The amount of overtime pay owed to an employee in China can vary by what the contract says about the overtime base and differences in how local courts apply the law. An employment contract that provides for an agreed overtime calculation base is enforceable in most jurisdictions so long as it is above the minimum wage. Employers may be exposed to unexpected overtime claims if there is compensation not clearly described in the contract. Thus, an improperly drafted contract could result in unexpected labor costs across the workforce. In this article, we will explain how Chinese law determines the overtime base, and introduce best practices for ensuring the agreed methodology is enforceable.
Contents
- Overtime Pay Calculations Vary by Jurisdiction
- Overtime Compensation Calculation Bases
- Strategies for Overtime Pay Calculation Bases
Overtime Pay Calculations Vary by Jurisdiction
Chinese law lacks uniform rules on how to calculate overtime compensation. The China Employment Act § 44 provides that overtime compensation must be calculated from the regular hourly wage, but the law does not clearly define “wages” or “regular hourly wage.” Employment litigation here is driven by the lack of specific definitions on what wages comprise, and inconsistent precedents, which makes it difficult to determine the overtime calculation base. The courts are split on how to analyze overtime, and have based overtime pay on actual wages paid, the local minimum wage rate, or the employee’s average monthly wage. This inconsistency makes it difficult to protect employees’ rights.
Analysis of court decisions in China shows that judges respect party autonomy, and will enforce agreements on their overtime calculation methodology unless the overtime calculation base is below the applicable minimum wage. In Guangdong Appeal 04-cv-520 (2016), the court held that employers must follow the employment contract’s definition of wages and regular hours, but the compensation paid must not fall below the applicable minimum wage.[1] If the contract’s overtime calculation base is below the minimum wage rate, the minimum wage rate must be used. This holds even when the employee is highly paid.
In Zhuhai Appeal cv-152 (2015), the final judgment held that the parties’ employment contract provided for averaged work hours and an overtime calculation base of ¥1,150, thereby binding the parties to that overtime calculation methodology. The court therefore ordered Bay Hotel to pay overtime accordingly. An Employment Contract was used simultaneously with an Employment Agreement, and neither contract included overtime in the salary. The court concluded that the agreed method is valid despite Sun Weilun’s high salary, and an employee’s title or salary does not affect their right to overtime compensation.[2]
In the absence of an agreed-upon overtime calculation base, Chinese courts typically use regular hourly wages or the minimum wage rate, with the average monthly wage also being common. In Zhuhai Jinwan Case cv-243 (2015), the court used the average monthly wage, because the parties agreed the average monthly wage in 2012 was ¥2,290, and the employer failed to prove how much overtime pay was paid that year.[3] However, some courts have disagreed, such as in Guangzhou Appeal 01-cv-734 (2018), where the employer challenged Xie’s request to use his average monthly wage of ¥6,631.70 as the overtime calculation base, arguing that it would double-count overtime pay.[4]
The court denied Xie’s claim, finding no factual or legal basis to support it. A few courts have treated wages actually paid as the overtime calculation base, as in Guangzhou Appeal 01-cv-13818 (2019), where the employer failed to provide payroll records showing Liang’s wages.[5] The court therefore used the employee’s claimed net wages of ¥3,700 a month. Courts may interpret the overtime calculation base broadly based on the case facts.
China’s National Railways Legal Application Circular § 9 allows railroads to temporarily use base pay as the overtime compensation calculation base.[6] The applicable base pay is determined by the applicable pay structure. For example, base pay is one of the following:
- the sum of the position-based wage component and skill-based pay under the business wage policy;
- position (technical skill level) wages plus allowances, with the allowances calculated at the national standard ratio, under the public body wage policy; or
- technical skill level (position) wages plus bonuses, with the bonuses calculated at the national standard ratio, under the government agency worker pay structure.
Although Guangdong has no such precedent, other provinces have adopted this approach. In Chengdu Appeal cv-1278 (2014), the court determined that Wang Fengzhu’s overtime compensation calculation base was the sum of her position-based wage component and skill-based pay, because she worked at Chengdu Passenger Station.[7] This broadened the base pay definition to include both position-based wages and skill-based pay for regular hours.
Chinese labor law lacks a uniform rule for calculating overtime pay, and courts are split on which wages to use for the calculation base. Courts have taken five different approaches:
- use the amount the employment contract provides, but not less than the local minimum wage;
- use base pay, but not less than the local minimum wage;
- use average monthly wages, but not less than the local minimum wage;
- use actual wages paid, but not less than the local minimum wage;[2]
- use the local minimum wage.
Although the first four approaches use the local minimum wage as a floor, they define wages differently, leading to inconsistent overtime pay rulings across similar cases.
The rules of evidence in China make things harder for employees: In employment litigation, courts typically apply the civil rules of evidence, and employment dispute judicial interpretations to require that the party asserting a claim prove the underlying facts. Employees therefore must prove the facts supporting their claims or face adverse legal consequences. In Guangzhou Appeal 01-cv-8845 (2019), the court held that Xie Xin failed to prove that Gao Yin Company required him to work on weekends without compensatory time off or that he was paid less than the statutory minimum wage rate for time actually worked. Accordingly, the court denied the overtime compensation claim for lack of a factual and legal basis.[8]
This case illustrates that the employee bears the burden of proving overtime, attendance, the wage rate, and related issues. During an employment relationship, employees depend on employers and cannot easily obtain wage and attendance records. Consequently, employees often can only provide bank statements to prove wages, which courts may find insufficient proof without supporting evidence. Moreover, employees often cannot prove that an unreasonable calculation base was used, and courts deny their claims for failure of proof.
