Employment Contracts

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A successful business largely depends on its employees. By creating working contracts that include the right terms and benefits there will be no misconception and the perfect work-life balance can be created. At Bradford Jacobs, this is our aim, and we support companies in over a hundred countries with creating compliant and balanced labor contracts. Our team keeps track of Chinese laws and regulations daily to be duly aware of updates that can be implemented in working contracts. By using our PEO and EOR service we can provide compliant labor contracts for employees in China, including local benefits.

To support your plans, we made this guide including the basics of employment contracts in China. After reading this guide you will know everything about the conditions, laws, and benefits to include in a Chinese employment contract.

How do you hire Employees in China?

Foreign companies hiring employees in China must operate within a strict framework of legislation that provides comprehensive safeguards for the workforce. Trade union and collective agreements may also apply at the contract stage. Once staff have been sourced, interviewed, and selected, international companies must register employees with the Social Security Bureau, their local Housing Fund, and the State Taxation Administration. These considerations come into play during the first stages of hiring and onboarding, when employers are drawing up contracts with their new employees. Once Bradford Jacobs’ Professional Employer Organization (PEO) recruitment networks have located the best talent for your company, we step in to handle this crucial element of recruitment.

Labor Contract Law regulations include:

  • Providing a written contract for full-time employees within one month of first day at work, with the risk of having to pay double salary after the one-month limit
  • Contracts should be in Chinese and translated into a foreign language by legally accredited organizations, or risk being legally invalid
  • Details of the employee’s confirmed address and ID number
  • The terms of employment
  • Location and obligations of the role
  • Employees’ rights and working conditions
  • Terms for compensation, severance, and any disciplinary procedures
  • Any probationary period must be included. If the contract is between three and 12 months, the trial period cannot exceed one month; two months for between a one and three-year contract and six months for over three years
  • Employer and employee should keep a copy and any changes must be agreed by both parties

If the employer fails to provide a fixed-term contract within a year of the employee starting work, it defaults to an open-ended contract. Other issues must be dealt with before companies onboard their new staff. These involve:

  • Registering with the State Taxation Administration (STA)
  • Registering with the local Social Insurance Bureau and Housing Fund Bureau to activate accounts for your employees
  • Registering employees’ contracts with the tax and social security authorities
  • Opening a business bank account
  • If employing foreigners, accounts need to be registered with the Services System for Foreigners Working in China along with applications for Foreigner’s Work Permit and the Notification Letter prior to employees applying for their work visa
  • Outsourcing the recruitment and hiring process through Bradford Jacobs’ Professional Employer Organization (PEO) network will give you the security that our in-depth know-how can deal with all these potential problems. Guarantee a trouble-free move into your new territory by trusting our Employer of Record (EOR) services to handle every aspect of payroll compliance.

Types of Employment Contracts in China

All full-time employees who are contracted to employers are covered by China’s Labor Law and the Labor Contract Law. Written contracts are essential and for legal safeguards should be translated into Mandarin if originally drafted in a foreign language. In addition to individual contracts specifying terms of employment, benefits and compensation, employers are advised to publish or display in the workplace their disciplinary policy. The absence of a policy may make it difficult to terminate employment on the grounds of misconduct.

The main types of contracts, as governed by the Labor Law and Labor Contract Law, include:

  • Open-ended or Indefinite Employment Contracts: These contracts are for continuous employment without stipulating any end date.
  • Fixed-term employment contracts: This applies where the employer and employee agree an end date for the contract. If an employee continues to work after the contract expires, by default they are then on an open-ended contract. Similarly, if the employer fails to institute a written contract within a year, a full-time contract applies. After an employee completes two fixed-term contracts the employer should agree to an open-ended contract if the employee requests.
  • Specific Project Employment Contracts: These expire on completion of a specified project.
  • Probation Periods in Employment Contracts: Trial periods are commonly included in employment contracts, with time limits, and they can only be used once with the same employee. Probationary periods are restricted to one month for contracts of less than 12 months, two months for contracts between one and three years and six months for contracts exceeding three years.

The Labor Contract Law applies mandatory rules to contracts. These include:

  • Employers must provide a written contract for full-time employees within one month of their first day at work, or risk having to pay double after the month expires
  • Contracts should be in Chinese and, if necessary, translated into a foreign language by officially accredited translators
  • Contract types can be open-ended and indefinite; fixed term with an agreed end date; tied to a specific project
  • The contract must contain details of the employee’s ID, home address
  • Basic terms of employment should cover location and role responsibilities, rights and working conditions, details of compensation, severance and disciplinary procedures, any provision for probationary periods
  • Employer and employee should have copies of the contract and agree any amendments in writing

Collective Bargaining Agreements and Collective Contracts:

The All-China Federation of Trade Unions (ACFTU) is the sole legal representative of workers in China. Implementing collective agreements varies between provinces and administrative cities. Businesses can conclude collective contracts with their relevant trade union or workers representatives if they have no trade union. Individual contracts can improve terms of a collective contract but cannot undercut them.

What Employment Laws exist in China?

China’s far-reaching labor laws cover all businesses and economic entities and the individuals who have employment relationships with them. All full-time employees should have written contracts with their employers, but even if no formal contract is in place the employment relationship can be considered to be legally in place. Employment legislation is mainly based on the following laws, codes, and statutes:

  • The Labor Law establishes the framework for employment relationships, although legal requirements are not pulled together under a single piece of legislation.
  • The Labor Contract Law details responsibilities and obligations of employers and employees, in addition to the terms for implementing and ending employment relationships. It is supplemented by the statute on Implementing Regulations of the Labor Contract Law, which goes into detail on contract requirements.
  • The Trade Union Law dictates how trade unions and workers’ committees are established and organized and how they must operate. The law states that 25 or more employees in a company must be permitted to form an Enterprise Trade Union (ETU), a component of the All-China Federation of Trade Unions (ACFTU), which is the only trade union allowed in the country.
  • Once an ETU is formed the employer must contribute 2% of employees’ wages to the ACFTU, in part to fund education and vocational training for their staff.
  • The Mediation and Arbitration of Disputes Law lays down how labor tribunals deal with employment disputes. Under Article 2 it covers disputes over working hours and breaks, vacations, social insurance, other benefits, workplace health and safety and remuneration for workplace illness or injury.
  • The Minimum Wage Provisions Act establishes the framework for minimum wages, which vary between provinces, territories and administrative cities and authorities. Under the Labor Law, the relevant authorities must record the minimum rates with the State Council. The Act allows for rates being adjusted according to living costs, average wages, and local economic development. Rates are enforced by local labor authorities.
  • Paid Annual Leave Regulations apply rules on statutory paid leave for employees.
  • Other regulations can be imposed by the Ministry of Human Resources and Social Security, other ministries, commissions, and State Councils.

Companies extending their operations into China need a total understanding of employment and contract laws. Bring Bradford Jacobs’ expertise into the equation with our comprehensive understanding of Chinese laws and regulations. The global reach of our Professional Employer Organization (PEO) specialists is matched by in-country Employer of Record (EOR) platforms that ensure a smooth entry into the Chinese economy.