Six Myths About China Employment Laws

I have been writing a lot lately about various myths regarding specific aspects of Chinese employment law. The below posts — all written within the last six months or — set forth many of those myths:

But I have yet to write about the most common China employment law myths overall. Until now.

Myth 1: A China employer can hire an independent contractor to avoid having to hire someone as a regular employee and have to pay all kinds of employee benefits. Though retaining someone as independent contractor is not entirely impossible, it can only be done under very limited circumstances. First, you need to consider the tasks of the person you are seeking to hire. For example, if you are a software company and this person is expected to work as a software design engineer, you probably need to retain this person as an employee. If your “independent contractor” is being managed according to your rules and regulations and all other company policies, it is very likely that such person will be deemed an employee for purposes of Chinese labor law. Moreover, if you wish to have full control over such person’s behavior, you might as well hire him/her as an employee in the first place. This is not something you want to get wrong and yet we constantly see foreign companies get this wrong.

Myth 2: In China, employment at will is possible, provided there is a well-crafted contract in place. Wrong. China is not an employment-at-will jurisdiction. Nonetheless, China employees can leave pretty much at any time for pretty much any reason so long as they give advance notice (generally speaking, 3 days notice during the probation period and 30 days written notice once past the probation period). In some Chinese cities (but not in others), with a well-crafted employment contract in both English and Chinese, it is possible to have an at-will arrangement with a non-Chinese employee.

Myth 3: A China employee on an open-term contract cannot be terminated. Ever. You cannot terminate a lifetime employee without cause just like generally you cannot terminate an employee on a fixed term contract without cause. Having an open-term contract means the employee has much more leverage when it comes to negotiating a mutual termination and that you will likely need to pay much more to dismiss the employee than to an employee on a fixed term contract. However, such employee is not untouchable. For example, if he or she has materially breached your rules and regulations, you may have valid grounds to terminate.

Myth 4: Employer rules and regulations are just a formality. I cannot stress enough the importance of having a set of English and Chinese rules and regulations that work for China. If you don’t have one, you should get started on drafting one NOW.

Myth 5: Overtime rules are not enforced and I know this because most other employers in my locale don’t follow the overtime rules. Wrong. The general direction in China is toward more enforcement and furthermore “foreign” employers are always going to be under closer scrutiny than their Chinese counterparts. Most importantly, even if the local human resources and social security authorities are not cracking down on illegal practices in your area, this does not mean your employees will not pursue you in labor arbitration for overtime.

Myth 6: We acknowledge our sales people are employees and we give them all social insurance and other employee benefits but because they get so much in commissions, we don’t need to provide them with any base pay. Wrong. If someone is hired as an employee, the safest route is to pay him or her a monthly base salary. Generally speaking, the absolute minimum is the local minimum wage standard. It usually does not matter that the employee’s average monthly pay is a lot higher than the local minimum. Where there is no base pay each month, the argument that the employee made a ton during the busy season is likely to fail and you will be deemed to have violated minimum wage laws.