Chinese employment law grants the employer discretion in determining the overtime compensation calculation base. The employer may exercise control over the wage structure during the employment relationship, and may define the overtime compensation calculation base by agreement or in a policy, provided that no mandatory provisions of the statutes are violated. The employer may therefore use its bargaining leverage to set a low base pay, which, although lawful, is likely to be disproportionate to the work performed and deprive the employee of reasonable compensation. Doing so carries risk that a court will not enforce the agreement, so expert advice for your specific situation is needed to keep these costs predictable.
If you need help with employment issues in China, ask CBL to connect you with a lawyer.
Overtime Compensation Calculation Bases
Employers in China typically set employee compensation so it includes base pay, bonuses, allowances, and overtime pay, but employment contracts or compensation policies rarely define the overtime wage base. Employees usually earn most of their compensation from overtime pay, bonuses, and commissions, with base pay typically low, and employers often use base pay as the contractual overtime wage base. Commissions and bonuses are usually not considered wages for regular hours. Employees must accept overtime calculated on the employer’s wage base when they lack evidence to prove that commissions or bonuses belong in that base.
Overtime pay calculation bases are typically imposed by the employer, with the contract authorizing the employer to set the wage rate used as the base for overtime compensation. Employment contracts rarely specify the wage rate; more common is to provide that it will be set by the employer and not below the local minimum wage. As a result, employees may not clearly understand how their wages are set. Once an employee signs their employment contract, they are bound by the overtime pay calculation base rules set by the employer. In employment litigation, the employee’s signature is treated as acceptance of the employer’s overtime calculation base, and courts generally enforce that base, putting employees at a disadvantage.
Strategies for Overtime Pay Calculation Bases
A comparative analysis for China hires should determine whether the employment contract’s agreed-upon wage or the pay for non-overtime hours should be the overtime compensation calculation basis, and the higher calculation base should be selected to provide dual protection for the employee’s contractual terms and regular time pay. The legal standard for overtime compensation should be based on regular hours wages, meaning the compensation earned by the employee for regular work done during regular hours.
Legislation from global jurisdictions indicates employers should enumerate mandatory exclusions from pay for work during regular hours, including non-fixed payments such as variable compensation or one-time payments. Additionally, define the scope of wages by listing the included items (such as base pay, bonuses, and other cash wages) and excluding items that do not constitute wages, thereby providing full protection for employees in China.
In litigation over overtime compensation calculation bases, courts will reasonably allocate the burden of proof, in view of how overtime compensation is an employee’s statutory right and an employer’s payment obligation. As employers control the relevant records, they bear the primary burden of proof to show attendance, job performance, and job structure. Employees need only prove the basic facts, for example compensation via bank records. A better dispute resolution process is also required to ensure timely compensation for employees.
Conclusion
The lack of standardization for overtime compensation calculation bases in China frustrates employment litigation. Courts will consider the various factors and base overtime compensation calculations on the regular hourly wage. The comparative analysis above and taking the higher amount as the overtime compensation calculation base can better protect employee rights.
If you need help with employment issues in China, CBL can connect you with an affordable, qualified lawyer.
FURTHER READING
Get more insights about Chinese employment law:
For a general overview of this topic, see also CBL’s China Employment Law FAQ.
Footnotes
[1] Chen Yiyu v. Zhuhai Hongchen Metal Surface Technology LLC. Employment Contract Litigation, Zhuhai Lower Appeals Court (Guangdong Appeal 04-cv-520 (2016)), (陈宜有与珠海市宏宸金属表面工艺有限公司劳动合同纠纷上诉案（（2016）粤04民终字520号）), (Zhuhai Lower Appeals Court, May 16, 2016), (in Mandarin)
[2] Zhuhai Appeal cv-152 (2015), (2015)珠中法民四终字第152号, (Zhuhai Lower Appeals Court, Aug. 24, 2016), (in Mandarin)
[3] Zhuhai Jinwan Case cv-243 (2015), (2015)珠金法平民初字第243号, (Zhuhai Jinwan District Court, Jul. 7, 2015), (in Mandarin)
[4] Guangzhou Appeal 01-cv-734 (2018), (2018)粤01民终734号, (Guangzhou Lower Appeals Court, Feb. 26, 2018), (in Mandarin)
[5] Guangzhou Appeal 01-cv-13818 (2019), (2019）粤01民终13818号, (Guangzhou Lower Appeals Court, Jul. 29, 2019), (in Mandarin)
[6] Ministry of Railways and Ministry of Labor Notice: Regulations for the Implementation of the China Employment Contracts Act by the National Railways, (铁道部、劳动部关于印发国家铁路实施《中华人民共和国劳动法》的若干规定的通知), (Ministry of Railways and Ministry of Labor, Dec. 27, 1994), (in Mandarin)
[7] Chengdu Appeal No. 1278 (2014), (2014)成民终字第1278号, (Chengdu Lower Appeals Court, Apr. 8, 2014), (in Mandarin)
[8] Guangzhou Appeal 01-cv-8845 (2019), (2019)粤01民终8845号, (Guangzhou Lower Appeals Court, Jun. 6, 2019), (in Mandarin)