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Hiring in China

In China, companies can hire employees in the following three ways:

Direct hiring

Except for representative offices (RO), foreign invested enterprises (FIE) can hire employees directly by themselves. The Chinese labour law requires employers to sign a written contract with their employees. They have a  month to do so, starting from the employee’s first day of work at the company. Failing to do so results in:

One exception to this rule is part-time work, where an oral agreement is considered sufficient.

Generally, China allows three types of employment contracts:

Fixed-term contract

The fixed-term contract creates an employer-employee relationship for a fixed length of time and can be used for part-time or full-time work. A fixed-term contract can be renewed only once, after which it will be necessary to give the employee a non-fixed term contract when renewing for the second time. Certain clauses may be inadmissible according to Chinese law, while others are mandatory. Employers can stipulate a probationary period at the beginning of the contract, during which time it is comparatively easier to dismiss the employee.

Also, the employer can pay the employee 80%of the full salary stated in the employment contract. This amount may not fall below the local minimum wage. The employee may resign after giving three days’ notice. It is therefore inadvisable to stipulate a very long probation period. The length of the fixed-term contract will determine the maximum length of probation the employer can set.

During the probation period, the employer may dismiss the employee if he/she is found to not meet the requirements for the position. The burden is on the employer to prove this.

Maximum probation period by contract Term

Contract term

Maximum probation period

Less than 3 months

None

3 months to 1 year

1 month

1-3 years

2 months

3+ years or non-fixed term contract

6 months

Note: An employer cannot make an employee take a new probation period, for example, after a promotion or when the company has been merged or acquired by an investor.

For part-time workers:

Non-fixed term contract

Based on its unrestricted term and limited grounds for termination, the non-fixed term contract effectively guarantees the employee job security until retirement. Specifically, an employee on a non-fixed term contract can only be terminated based on grounds eligible for immediate dismissal, dismissal with 30 days’ notice, or as part of a mass layoff. During a mass layoff, employees on non-fixed term contracts must be prioritized over other employees.

Job contract

Due to its lack of legal clarity, the job contract is an unpopular choice in China. This type of contract is defined by the specific task or project an employee is to work on—not the length of time. Once the project is completed, the employment relationship comes to an end and the company must pay severance to the employee. No probationary periods are permitted. Job contracts are sometimes used for seasonal jobs where the scope of work can be defined very clearly. However, in most cases, defining the completion of a project can prove to be a challenge. The relevant legal framework offers no guidance on what to do when a project is left uncompleted, or how employees should be compensated in such a case, making job contracts more prone to disputes and even litigation.

Dispatching

Labour dispatch is an alternative option for FIEs looking to hire Chinese staff. While the preparatory work often requires the assistance of Chinese employees, FIEs are not allowed to establish legal contracts with Chinese individuals before they obtain their business license. Additionally, as mentioned previously, an RO cannot hire staff directly, and their employees must be sent from dispatch agencies.
Labour dispatching arrangements are only applicable for the following three types of positions:

The number of total dispatched employees used by an employer should not exceed 10%of its total number of employees, including regular employees and dispatched employees. ROs of foreign enterprises, however, are not subject to this restriction on dispatched employees’ positions.

In addition, there must be a contract between the dispatching company and the dispatched employee, the dispatching company and the FIE, as well as the dispatched employee and the FIE, respectively. The contract between the dispatching company and the dispatched employee should have a fixed term of at least two years.

Outsourcing

Outsourcing is an additional option for FIEs. Generally, the most commonly outsourced tasks are those that require specialist skills, a high degree of confidentiality, or those that have a clear scope but incur major consequences if incorrectly implemented. Good examples in China include accounting, tax filing, HR administration and payroll processing work. Many small and medium-sized companies will choose to completely outsource some or all of these functions, whereas large companies will set up a separate entity to manage such back-office tasks on behalf of their regional subsidiaries.

Termination

From a legal perspective, terminating employees in China can be more difficult than expected, especially under the comparatively stringent regulations on terminating employment contracts since 2008.

Employers should follow the steps below to ensure full compliance:

If none of the above measures can be adopted, then the termination is likely to be considered an unlawful termination and additional severance payment might be required.

Permissible types

Type of terminationAdmissible groundsType of employeeSeverance payment
During probationEmployee doesn’t meet the job requirements stated in job descriptionFixed-term
Non-fixed term
No
Mutual agreementAgreed with employeeFixed-term
Non-fixed term
Yes (if the termination is put forward by the employer )
Immediate (unilaterally)
  • Serious loss attributed to employee
  • Giving false information to employer
  • Criminal offense during employment
  • Employee takes up second job, harming first employer
Fixed-term Non-fixed termNo
30 days’ notice (unilaterally)
  • Employee unable to work after sickness/injury
  • Job cannot be performed due to fundamental change in objective circumstances
  • Employee incompetent for position
Fixed termYes
Not renewing contractAfter one or two fixed-term contracts, differs per cityFixed termYes (unless the employee refuses to upon maintained or raised provision proposed by the employer)
Mass lay-off
  • Company being restructured under the PRC Enterprise Bankruptcy Law
  • Serious difficulties in productions or operations
  • Company changes production method, making staff unnecessary
  • Objective economic situation makes employment impossible
Fixed-term Non-fixed termYes
Automatic termination upon bankruptcy/ revoke/dissolution
  • The employer is declared bankrupt pursuant to the law
  • The employer’s business license is revoked
  • The employer is ordered to close down
  • The employer has decided to dissolve prematurely
Fixed-term Non-fixed termYes
Termination not allowed (under most situations)
  • The employee is suspected of having occupational disease(s) and waiting for diagnosis.
  • The employee has completely or partially lost labor capability due to occupational disease(s) or work injury.
  • The employee is still in the legal recuperation period for non-work-related illness/ injury.
  • The employee is pregnant, on maternity leave or in nursing period.
  • The employee has continuously worked for the employer for more than 15 years and is less than five years before retirement.

Disclaimer:

Dezan Shira & Associates

The Canadian Trade Commissioner Service in China recommends that readers seek professional advice regarding their particular circumstances. This publication should not be relied on as a substitute for such professional advice. The Government of Canada does not guarantee the accuracy of any of the information contained on this page. Readers should independently verify the accuracy and reliability of the information. 

Content on this page is provided in part by Dezan Shira & Associates a pan-Asia, multi-disciplinary professional services firm, providing legal, tax, and operational advisory to international corporate investors.

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