China Employment Contracts: Top Issues to Consider
Hiring local employees is essential when your business operate in China. To stay compliant and to avoid potential labor risks, here are the top issues you need to consider when employing anyone in China.
1. Term of employment. China adopts a contract employment system, meaning each employee must be hired pursuant to a written contract. Also, it would be difficult to fire an employee during the term of that contract. When the initial contract term expires, you may re-hire the employee with a second fixed term contract. It is common in China that the employee will automatically become an employee with an open contract term at the end of the fixed term. The implication is that you have only one chance to hire a person on a fixed term basis, so you should use an appropriate initial employment term. An initial term of three years is recommended because it gives you a six-month probation period (the longest period permitted under Chinese labor law). During the six months, you can terminate an employee relatively easily because the onset of the open term period is delayed, and you have enough time to decide whether it's worthwhile convert the employee to an open-term employee.
2. Salary & Bonus. Your written Chinese employment contract must specify the salary. Additionally, it is noteworthy that many Chinese companies pay a 13th month salary before the Chinese New Year to their employees. Though it is not necessary, but if you decide to do it, you should specify the conditions for receiving this 13th month salary in writing, or you may have to pay this bonus forever, even if it prefer to keep the option not to do so. And if you are going to have a bonus system for your employees, you should set out its parameters in the employment contracts.
3. Vacation. In China, the entitled vacation period is dependent on years of service, as follows: More than 1 and less than 10 years service: 5 days vacation
More than 10 and less than 20 years service: 10 days vacation
More than 20 years service: 15 days vacation
If you want to offer more vacation days to your employees, you should so specify in the contract (Contact ChinaLegalExpress, and we can help you configure the employment contract that is optimized for your organization).
4. Overtime. Generally, you need to pay overtime to any employee who works beyond eight hours a day and five days a week. If you have a specific employee that requires special arrangement, you should consider adopting an alternative working hours system for that given person.
5. Travel. If your employees will travel domestically or internationally for business, you should have a sound written travel expense policy to avoid any potential dispute.
6. Other benefits. Your company's rules and regulations typically provide for the statutory minimum and apply to all employees. If you want to provide additional benefits to a particular employee, you should put that in the employment contract. If you wish to provide additional benefits to all of your employees, then spell that out in your rules and regulations. (Contact ChinaLegalExpress and see how we can manage your employee benefits efficiently at an affordable rate)
7. Trade Secrets/IP Protection. If IP is important to you, then you should definitely take precautionary measures to protect your core asset from your employees. And to be safe, you should have a separate Trade Secrecy and IP protection agreement with your employees (Contact ChinaLegalExpress and we will advise on best practices on protecting your IP from your employees and external domestic competitors. If you already have your China IP at risk, contact us and our top English-speaking Chinese IP lawyer will be at your service).
8. Your Chinese employment contract is always in Chinese.