27th March 2017
Knowing the labour laws of any country is essential for conducting business with or within that country. China is no exception. The labour laws are written to protect employee's rights. This is not to imply that businesses have no power over decisions regarding their employees, but rather to ensure that employees in China are treated fairly. Overall labour laws are quite comprehensive in China and not that different from those in many European countries. MSI's Chinese accounting firm LehmanBrown Limited explains further.
Set-up of the Contract and Employment Rules
A contract is mandatory and it should be finalised the latest by the end of the employee’s first working month. If not the employer will have to pay double salary up until when a contract is put in place, and if a year passes without a contract from the employee’s initial start date, the company and employee move to an open-ended labour contract thereafter with double pay.
As well as recognising the rules of the contract, the business must recognise that the People’s Republic of China (PRC) labour laws do not outline specific situations that might be regarded as a breach of company policy.
Therefore it is advisable for companies to put in place a Staff Handbook (company policies and procedures manual). In the handbook it should describe policies specific to the company; hours of commitment expected, employee benefits, and other such details that should be clarified to the employees but are not stated in the contract. Employees should sign every page of the handbook to confirm that they have read through it before signing. Abnormal working arrangements should firstly be agreed with the Labour Bureau.
Contracts can be invalid if there is evidence that a contract was not agreed to voluntarily, or was procured by fraud or under duress.
As an employer the law allows contracts to be for a set period (see below). If a company decides to revise certain rules relating to the terms of employment, discussions should be held both with the employee (representatives of employee may take place of employee) and with the labour union if there is one before making the decision to revise.
Hiring as a Foreign Company
A Representative Office in China cannot directly employ a Chinese national; instead, it must recruit through a labour service organization who will hire employees for the representative office on the company’s behalf.
Foreigners are employed as Representatives of a Representative Office and are limited to only four. Foreign Invested Enterprises (FIEs) which are Chinese limited companies can hire employees directly. Foreigners working in China will require the proper work visas and permits are obtained.
Term of Contract
There are several different types of terms that can be included in contracts. Contracts may be set for a fixed term or an open-term agreement. An employee who has worked for a company for over 10 years is entitled to an open-term contract.
Read more about China labour law: Hiring & firing in China
LehmanBrown is a China-focused accounting, taxation and business advisory firm, operating dedicated offices in Beijing, Shanghai and Shenzhen with an extensive affiliate network providing service throughout China.
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