A firm understanding of China’s laws and regulations relating to human resources and payroll management is essential for foreign investors who want to establish or are already running foreign-invested entities in China.

In China, there are a wide range of government institutions involved in HR processes, and while key laws are drafted by the central government – such as the Labor Contract Law – numerous bylaws and regulations are instituted at the local level.

Nevertheless, many HR laws and principles are fairly universal across China. Here, we offer eight quick tips to handle the fundamentals of employing staff in China.

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1. Mandatory written contracts: All employees must be given a written contract within one month of hiring; if not, the employee is entitled to double salary.

2. Probation period: The range of legitimate grounds for dismissing an employee is considerably wider during his or her probation period. The employer may also pay only 80 percent of the employee’s contractual salary during this time.

3. Regional variation: National laws are often intentionally broad and vague, leaving a lot of room for local interpretation or additional legislation. Regulations and practices differ per city on issues such as minimum wage, work visa policy, social security contributions, and maternity leave.

4. Representative offices: The simplest of foreign investment vehicles in China, the representative office (RO) is not permitted to directly hire staff in China; instead, they need to use dispatch agencies, the agencies must hold a government issued special license that allow them to hire employees on behalf of their clients (e.g. Dezan Shira & Associates has dispatch licenses).

5. Leave during the first year of employment: Employees are not entitled to any mandatory minimum number of leave days during their first year of employment, except those during major holidays such as Chinese New Year around February, and the National Day celebrations in early October.

6. No at-will termination: Terminating employees in China is both difficult and expensive. Employees may resign with 30 days’ notice, but for employers, there are limited grounds for terminating an employee before his or her contract has come to an end.

7. Non-fixed term contract after two fixed term contracts: After an employee finishes his or her second contract with your company, he or she generally shall be offered a lifetime contract as the third unless he or she wants another fixed term contract instead. Such non-fixed term contract can only be terminated if there are grounds for dismissal. Notably, some regions, such as Shanghai, offer more flexibility on this rule.

8. Severance payments mandated by law: In practice, severance payments are even higher than the law prescribes, and can comprise a significant part of overall HR costs.

This article was first published on China Briefing.

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India, and ASEAN, we are your reliable partner for business expansion in this region and beyond.

For inquiries, please email us at [email protected]. Further information about our firm can be found at: www.dezshira.com