CBL’s Introduction
China’s wage payment system is based on a standard 40-hour workweek, but employers can apply for fluctuating and irregular hour plans; there are special penalties for back pay. Overtime is usually at 1.5x, but during holidays increases to 3.0x. Payment is calculated on a per day basis, with the standard month definition of 21.75 days. Social security is a mandatory benefit that must be paid directly to employees, usually amounting to a third of their compensation. Using an EOR/PEO service to pay indirectly is unlawful, and can result in extensive penalties.
This official guide was translated from the Chinese government’s labor & social security regulatory guidance resources using the user-centered translation method.
In this translation, we’ve used standard native English terminology based on what the underlying Chinese law means. For example, law firms in China will misleadingly refer to “comprehensive work systems” whereas the legislative intent explicitly says they mean fluctuating work plans, and we use the term that means what the law intends to say.
While the government sources are highly informative and focus on issues regulators focus on the most, your labor risks can only be minimized with sound legal advice. Consider asking CBL to help you find a lawyer to invest in labor compliance assurance.
Contents
3. Overtime Circumvention Case Study
5. Paying via EOR / PEO is Illegal in China
1. Wages
Wages in China are defined as including hourly, piece rate, bonuses, allowances, and overtime payments. However, it does not include insurance, benefits, travel reimbursements, or expenditures for purposes related to doing the job. Businesses have the freedom to determine what wages will be. Minimum wage is defined as the lowest pay and benefits that must be given to an employee for ordinary work during their work hours under their employment contract. Statutory paid leave including annual leave, home leave, marriage and bereavement leave, and maternity leave are all included as ordinary work time.
Employers must make payment using monetary currency, which means they cannot make in-kind payment or pay using securities such as stocks. Payment must be made directly to the employee, but a relative may be designated if the employee is unable to accept payments. The employer can also entrust a bank to make such payments.
Businesses must keep written records of the amount, time, and receipt of payments and retain these records for our inspection; pay stubs must be provided to employees.
(See generally, the China Wage Payment Temporary Rules)
A business may pay wages no less frequently than every month, but you may make them more frequently, for example weekly or daily. The payday is determined by agreement, but if it falls on a weekend or holiday the date will automatically be moved to the preceding business day. Annual bonuses are paid out at the end of the year. Wages must be paid at the rate specified in the employment contract during statutory holidays and vacation periods, but not for unpaid personal leave.
Back pay is owed if the employer fails to pay the agreed wages, pays at a rate below minimum wage, or does not pay required overtime. In these cases, the labor regulator will issue an order to the employee to make the back pay by a provided deadline, otherwise the regulator will order an additional 50%-100% of the back pay as damages. The employer is also liable to pay financial compensation as severance for workers who quit. In severe cases, criminal liability may be imposed.
The base for calculating overtime or unsigned employment contract penalty is
the wage rate provided in the employment contract or if there is none the standard wage for that position at the entity, but if not available or difficult to determine, a typical employee’s monthly salary, and if not applicable due to high variability in compensation, then 70% of the employee’s pay for the previous month.
Medical treatment period wage payment differs according to whether an injury or illness occurred on the job, and will be divided between workman’s compensation and medical leave.
Hazard pay for working in the heat is required if the working environment is above 33℃,
and is a statutory part of the wage structure. Hazard pay for working in the heat depends on the province, typically around 300CNY per month or 20CNY per day.
2. Work Hours & Overtime
Local regulations in China, the representative one in this article being Beijing’s, generally set the standard work hours at 40 hours per week and 8 hours per day. Businesses unable to use the standard hours plan are nonetheless required to ensure that work hours do not exceed 40 hours per week and that employees have one day off per week.
This requirement also extends to those businesses authorized to use a fluctuating workweek plan, and they must ensure that average daily work time does not exceed 8 hours and weekly work time does not exceed 40 hours. Additionally, employees working strenuous jobs defined at Grade 3 or higher are limited to 11 hours per day and must have one day off per week.
Above these hour limits, overtime pay is owed as follows:
- General Overtime: 1.5
- Weekend Overtime Without Exchanged Rest Days: 2.0
- Statutory Holidays: 3.0
For employers with regulatory approval to use a fluctuating work hours plan, any period average working hours that exceed these limits will be deemed overtime hours, and the employers are also required to pay 1.5, 2.0, or 3.0 overtime rates. Positions with regulatory approval to use the irregular work hours plan may be exempted from overtime.
Calculating Overtime
There are 11 holidays in China defined by the National Holiday Procedures:
- International New Year: 1 day off (January 1);
- Chinese New Year: 3 days off (the first, second, and third days of the first month of the lunar calendar);
- Qingming Day: 1 day off (on the day of Ching Ming in the lunar calendar);
- Labor Day: 1 day off (May 1);
- Dragon Boat Festival: 1 day off (on the day of the Dragon Boat Festival in the Lunar Calendar);
- Mid-Autumn Festival: 1 day off (on the day of the Mid-Autumn Festival in the lunar calendar);
- National Day: 3 days off (October 1, 2, 3).
Public holiday overtime must be paid at 3.0 times the base wage, and work on other days off must be paid at 2.0 times.
The China Employment Act requires holidays to be included when calculating working days, and the average number of working days in a month is calculated as (365 days – 104 days) ÷ 12 months = 21.75 days.
The wage base is determined by the employment contract. If there is none, by the collective bargaining agreement; and if neither exists, by the wage normally appropriate to that employee. All payment types must be over minimum wage.
The regulator will order an employer to provide back pay for unpaid overtime by a specific deadline, after which an additional 50%-100% penalty may be imposed. Criminal liability will be sought against employers who use force or coercion to deprive employees of their overtime rights.
