The following is an email on which I was cc’ed from one of our lawyers to a client regarding paying overtime to employees in China. I am running it here because we are so often asked about China’s overtime requirements and because they are so different from those in the United States. Speaking overly generally, overtime is not required to be paid to high level salaried management in the United States and that generally is not the case in China, unless prior approval from the Labor Bureau has been obtained. The ease of obtaining this approval varies wildly across China.
Here’s China general system:
1. China does not recognize the concept of a salaried employee (without overtime) as is common in the U.S. for management personnel.
2. The only legal method of payment in China is by an hourly wage. If an employee works beyond the 40 hour week, then the employee must be paid overtime. If the employee works beyond the daily 8 hours, the employee must be paid overtime. That is the way the law works and there are no exceptions.
3. This inflexible approach is set up for the conditions of line workers in a large factory. It does not fit with the way that businesses like yours actually operate.
4. The employee manual we provided you accords with the strict requirements of China’s overtime laws.
5. Companies deal with the overtime issue in various ways, depending on the actual conditions of the company. The most common is to have an informal policy for adjustment. That is, if an employee works too much in any day or week, the employee takes time off in subsequent days or weeks to compensate. This approach does not strictly comply with the law, but I am not aware of any company getting objections if the approach is actually followed. However, it is not something that should be memorialized in the employee manual and there are no guarantees that you will not be facing an overtime action at some point down the road for this.
6. For management personnel, the situation is more complex. It simply makes no sense to expect that management personnel will be paid on an hourly basis in the same way as production workers. Most Chinese companies therefore expect their management personnel to work on the same basis as U.S. style salaried workers. Even though this is common, it still exposes the company for a claim for overtime if there is a later dispute. Again, this is not something that should be included in the employee manual. It should instead be worked out with the manager on a case by case basis.
7. The really difficult issue is with sales staff who travel extensively and maintain irregular work hours. It is best to have a policy where their work hours are adjusted depending on how much time they have spent working in any given week. This is often difficult to do. A number of Chinese companies make no attempt to pay overtime or make any adjustment for this type of worker. As a result of this, these companies are exposing themselves to claims for back overtime in the event of a dispute. Here, the risk is quite real. I have seen a number of cases where this type of worker makes an overtime claim in situations where there is a dispute. Since the employment situation is getting more difficult in China, disputes are becoming more common. You therefore need to take particular care on these issues.
How do you handle overtime in China?