The Chinese Labor Contract

Last updated: Aug 2020
The HR Regulations Guide for Foreign Companies in China

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    Although many around the world think that China does not attach importance to labor laws and labor rights, the reality is a little different. In addition to the general national labor laws, which are periodically adjusted by the Chinese government, long lists of provincial laws and supplementary regulations complicate the situation. Thus, companies can easily get confused and pay dearly for innocent mistakes. The Chinese government adopts an even stricter policy in the case of foreign companies that hire local manpower. Recently, the number of foreign companies that have found themselves complicit in legal troubles has increased. Therefore, special attention must be paid to employment regulations.

    PTL Group’s vast expertise includes HR solutions in China. We want to share our important knowledge with you. The following article discusses the Chinese labor contract.

    Read more about PTL Group’s HR management and recruitment services in China.

    The Chinese Labor Contract

    Who signs the contract with the employee?

    The most important Chinese law you should be aware of is this: foreign companies without a legal entity in China are not allowed to employ local workers by themselves. Foreign companies active in China can employ local employees by using a third-party company, which becomes the worker’s official employer in China. The external company, which provides employment and salary management services, should represent the interests of the parent company, and maintain direct contact with it. Outsourcing employment and salary management functions is a common solution to assures the foreign company, that labor contracts comply with taxation regulations, that wages comply with Chinese labor laws, etc.

    What is included in the labor contract?

    Labor contracts are an essential part of recruitment in China. The labor contract between an employer and an employee in China is based on the Chinese employment law. It covers and addresses a large number of topics, and for the most part, seeks to protect the employee. Subsequently, it is illegal for a company to hire a full / part time employee (local or foreign), without an updated and valid labor contract.

    Like other countries, the Chinese labor contract must include several clauses, such as:

    • Employment term and probation period term
    • Job description
    • Definition of working hours, rest hours and vacation days
    • Severance packages for overtime work and termination of employment
    • Safety at work conditions
    • Social benefits
    • General information: Employee name, ID, company name and address, etc.

    A legally valid labor contract is written clearly and concisely in Chinese. Even if the parties signed two contracts, in English and Chinese, the latter would be the binding one.

    Contract types

    There are three types of employment contracts in China:

    1. Fixed-term contract – after two consecutive fixed-term contracts, the employer is obliged to offer an open-ended contract if the company wants the keep the employee
    2. Open-ended contract
    3. Employment contract for the duration of a certain task/project

    Labor contract localization

    Matching the contract’s content to the province and city’s local regulations is critical. In China, there is no such thing as a “general national labor contract”. Rather, different provinces define different local labor laws. For instance, since minimum wage is influenced by a region’s cost of living and by its economic development status, the minimum wage varies between different provinces. In other words, a labor contract from province A cannot be used or substitute a labor contract in province B. Using two similar employment contracts in Mainland China and Hong Kong or Macau (which are Special Administrative Regions) is even worse.

    An effective labor contract is clearly formulated and written in Chinese, in accordance with national and provincial labor laws and regulations.

    Notice: A contract that does not meet these requirements puts the employer at risk. Currently, the sanctions imposed on foreign employers who fail to consolidate a legal and valid labor contract are more serious than ever. Such an employer will be subject to legal prosecution by the employee, who may argue that the employer has violated the employment laws.

    Employment of Chinese workers as freelancers

    Since freelancing is not covered by the Labor Contract Law, employees will not be protected when facing conflicts such as salary payment, termination compensation, etc. From the employer’s perspective, control over freelancer employees is limited. This is especially true for companies which want their employees to sign an NDA (non-disclosure agreement). Therefore, we recommend that international companies make sure they hire Chinese employees legally – within the realm of the China Labor Contract Law.

    Regulations in China change relatively frequently. For the most up-to-date regulations, please check in with us.