Following in the footsteps of our recent post Forming a China WFOE: Ten Things To Consider, I present to you: China Employment Contracts: Ten Things to Consider. Here goes, the top ten things you should consider when employing anyone in China.
- Term of employment. China’s employment system is a contract employment system. This means each employee must be hired pursuant to a written contract and this also means that it is very difficult to fire an employee during the term of that contract. After the initial contract term expires, you may re-hire the employee pursuant to a second fixed term contract. In most places in China the employee will automatically be converted into an employee with an open contract term at the end of the fixed term. This means you have only one chance to hire an employee on a fixed term basis and so you should be sure to use an appropriate initial employment term. We usually (but not always!) recommend an initial term of three years because that allows you to provide a six month probation period (the longest period permitted under Chinese law), during which time you can relatively easily terminate an employee and because it delays the onset of the open term period for a period long enough to allow you to determine whether it makes sense to convert the employee to an open-term employee.
- Salary. Your written employment contract must set forth a salary. One issue to consider here is whether to pay a 13th month in salary, which is customary in many parts of China, and is typically paid out before the Chinese New Year. This is not required, but if you decide to do it, you will want to specify clearly and in writing the conditions for receiving this 13th month salary or you may have to pay this bonus forever even though you wanted to preserve your option to do otherwise.
- Bonus. If you are going to have a bonus system for your employees, you should set out its parameters in the employment contracts.
- Vacation. The statutory vacation period is based 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 provide more vacation time than set forth above, you should so specify in the contract.
- 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 with that employee. If you wish to provide other benefits beyond the statutory minimum to all of your employees, it usually makes sense for you to spell that out in your rules and regulations.
- Travel. If your employees will travel domestically or internationally, you should have a written travel expense policy.
- Overtime. You will generally be required to pay overtime to any employee who works beyond the normal working time of eight hours a day and five days a week. If this standard system does not work for you, you should consider adopting an alternative working hours system for a given employee. See China’s Forty Hour Work Week Is Mandatory. Except When It’s Not, China’s Forty Hour Work Week Is Mandatory. Except When It’s Not. Part II and China’s Forty Hour Work Week Is Mandatory. Except When It’s Not. Part III.
- Trade Secrets/IP Protection. If IP is important to you (and most of the time it most certainly should be), you should have a separate Trade Secrecy and IP protection agreement with your employees.
- Rules and Regulations. You must have one. You will also want to make sure that your employees acknowledge in writing that they have received this document and that they agree to abide by it.
- It’s complicated and it’s local. I don’t mean to scare you here (actually I do!), but Chinese employment laws and regulations often change and often are local and your employment contracts should always be in Chinese. If this doesn’t scare you….