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Traditionally, customers hiring even one employee in China would be legally required to establish a representative office, branch office, or subsidiary in China, and assess local labor law, prior to hiring their first employee in-country. For customers hiring a small team in China, we offer an alternative solution.
World Wide Work Permit provides employee leasing and PEO service in China for customers that want to hire employees and run payroll in China. Our solution enables customers to run payroll in China while HR services, tax, and compliance management matters are lifted from your shoulders onto ours.
China, home to 1.4 billion people, is the most populous country in the world, and the third-largest country by land area. China’s GDP is USD 14.28 trillion, making it the second-largest economy in the world, and it ranks at 31 on the World Bank’s scale of ease of doing business. China’s largest exports are computers, broadcasting equipment, telephones, integrated circuits, and office machine parts.
Written employment contracts are mandatory for full-time employees. Employers have one month to finalize contract terms, after which employees are entitled to twice their salary while they remain without a contract until they have been employed for one year.
When negotiating terms of an employment contract and offer letter with an employee in China, it may be useful to keep the following standard benefits in China in mind:
It is legally required to put a strong employment contract in place in China which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in China should always state the salary and any compensation amounts in the Chinese Yuan Renminbi rather than a foreign currency.
This information is provided as general accepted information and is not intended as advisory services.
The Labor Law of the People’s Republic of China designates a five-day workweek of no more than 8 hours a day and no more than 44 hours a week. Offices are usually open from 9 am to 6 pm each day, with a one-hour lunch from noon to 2 pm, although hours may vary from city to city. Government offices are open from 9 am to 5 pm and closed on weekends.
7 national public holidays are celebrated in China, including:
The statutory minimum is to provide paid leave for the legally required holidays, however, the market norm/best practice is to permit the employees a bit of flexibility around the Chinese New Year so that they can avoid the peak travel days. Offering employees an extra day off before and after the officially published dates is an excellent supplementary benefit.
Employees who have the accumulated total workforce:
In practice, most foreign employers hiring mid-level to senior executives in China will provide 2-4 weeks of annual vacation days.
Employers can require employees to take their entire annual leave entitlement each year. If an employee does not use all of his or her annual leave in a certain year and does not agree to carry the leave forward, then the employer must pay the employee 200% of the employee’s average daily wage for each day of unused annual leave, in addition to regular salary.
Employees are entitled to between 3 and 24 months’ leave for medical treatments depending on the length of service with the employer and the number of years in general employment.
Sick pay should not be below 80% of the local minimum wage.
If the employee becomes injured or sick on the job, he/she is entitled to a maximum of 12 months’ leave at full pay for medical treatment.
Women are legally entitled to at least 158 days of paid maternity leave, which they can take starting 15 days before childbirth. The actual number of days depends on a different city.
If the mother has multiple births, an additional 15 days is granted for each additional child.
Women are entitled to receive full pay during their maternity leave. This is either paid through social security or if the employer did not contribute to social security on her behalf, then it is to be paid by the employer.
Paternity leave varies widely, depending on location, but normally varies from 10 to 25 [KW1] days. In Shanghai, a male employee can expect 10 days of leave, while in Beijing/Shenzhen he can expect 15 days. The actual number of days depends on a different city.
Both parents will be entitled to at least five days of parental leave until their child turns three, the actual number of days depends on a different city.
Basic health and pension insurance are provided through the national system, however, supplementary health insurance may be provided to the employee.
Chinese employers contribute to a housing fund, similar to a 401k plan. The fund subsidizes employee real estate rental and purchasing costs. Some contributions are mandatory; however, employees normally negotiate for an increased housing fund rate. Different cities have different policies related to housing funds.
Issuing stock options to employees in China is complicated. We strongly recommend reviewing whether it is “worth” offering this benefit prior to offering stock options to your employees in China.
In general, we recommend budgeting 20-30% for employer taxes on top of the total cost of an employee’s salary to estimate the total cost of compensation in China.
A 13th-month salary or annual bonus is not required but is the market norm in China. A commission plan may be seen as replacing this for a sales employee. When negotiating with employees, it is recommended to clearly state the monthly salary, how many months it will be paid, and the total annual salary.
A probation period may be agreed to between the employer and employee in an employment contract. The maximum length of a probation period for an indefinite employment contract is up to 6 months.
The notice of termination depends on the employee’s employment period. There is no less than 3 days prior notice during the probation period; however, the prior notice period for those who have passed the probation period shall be not less than 30 days.
Terminations must be with cause and the reasons must be clearly documented.
Contracts may include a payment in lieu of notice (PILON) clause which allows employers to pay employees instead of requiring them to work their notice. Service of such notice (or payment in lieu) will satisfy an employee’s contractual rights, but further statutory rights against the employer may arise on termination. Much longer periods of contractual notice, binding on both parties, are common.
It is illegal to terminate a pregnant employee or one who is on maternity leave or breastfeeding.
Statutory benefits in China include the five “insurances” which include medical insurance, pension, worker’s compensation, unemployment insurance, and maternity benefits. Housing Fund is included on top of the five insurances. The amounts vary by province and by the employee’s income bracket.
Chinese employment law is complicated and setting up an office can be quite time-consuming. World Wide Work Permit knows the best practices of HR administration in China and we can relieve you from the burden of dealing with Chinese authorities and establishing your own offices. With our Employer of Record solution, we reduce red tape and hassle so that you can concentrate on your operations. For customers using our employee leasing or PEO service in China, we may also be able to provide recruiting services in Shanghai or Beijing.
If you would like to discuss how World Wide Work Permit can provide a seamless employee leasing or PEO solution for hiring an employee in China, please contact us.