But for businesses looking to expand into China, navigating labour law can be complex and unpredictable. Historically, mistrust (either real or perceived) by foreign investors towards the local workforce has prompted the Government to introduce various employment protections for Chinese workers, which can trip up incoming employers.
If you are considering taking on workers in China, here are five things you should know:
- Labour laws vary across China - depending on location…
- ….But some rules are mandatory throughout the PRC
- protections for fixed term workers: after a fixed-term contract has been renewed twice, the third contract must be an open-ended/permanent contract;
- mandatory six-month maximum probation periods; and
- mandatory severance payments: calculated on the basis of a month’s average salary multiplied by the number of years of continuous employment, for unlawful termination of a labour contract.
- Outsourcing arrangements are increasingly regulated….
Dispatched Workers can only be provided by licensed agencies for a fixed two-year period and cannot exceed one tenth of the total number of employees. Further, such outsourcing requires the company to enter into a service contract with a licensed agency which bears all liabilities related to the worker (at a high service fee).
However, dispatch arrangements remain a preferred recruitment method especially for representative offices which, having no legal personality in China, could not otherwise hire any personnel except their Chief Representative.
- …But direct employment comes with high costs too – which change frequently
- mandatory contributions – such as social security, medical insurance, pension, unemployment benefits - for all employees; and
- housing funds for Chinese workers.
- Employee contributions can be complex to administer