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Labor Contracts

Foreign-invested enterprises are entitled to determine their institutional settings and needs for personnel and to recruit employees in China on their own or entrust recruitment to professional staffing agencies. Foreign-invested enterprises shall sign a written Labor Contract with any employed personnel. The labor contract must include the following items: the term of the labor contract, the content and place of work, working hours, rest and holidays, labor remuneration, social insurance, labor protection, working conditions, protections against occupational hazards, etc. In addition to the essential content listed above, the employer and the employee are also entitled to include the probation period, training for the employee, the employee laborer’s obligation of confidentiality, supplementary insurance and welfare treatment, and other matters on the labor contract.

Labor contracts are divided into fixed-term contracts, open-ended contracts, and those whose terms are based on the completion of certain tasks. For labor contracts whose terms exceed three months but are less than one year, the probation period is not to exceed one month; for labor contracts whose terms are more than one year but less than three years, the probation period is not to exceed two months; for labor contracts with a fixed term of no less than three years or labor contracts with no fixed term, the probation period is not to exceed six months.

In addition, employers are entitled to dispatch labor for temporary, auxiliary, or substitutable posts of duty.

Working Hours

On the whole, China adopts a system of eight-hour workdays and 40-hour work weeks. If the system cannot be implemented due to limitations resulting from the nature of the work or the characteristics of production, the implementation of other systems is allowed in accordance with the relevant provisions of China; that is, systems of irregular working hours and comprehensive working hour calculation are permissible.

Employers shall ensure that their employed laborers have at least one day off every week. To meet the needs of production and operation, employers are allowed to extend their employees’ working hours following consultation with the trade union and with the employee. The extended working time is generally not to exceed one hour per day; if employers need to further extend working hours under special circumstances, the extended working time shall not exceed three hours per day or 36 hours per month in total; furthermore, extended working hours are only allowable on the condition that they do no harm to the health of employees. Laborers are entitled to overtime pay. Overtime pay is equivalent to at least 150% of normal salary on weekdays, 200% of normal salary on rest days (usually Saturdays and Sundays), and 300% on statutory holidays.

Holidays and Vacations

China has 11 statutory paid holidays every year. They are: New Year's Day (one day), Spring Festival (three days), Tomb-Sweeping Day (one day), Labor Day (one day), Dragon Boat Festival (one day), Mid-Autumn Festival (one day), and National Day (three days).

Laborers who have worked continuously for at least 12 months are entitled to paid annual leave. Statutory minimum annual leave for laborers is as follows: if a laborer has worked for one year but less than 10 years in total, he/she is entitled to five days’ annual leave; if one has worked for between 10 and 20 years, he/she is entitled to 10 days’ annual leave; if one has worked for a total of 20 years or longer, he/she is entitled to 15 days’ annual leave.

Social Insurance

China's social insurance includes basic endowment insurance, basic medical insurance, employment injury insurance, unemployment insurance, and maternity insurance. Foreign-invested enterprises and their employees shall pay social insurance premiums in accordance with the law to ensure that their employees can receive material assistance from the government and society in cases of old age, illness, work injury, unemployment, and childbirth.

When foreign-invested enterprises recruit foreign nationals, candidates shall be approved by the competent authority of the relevant industry and the labor administration department. They must also go through relevant formalities, including for the work permit, according to the Regulations on the Management of Employment of Foreigners in China. Foreign nationals employed in China shall be covered by China's social insurance in accordance with the law.

Termination of Labor Contracts and Economic Compensation

If the employer and the employee reach an agreement through consultation, their labor contract may be terminated. In absence of such an agreement, the laborer is entitled to unilaterally terminate the labor contract under the following conditions/circumstances: when notifying the employer in writing 30 days in advance; when notifying the employer three days in advance during the probation period; due to some fault of the employer (e.g. failing to pay the employee remuneration on time and/or in full, failing to pay social insurance premiums for the employee in accordance with the law, etc.). The unilateral termination of the labor contract by the employer is subject to stricter conditions and must meet certain legal prerequisites, for example, if the laborer does not meet the conditions of employment during the probation period, due to some major fault of the laborer, if the laborer is laid off due to economic reasons of the employer, etc.

In most cases of labor contract termination, the employer must compensate the laborer economically. Economic compensation shall be paid to the laborer based on the number of years the laborer has worked for the employer in the amount of one month’s salary per year employed. If the laborer has been employed for less than a year but more than six months, the employer shall still pay the laborer one month of salary; if the laborer has been employed for less than six months, the employer shall pay the laborer the equivalent of a half of month’s salary.

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