For foreign investors who want to hire employee in China, preparing a localize comprehensive China labor contract is extreme important to ensure their hiring and employment in China is compliance, and reduce the labor dispute. Given the complexities of China’s labor laws, foreign investors can find it difficult to comprehend how to draft a good employment contract in China.
This article gives you a comprehensive guide on drafting a labor contract in China.
Who can sign the China labor contract with the employee?
Only registered company in China can sign the labor contract with employees working for you in China. If foreign investors have no legal entity to sign with the local employees in China. Foreign investor can engage China PEO and employee outsourcing service through the PEO agency in China to legally hire employee in China. For more find more details on how to hire employees in China without a legal entity.
Is it necessary sign a written employment contract with my employees in China?
Yes. Even e-labor contract is also working now. However, we highly suggest to keep a written employment contract. Especially for foreign employees working in China, written China labor contract is required when applying the work visa. Both employer and employee shall keep an original copy of the employment contract.
Employment Contract Types in China
According to Article 18 and Article 19 of “Regulations on the Implementation of the Labor Contract Law of the People’s Republic of China”, (Labor Contract Law of the People’s Republic of China (www.gov.cn))there are three types of China labor contract depending on how the term is defined.
1. Fixed-term labor contract
It is point to the China labor contract that both employer and employee agree on the time of contract termination. An employer and employee may conclude a fixed term China labor contract upon reaching a consensus through consultation.
2. Open-ended labor contract
After two times of fixed-term contracts renewal, the employer is obliged to offer an open-ended contract with employee on the third time when renew the employment contract with employee.
3. Job Contract – Employment contract for the duration of a project or task
Also named project labor contract, namely does not have fixed period, in order to complete a certain task for the term of labor contract, both employer and employee agree on the completion of a certain project or task as the term of the contract of labor contract.
If employee is hired under China labor dispatch mode through an employment agency in China, the employment agency in China shall sign a dispatched labor contract with the employee.
Mandatory clauses when drafting a China labor contract
Article 19 of the Labor Law(Labour Law of the People’s Republic of China – (mofcom.gov.cn)) stipulates that the legal form of labor contract is written form, and there are 7 necessary clauses:
1. Basic information
Company full name, address, name of the legal representative or a senior manager.
Employee’s full name, as well as a valid address and identification number;
Employee on-boarding date;
2. Term of a labor contract
As introduced above, there are three types of labor contract term employee can choose when hiring employee in China base on each employee’s actual work condition.
3. Contents of work
Employer shall mention employee’s job title and job descriptions in the China labor contract
4. Labor protection and working conditions.
Both employee and employer shall agree on the working hours, holidays, annual leaves, working location. Employer shall base on different job duties arrange different work conditions to ensure employees’ work safety.
5. Employee remuneration & Compensation
This necessary clause may stipulate salary in China, overtime salary, bonus, allowance, commission, amount of subsidy, statutory benefits contribution, payment time and payment method, annual leaves, etc.
6. Company disciplines & regulations
This clause shall include the rules and regulations formulated by the employer like public holidays and leaves, which may be briefly agreed upon by combing the internal rules and regulations into employee handbook and attached as an appendix to the employment contract.
7. Conditions for the termination of a labor contract
This requirement is usually in open-ended employment contracts, which do not have a time limit for termination.
8. Responsibility for the violation of a labor contract.
There are two forms of liability for breach of contract. The first is that one party’s compensation for breach of contract causes economic loss to the other party, that is, the way of compensation for loss. The second is to agree on the calculation method of liquidated damages. When adopting the liquidated damages method, attention should be paid to the specific amount agreed according to the bearing capacity of one party of employees, so as to avoid the situation of obvious unfairness.
Apart from the mandatory clauses listed above, other terms in a labor contract also suggested to include in the labor contract.
Recommended clauses when drafting employee contract in China.
Probation period and requirements for passing the probation period.
Other benefits like housing, commercial insurance, expense claims.
What will happen if employer fail to sign written employment contract with employee on-time?
