Chinese workers' rights are well established and compliance with them is good. China’s employment law system is quite different from the U.S system. The main difference is that the U.S. has an employment at will system, which means you can terminate employees at any time for pretty much any reason. China’s system is the opposite. The Chinese system is a contract employment system. This means all employees must be engaged pursuant to a written employment contract and during the term of that contract, it is very difficult to terminate an employee. An employee can only be terminated for cause and cause must be clearly proved. This means the employer must maintain a detailed set of rules and regulations and must maintain careful discipline records to be able to establish grounds for dismissal. This makes the employment relationship and the employment documents much more adversarial than is customary in the U.S.
Also, China does not really have the concept of a “salaried” employee. The Chinese work week is 40 hours and overtime must be paid for work exceeding the 40 hour limit. I know this approach is very foreign to software/service businesses like yours. However, there are no exceptions to this rule. Consider the following issues:
1. Term of employment. As noted above, each employee must be hired pursuant to the terms of a written contract. After the initial contract term expires, you may re-hire the employee pursuant to a second fixed term contract. However, at the end of that fixed term the employee automatically will be converted into a employee with an open contract term. This means you have only one chance to hire an employee on a fixed term basis. Due to the above considerations, determining the length of the initial employment term is critical. We recommend an initial term of three years. This has two benefits. First, it allows you to provide a six month probationary period, during which time you can terminate an employee for any reason. This gives adequate time to test the basic skills of an employee. Second, it delays the onset of the open term period for a period long enough to allow you to determine whether you wish to allow an employee to convert to the open term status. Of course, you are free to specify any term you feel is appropriate.
2. Salary. In many parts of China, it is customary to pay the salary on a 13 month basis, with the final month paid just prior to the Chinese New Year. This is completely optional, but it is important to state clearly whether or not you will be using this approach. Many employees just expect this “New Year’s Bonus” and a failure to pay it (if expected) can cause many problems.
3. Bonus. If you plan to have a bonus system for your employees, we should set this out.
4. Vacation. The statutory rule on vacation for employees is as follows:
First year: No vacation.
Years 2 through 9: 5 days.
Years 10 through 19: 10 days
20 years or more: 15 days.
5. Other Chinese workers rights. If you plan to provide benefits beyond the statutory minimum (set out in the rules and regulations provided), we will need to specify that. If you want to provide a particular benefit to all of your employees, we should put it in your rules and regulations. If you want to provide employee specific benefits, we will include them in the specific employment contract. For example, China requires employees pay a portion of the employment taxes/fees. Some employers pay that portion for the employee as an additional benefit. read more…
The Labor Act of 1994
The first comprehensive labor standards law in China. It sets relatively high labor standards in many areas. The Act covers minimum wage, child labor, working hours, protection of women, forced labor, collective bargain and group contract, over time pay, vacation, holiday, labor protection, labor inspection system, and many other areas.
The Trade Union Act of 1992
codified a unitary form of trade union system. It gives labor unions a broader role in collective bargaining, the settlement of labor disputes, and enterprise management. With the enactment of this law, China has established the largest network of trades unions with memberships currently exceeding 130 million. Although the membership in a union is non-mandatory, employees in state sectors have been thoroughly unionized with over 90 percent labor participation rate. Private sectors in urban areas are only partially unionized. According to the law, only one union is allowed in each company and institution. All of them must belong to the semi-official All-ChinaFederation of Trade Unions (ACFTU).
Administrative lawsAdministrative laws are more important in China since Chinese economy is changing constantly. Due to the shortage of statutory laws on some key policy areas, Chinese administrative agencies have been given a larger role in making administrative regulations, policies and orders. Many new measures and policies are normally carried out through administrative regulations first. Some of them may eventually become a statutory law. For example, China’s family planning policy was carried out for more thantwo decades without any statutory law to serve as a legal basis. Only until recently the
Population and Family Planning Act
Formally adopted in an effort to codify the existing policies and practices in Chinese workers' rights. Administrative law is also an important means to amend the existing statutory law. For instance, the Labor Act stipulates that China’s official weekly working hours should be 44 hours. However, the State Council reduced this to 40 hours a week in 1995. Many of the regulations are provisional. They are subject to changes easily. Several of the regulations may be of interests to American investors.They include Regulations on the Labor Management in Joint-stock Companies (1980),Provisional Regulations on the Labor Management of Private Companies (1989), Regulations on Labor Management in Foreign-owned Companies (1994), Regulations on Minimum Wages for Enterprises (1993), Regulations on the Protection of Female Employees (1988).
Basic principles of China social security system, as outlined in the Social Insurance Law:
- All employees, including rural migrant workers, should be covered by the social insurance system.
- Both employers and employees are required to make contributions (at different rates) to a pension fund, unemployment insurance fund and medical insurance fund, as well as the Housing Provident Fund. Employers, but not employees, are also required to contribute to the work-related injury and maternity insurance funds.
- The various insurance funds are managed by local governments and are pooled into provincial or municipal funds. Usually it is the local labour or human resources and social insurance departments that manage the social insurance funds, while the Housing Provident Fund is managed by the local government’s Housing Provident Fund Management Committee.
- The funds collected must only be used for the specific purpose intended, namely the provision of social insurance for workers and retirees.
- The pension and medical insurance funds are composed of pooled components, which can be used to benefit any eligible employee, and personal accounts that benefit the individual employee concerned, when they become eligible.
- Social insurance benefits should remain with workers when they move. However this provision has proved very difficult to implement because of the highly localized nature of the social welfare system in China. Getting different jurisdictions to share information is fraught with bureaucratic and technical difficulties, especially for workers coming from rural areas of China. read more…
Chinese workers' rights are stong and getting stronger, as you can see from this Bloomberg article: China Workers Power Sets Off Strikes for Nike, Wal-Mart, and this video: