The employee handbook plays a significant role in human resources management (HRM) in China, which not only sets forth daily management rules but also provides guidelines on employee behaviours in the workplace. However, not all employee handbooks are effective. It is imperative to ensure your employee handbook is made following the right procedures and is up to date.
What Is the Employee Handbook?
The employee handbook, also commonly referred to as a staff handbook or work manual, is a set of written documents that stipulate the labor rules and regulations of the workplace and provides guidelines on employee behaviour.
Under the PRC Labor Contract Law, employers are required to “establish and improve upon labour rules and regulations pursuant to the law to ensure workers' entitlement to labour rights and performance of labour obligations.” The labour rules and regulations generally pertain to labour remuneration, working hours, rest periods and days off, labour safety and health, insurance and welfare, staff training, labour discipline, labour quota management, and more.
An employee handbook should clearly indicate how employees will be treated in the workplace, what they will be provided, what they are encouraged to do, what they are forbidden to do, and the consequences of their noncompliant behaviour.
It’s common for some industries to have unique and specific requirements for their employees, leading to differences in their respective employee handbooks. For instance, manufacturing factories prioritize punctuality and workplace safety, while service companies strongly emphasize professional ethics and confidentiality. As a result, manufacturing and service companies tailor their employee handbooks to address distinct concerns and expectations.
Differences Between Employee Handbook, Labour Contract
The preceding paragraph partially explains why an employee handbook is different and separate from the labour contract.
While a labour contract can often be standardized and used as a template applicable broadly across various companies, industries, and even cities in China (requiring only specific details, figures, and amounts to be customized for each employee and employer), an employee handbook should be tailored to each company's unique industry, business activities, corporate culture, and the capabilities of its HR management, among other factors.
Table 1 provides a more detailed comparison between an employee handbook and a labour contract.
Table 1—Employee Handbook Versus Labour Contract
Why Businesses Need Well-Drafted, Properly Formulated Employee Handbooks
As highlighted in the comparison between the employee handbook and the labor contract, a labor contract typically cannot encompass a wide range of specific details, especially those that pertain to the unique characteristics of various industries.
Consider this scenario: An employee frequently engages in minor infractions, such as consistently arriving late for work, leaving early, dishonesty with their manager, or making inappropriate remarks during working hours. While these may be minor transgressions, their repetition can lead to dissatisfaction or complaints from supervisors and colleagues. Consequently, the company may contemplate terminating this employee's contract.
The legal grounds for terminating an employee without compensation are typically limited and stringent, one of which is the occurrence of a "serious violation of labour rules and regulations."
In this context, if there is no established set of "labour rules and regulations" (i.e., a well-prepared employee handbook), it becomes challenging for the employer to demonstrate the existence of a serious violation of the labour rules and regulations. Consequently, there may be no legal basis for dismissing the employee without compensation.
This scenario exemplifies why an employee handbook that clearly stipulates workplace rules and regulations is of utmost importance for employers.
How to Ensure Validity of the Employee Handbook
First and foremost, the contents of the employee handbook must align with applicable laws and regulations, including local mandatory rules. For example, if City A's local regulations grant employees 10 days of childcare leave per year, a company registered in City A should not reduce the childcare leave entitlement in its employee handbook. Any such attempt would render the regulation invalid.
Aside from complying with legal requirements, the contents of the employee handbook should be reasonable and fair. Consider a consulting company as an example. If the handbook stipulates that the company can immediately terminate an employee without compensation after just two instances of tardiness, this policy would be deemed unreasonable and unfair for employees with flexible working hours. In the event of a labour dispute, such provisions could be invalidated by a court or arbitration tribunal.
Secondly, once the employee handbook's contents are drafted, it must undergo a "democratic process" as mandated by the PRC Labour Contract Law.
The "democratic process" entails a series of interactions between the employer and employees involving discussion, negotiation, and potential amendments to the employee handbook. This process is designed to demonstrate that the handbook's content has been thoroughly deliberated with employees, securing their full understanding and substantial consent.
To achieve this purpose, the democratic process is recommended to encompass the steps in Table 2.
Table 2—Steps in the Democratic Process of Drafting an Employee Handbook
* The listed steps and documents are suggested based on legal requirements and experience. Employers should determine what steps and documents to adopt according to their actual situation.
Common Misunderstandings
Some employers may hold certain misconceptions that should be avoided. The following addresses these misunderstandings:
1. Misunderstanding: "I don't need an employee handbook if I only have a small number of employees. The rules can be written in the labour contract."
- Truth: While this notion might be acceptable for employers with only 1-2 employees and minimal expectations, labour rules and regulations are typically comprehensive and systematic. It is impractical and unwise to include these extensive guidelines in individual labour contracts. Furthermore, if labour rules are embedded in the labour contract, any necessary amendments due to internal changes or legal updates will complicate matters and consume more time compared to modifying an employee handbook through the democratic process.
Here's why:
- First, any modification to the labor contract requires the agreement of each individual employee, and the changes must be re-signed in writing by both the individual employees and the employer. In other words, the employer must engage in discussions and negotiations with each employee for every amendment, regardless of its significance.
- Secondly, while an employee handbook amended through the democratic process applies universally to all employees, an amended labour contract only pertains to the specific employee and the employer. To extend the amended rules to all employees, the employer must ensure that all employees agree to the same amendment and subsequently re-sign their contracts accordingly.
2. Misunderstanding: “As long as I have all my employees sign the employee handbook, it will automatically become effective and valid.”
- Truth: The mere act of having all employees sign the employee handbook does not guarantee its effectiveness and validity. To ensure the employee handbook is indeed effective and valid, two key criteria must be met:
- The contents must follow the law, be reasonable, and be fair.
- The formulation of the handbook must have undergone the democratic process as outlined earlier.
3. Misunderstanding: "A company can create only one comprehensive employee handbook that applies to all employees."
- Truth: As mentioned at the beginning of this article, an employee handbook encompasses a set of written documents that outline labour rules and regulations. It doesn't have to be a single document, nor must it be explicitly named as an "employee handbook." For example, in a manufacturing factory, the employer may wish to enforce "Work Plant Safety Rules" for production line workers, establish "Anti-Corruption Rules" for sales department employees, and implement a "General Employee Code of Conduct" for all employees. Such an approach is permissible and reasonable, provided that the essential labour rules and regulations have been subjected to the democratic process.
A well-crafted, properly formulated employee handbook is an essential and effective tool that businesses can use to set universal standards in the workplace and outline the parameters related to safety, how employees will be treated in the workplace, what they will be provided, what they are encouraged to do, what they are forbidden to do, and the consequences of their noncompliant behaviour.
This article was originally published in China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to i[email protected] for more support.