Where employer fails to conclude a written China labor contract with employee within one month but less than one year from the date of employment, employer shall compensate employee twice the monthly salary.
If employer does not conclude a written labor contract with the employee after one year from the date of employment, it shall be deemed that the employer and employee have concluded a permanent employment contract.
Probation Period in China
Employer can set probation period in employment contract in China. Employees’ salary during probationary period cannot lower than 80% of the salary after the probation period. Below are the probation period employer can set base on employee’s employment contract term agreed in the employment contract.
Employer can only set one time probation period for each employee. For the employees who are under a project-based employment contract or the labor contract term that is less than three months, probation period cannot be set.
Notice Period for Terminating the Employment Contract
In China, if an employee wishes to resign from his or her job, he or she must send a 30-day written notice to the employer. If the employee is on probation, only three days’ notice is needed to give the employer notice of the resignation.
In certain cases, if employer can unilaterally terminate an employment contract with employee, employer shall notice employee 30 days’ written notice in advance for such termination or giving employee one month’s salary in lieu of notice.
China Labor Contract Amendment
The contents of the China labor contract can be modified in writing after both employer and employee agreed and reached a consensus through mutual negotiation.
Other Tips of Doing Business in China
Doing business in China for foreign companies is not easy because of the local policy complexity. It’s very important for foreign companies to learn different information of doing business in China. Here are some of the good websites which are very useful for foreign companies to use when working and living in China.
China Labor Contract Template
If you want to get a China labor contract template, please send email to email@example.com.
Frequently asked questions for payroll and hiring employees in China.
No, you do not need.
If you don’t have a company in China, you can hire employees through PEO service through the employment agency in China.
a) Hire employee through the PEO/employment service.
If you don’t have a legal entity in China, this is the only compliance way to have employee working for you in China.
b) Hire employee under WFOE.
If you already set up a WFOE in China, you can sign the labor contract with employees directly. You can either choose to handle their payroll land benefits yourself, or you can choose to outsource.
c) Hire employee under representative office (Ro)
Representative office in China is not allowed to hire employees directly. The only compliance way is hire employees through labor dispatch agency under PEO service
PEO refers to a professional employment organization, in China it’s also called employee outsourcing, labor dispatch. Foreign companies can hire staff in China through a PEO agency without setting up a legal entity in China.
Severance payment in China is based on the number of years employee has worked for the company.
Each full year employee worked for your company, one month salary shall be paid as severance payment.
For the working periods that are less than 6 months, half month salary shall be paid.
If employee’s monthly salary is higher than 3 times local average monthly salary, each year of the severance payment compensated shall be 3 times local average monthly salary.
If employees are in the probationary period, both employee and employer shall give 3 days as notice period for termination.
After probationary period, both employee and employer shall give 3o days as notice period for termination.
If employer need immediate termination, employer shall compensate one month salary.
No, You shall have a company registered in China to sign a written labor contract with each of your employee.
In practice, employer will sign a fixed term contract with their employee. However, when it goes to the third time renewal of the contract, then the contract becomes to a permanent contact.
Sign a two years or three years contract is more common in China.
Labor contract in China shall be at least in Chinese, and including but not limited to:
Company details including full name, address and legal representative or person in charge.
Employee details including full name, ID number, address.
Term of the employment contract; (E.g., 2 years, 3 years…).
Position (job title), location(city), working hours, holidays, leaves.
Package: gross salary, bonus, commission, social insurance, other benefits.
Occupational safety, and occupational hazard prevention.
Other terms which laws and regulations required.
You need to set up a company in China and then set up a separate Social Insurance and Housing Fund Account. After the company has been set up, you can contribute the benefits to the employees who have signed a contract with you.
The most popular job portals in China is: Zhaopin.com, Liepin.com, zhipin.com. However, these three job portals only accept a registered company in China.
If you don’t have a company in China, you can search candidates through Linkedin.com or engage a headhunting or recruitment firm to help you search the candidates.
In China, employees’ individual income tax (personal tax) shall be declared monthly by the employer, and yearly by employee themselves.