3. Overtime Circumvention Case Study
An employer must always follow these overtime rules, even if the employee agrees in writing to waive their overtime rights. The following classic case examines the result of a dispute between a technology company and its engineer.
Cai signed an employment contract for 12,000 CNY, running from 2017-20202018 Cai made a request for overtime, resigning the next year in 2019. The technology company claimed that the employee handbook signed by Cai specified employees must exchange days off when working overtime on weekends, otherwise forfeit their overtime rights.
Nonetheless, the arbitration tribunal ordered 9,655 CNY in back pay notwithstanding the agreement to waive overtime rights, citing the China Employment Act §44(b), which provides that the employer has a duty to plan the worker’s compensatory time off; otherwise, it must pay overtime. Employment Contracts Act §26(a)(2) invalidates agreements to waive overtime, which logically extends to company policy containing such waivers as, under China’s laws, fundamental statutory employment rights cannot be waived.
The employee handbook and company policy must therefore be both lawful and reasonable, otherwise, the company will be exposed to substantial labor risks.
4. Social Security
In China, social security is a mandatory benefit for all employment contracts made to several funds, for retirement, medical, unemployment, work injury, and maternity. An employer must establish set up social security accounts to collect contributions for each employee, and the employees have an obligation to ensure contributions are made on their behalf. Receiving benefits is a fundamental civil right in China.
Social security contributions must be made in full, therefore an employer cannot attempt to cut costs by not offering social security to employees, or for claiming employees are paid at a lower rate than they actually are. Employees are not allowed to agree with an employer to increase their salary in exchange for not enrolling in social security. Otherwise, the social security collection agency will order back payments for all missed contributions, either at its own discretion, or in response to a request filed by the employee. Should non-enrollment result in denial of a claim for benefits, the employee is entitled to demand full indemnification for those amounts from the employer.
The employee must be enrolled in social security within 30 days of when their employment starts. The social security base is the average monthly salary for the employee from the past 12 months, with a floor of 60% and a ceiling of 300% of the province’s average wage.
In the event of a force majeure event (i.e., natural disaster, civil unrest), an employer may request a deferment from the local social security department for up to one year, during which no late fees are owed, and after which social security contributions must be made.
Workman’s compensation contributions are paid as the total wages multiplied by the organization’s fee rate.
The fee rate is determined by the national government based on overall work injury statistics and a different rate is established for each industry. Rate reductions are available for small businesses.
Employers of workers who have multiple jobs must each make separate workman’s compensation contributions. If the employee is injured while the employer has failed to enroll them in workman’s compensation insurance, the employer is liable for the amount of the entire claim, which must be paid directly to the worker, and the employer must then make unpaid social security contributions.
Some work-related injury payments are the responsibility of the employer, not the social security fund. For serious injuries that result in the employee unfit to work or permanently disabled, the employer will be assessed additional financial compensation owed to the worker.
5. Paying via EOR / PEO is Illegal in China
Using an Employer of Record (EOR) and Professional Employer Organization (PEO) is illegal in China. Search engines are filled with false claims about the legality of EOR / PEO services:
- “Employer of Record is not legally regulated under current Chinese laws and regulations”
- “Compliant with China’s employment laws and regulations”
- “A legal employer on a company’s behalf”
Some of them even have apps to provide the service, where the employee gets their salary and social security contributions from a third party, not the actual employer.
Using these services can result in extremely wide-ranging surprise disruptions to an employee’s quality of life, because local government services and social insurance disbursements require being correctly enrolled in local social security. For example, in Beijing, employees may face restrictions on purchasing a home or vehicle, and they could be prohibited from enrolling their children in a local school district. There are no alternatives to compliant social security enrollment for enjoying these services.
The China Social Security Act does not permit using a third-party EOR/PEO service. The only legal way to enjoy local government services and social security benefits is to sign a contract of employment directly with the employer. Furthermore, the law requires these contributions to be made directly by the actual employer.
For improper payments, the China Social Security Act §88 requires that regulators impose a 2-5x penalty for improper social security payments that occur as a result of improper enrollment in social security due to misrepresentation or fraud. In the example of EOR / PEO, creating false or fraudulent employment relationship documentation for example including pay statements for an enrollment is unlawful. The employer will be liable to pay for the penalty for any improper payments from a social security fund, for example health insurance cover. The social security agency may also proactively discover the issue, deny coverage, in which case the employer must pay the social security benefits in lieu of the social security fund.
For example, the Workman’s Compensation Administrative Regulations provide that the actual employer must make contributions to the fund for an employee to qualify for coverage.
Conclusion
In these translations, we’ve learned that China has an intricate system for calculating work pay requirements, and that the Chinese legal system will aggressively impose penalties for violations. To minimize legal risk in this challenging field, consider asking CBL to help you find a lawyer to review your overtime policies and recommend strategies for successful compliance.
Sources
This article was translated to American English using the User Centered Translation approach from the following Chinese government publications. The content was reformatted and put in order.
- https://rsj.nc.gov.cn/ncsrsj/tzgg/202404/6a0342d125c34b9b8e2eb295d174daa7.shtml
- http://rsj.beijing.gov.cn/xwsl/mtgz/201912/t20191206_932359.html
- https://rsj.beijing.gov.cn/xwsl/mtgz/202111/t20211123_2542848.html
- https://rsj.nc.gov.cn/ncsrsj/zcfg/202404/119b1325aa53468ba9fc4573d0e18595.shtml
- https://rsj.beijing.gov.cn/xwsl/mtgz/201912/t20191206_925808.html