Spotlight on China

China, officially the People’s Republic of China, is the world’s largest economy in terms of purchasing power parity (PPP) and remains one of the fastest-growing major economies. China’s economy underwent significant reforms and opened up in 1978, which has resulted in an impressive average GDP growth rate of over 9% and lifted more than 800 million people out of poverty. The country continues to make significant strides in economic development, infrastructure and technological innovation, cementing its reputation as an attractive destination for multinational companies (MNCs) looking to expand their business operations.

Why China?

  • Economic growth: China has sustained high economic growth rates for many years, with a projected growth rate of 5% in upcoming years, according to the International Monetary Fund.
  • Cost-competitive labor force: China has a large and diverse workforce, with a population of over 1.4 billion people. Additionally, the country is recognized as a ‘high proficiency’ according to the EF English Proficiency Index, which makes it easier for MNCs to communicate and operate in China.
  • Highly diversified and advancing economy: Known as ‘the world’s factory,’ China is the largest producer of a variety of goods, from electronics to textiles, machinery and more.
  • Opportunities abound: There are still untapped opportunities for investment in emerging sectors such as renewable energy, biotechnology and artificial intelligence (AI).

What is the main source of employment law in China?

China’s Employment Contract Law is the primary legislation governing the relationship between employers and employees in the country. This law applies to both foreign and local employees, as well as to Chinese companies and Wholly Foreign-Owned Enterprises (WFOEs). The main objective of this law is to promote harmonious employment relationships while safeguarding the rights of the country’s workforce.

Are written contracts required in China?

A written contract is mandatory in China. Failure to comply with this requirement can expose employers to several risks. For instance, if an employer fails to provide a written contract within a month of an employee’s commencement of work, the employer is required to compensate the employee with double their monthly wage.

Furthermore, if an employer operates for over a year without a written employment contract, the employee will be considered to have entered into an open-term or permanent employment contract with the employer. This means the employer may be obligated to retain the employee until his or her retirement. Additionally, violating the regulations on written employment contracts may result in fines imposed by the Chinese labor authority.

It is important to note there is no concept of “employment at will” in China. Therefore, terminating an employment contract without proper cause will trigger severance pay for the employee.

How does the renewal of an employment contract work in China?

The mandatory written contract rule also applies to renewal periods. In practice, most employers often sign a fixed-term employment contract with employees. Some of these employers may not execute a new contract once the previous employment contract expires. Instead, it will be renewed automatically by the employee’s continuous service. In this situation, a contract that is not renewed may also trigger compensation obligations on the part of the employer.

What details should be included in a Chinese employment contract?

According to Chinese law, the following terms must be defined.

  • Duration (fixed-term or open-ended)
  • Lengths of probation periods
  • Name, position, term, benefits, social security, etc.

Do employment contracts need to be written in Chinese?

The contract must be written in Chinese but it is common to have an English translation as well. Notably, labor courts will only rely on the Chinese version in the case of a dispute.

What are the rules regarding working hours in China?

In China, the majority of employees work under the Standard Working Hours System, which limits full-time employees to eight hours a day and 40 hours a week. The workweek typically runs from Monday through Friday. However, some companies apply the Flexible Working Hours System, where start and end times can vary from 8:30 to 10:30 a.m. and from 5:30 to 7:30 p.m., respectively.

There are two exceptions to the Standard Working Hours System:

  • Comprehensive working hours of non-standard working hours
  • Irregular working hours

An employee can only work under either of these alternate systems if all local laws and conditions are met.

The irregular working hours scheme in China is similar to the salaried employee system in the United States. However, employees under this system may not be exempt from overtime pay.

Under the comprehensive working hours of non-standard working hours scheme, an employer may require employees to work longer hours without overtime pay as long as the average working hours during a specific “comprehensive calculation” period (such as a quarter) do not exceed the legal maximum on total working hours for that period.

How do probation periods work?

By law, the following probation periods are set in China:

  • For employment terms of more than three months but less than one year: probation of no more than one month
  • For employment terms of one year or more but less than three years: the probation period must not exceed two months
  • For employment terms of three years or more or for an open-term employment arrangement: the probation period cannot be longer than six months.

Each employee can have only one probation period with the same employer.

What do MNCs need to know about severance pay?

Employers in China are obligated to provide severance pay, which is calculated as one month’s salary for each year of service. If an employee has worked for more than six months but less than a year, the severance pay is also calculated as one year. For less than six months of service, the employer is required to pay half a month’s salary as severance, except in cases where the employee did not meet the recruitment conditions during the probation period, violated company rules or committed a civil crime. In such cases, the employer must provide clear evidence to support their decision.

If an employer wants to part ways with an employee without cause, they need to provide a 30-day written notice in advance and obtain mutual consent. In this case, the employer may pay one month’s salary in addition to the severance pay instead of observing the 30-day notice period.

Are bonuses common?

It is customary for many employers to pay a 13th month of salary before the Chinese New Year, but this bonus is not mandatory. Employers should clearly specify the conditions for earning this bonus in writing. If it is included in the employment contract, the employer must pay it.

Foreign companies doing business in China may choose to offer a discretionary annual bonus instead of a 13th month of salary. If an employer decides to implement a bonus system, it should be clearly defined in the employment contract. For example, the employer may choose to offer a lower salary with an annual bonus, paid early the following year. This can benefit the employee by deferring their individual income tax payments without adding any cost to the employer.

What makes hiring through an Employer of Record (EOR) an attractive option in China?

China’s vast, rapidly growing marketplace presents opportunities for MNCs to expand their business and tap into the cost-effective, talented workforce. However, the country’s complex labor laws and regulations can make it challenging for employers to manage a local workforce while maintaining compliance. One misstep can result in reputational damage, fines or other sanctions. Notably, HR requirements vary across provinces in China as well, which can make managing a local headcount even more challenging.

The EOR hiring model is an agile and cost-effective solution for MNCs to manage their workforce in China without the need to establish a legal entity. By partnering with an EOR provider like GoGlobal, MNCs can avoid the lengthy and costly process of setting up a company and instead rely on local experts to manage payroll, benefits, employment risks and HR processes. The EOR model can be either a temporary bridge or a permanent solution, depending on the company’s local headcount and needs.

How does GoGlobal’s hiring process work?

At GoGlobal, we prioritize a transparent culture and a positive worker experience. Before onboarding your new worker, our local team in China will arrange a meeting with him or her to go over the details of the EOR arrangement. Once onboarded, those same team members will serve as the point of contact for the worker. If any issues arise related to payroll, benefits or taxation, we’re ready to take action and provide a solution.

What makes the GoGlobal experience different in China?

Unlike other providers that rely solely on technology, we combine cutting-edge technology with a people-first approach. Our global mindset is complemented by a dedicated team of local experts in every market we serve. In China, our local team has deep knowledge of the country’s unique regulatory environment and cultural customs. We offer services in the worker’s time zone and in English, Mandarin or Cantonese. It’s our job to ensure a positive hiring experience for both our clients and the workers we directly employ on their behalf.

GoGlobal is now in Hangzhou, as we continue to grow our local entities in China to five. Other locations include Guangzhou, Shenzhen, Beijing and Shanghai, which means companies can access China’s very best and most diverse talent pool.

By partnering with us in China, our clients can focus on their core business-growth activities and seize emerging market opportunities – all while knowing their local workforce is in good hands.

Find additional details on benefits and hiring in China, or contact us to talk with an international HR expert.