds for the dismissal and a clearly documented grievance leading to the dismissal. The initial employment contract must contain an agreed trial period, which can be up to six months.

The specific time requirements for filing a notice of termination vary by industry. Any employer who wants to terminate an employee for a term ranging from one month to two years must give at least one week's notice. Employees who have been with the company for more than two years are required to give one week's notice each year upon completion of service, up to a maximum of 12 weeks' notice.

Employers may choose to include "pay in lieu of notice" in employee contracts, allowing the employer to pay employees wages instead of providing them with notice of termination. This is common in Chinese business practices.

For companies expanding overseas for the first time, dealing with employee layoffs and dealing with severance packages can be complicated.

Setting up a PEO in China can reduce risks for foreign companies and provide guidance during the process.

China’s Mandatory Social Security Contributions

Through China’s “five insurances and one housing fund” practice, we provide statutory benefits to Chinese employees. These include health insurance, pensions, workers' compensation, maternity benefits and unemployment insurance. However, additional benefits such as housing depend on the employee's individual income tax bracket.

These benefits are paid for by social contributions made by both employees and employers. More on this below.

Social Security for Foreigners in China

Different rules apply to social security contributions for foreigners and Chinese citizens.

Foreign employees in Shanghai are temporarily not required to pay China’s foreigner social insurance. In other Chinese cities, foreigners must pay full Chinese social insurance.

A PEO in China will ensure that all employees make the correct contributions.

Personal Income Tax

Since January 1, 2019, China has adjusted tax brackets and changed residency rules to reduce the tax burden on low-income earners, and added special additional deductions for resident taxpayers.

Personal income tax is calculated annually. China EOR will automatically withhold taxes on a monthly basis based on accumulated income and deductions. Individuals may need to claim additional taxes or tax returns through the annual settlement process.

Health Insurance

Standard health and pension insurance is provided through the state system, but supplementary health insurance may also be offered to employees.

Salary and Benefits