Vast Market, Structured Workforce

Hiring in China provides access to a vast and increasingly skilled talent pool, especially in sectors like technology, manufacturing, and professional services. However, the employment landscape is shaped by complex labour laws, regional policy differences, and strict compliance obligations. Employers must navigate statutory requirements around social insurance, housing fund contributions, income tax, and employment contracts. Understanding these local obligations is essential for building a compliant and sustainable workforce in China’s highly regulated market.

Social Insurances

All employees in China must be enrolled in local social insurance schemes and the housing provident fund. These contributions cover pension, medical, unemployment, maternity, and work-related injury insurance. Only a locally registered entity is permitted to handle these payments. Rates and contribution bases vary by city and are adjusted periodically. For example, in cities like Beijing and Shanghai, the total employer contribution rate can exceed 25% of an employee’s gross salary.

Income Tax

Employers are required to calculate and withhold Individual Income Tax (IIT) from employees’ monthly salaries. Since the 2018 income tax reform, the calculation includes a standard monthly allowance, social insurance contributions, and allowable deductions such as rent, children’s education, and elderly care. Accurate monthly reporting is essential for compliance.

Employee Benefits

Employee benefits in China include both statutory and optional components. Statutory entitlements include paid annual leave, maternity and sick leave, and contributions to social insurance. Many employers also provide supplementary medical insurance for employees and their dependants. It is standard practice for employers to manage leave tracking and reimbursements in line with local regulations and internal policies.

Contractual Period

Employment contracts must be in writing and signed within one month of the employee’s start date. Contracts may be fixed-term, open-ended, or project-based. Each format carries different legal implications, particularly concerning termination rights, renewal limits, and severance obligations. It is important to define clear and compliant terms from the outset.

Labour Law and Employment Contracts

China’s employment framework is contract-based. Verbal agreements or offer letters alone are not legally sufficient to establish an employment relationship. Properly executed written contracts are essential. If termination procedures are not followed correctly, labour relationships may be reinstated through legal action. Employers must be aware of statutory severance requirements and ensure adherence to due process.

Facilities and Equipment

Setting up operations in China such as leasing office space, procuring equipment, or arranging utilities requires a legally registered entity. Without one, companies may face challenges in making purchases, issuing invoices, or processing payments under Chinese regulatory requirements.

Understanding employment regulations in China is essential for any organisation looking to build a compliant and sustainable workforce in one of the world’s largest labour markets. China’s labour laws are comprehensive, with strict rules governing employment contracts, probation periods, social insurance, and termination procedures. These requirements can vary across regions, making it critical for employers to stay informed and aligned with local practices.

Employment Contracts

In China, employment contracts must be written in Chinese and comply with local labour laws. These contracts should clearly outline key terms, including the names of both parties, duration of the contract, probation period (if applicable), job responsibilities, work location, working hours, salary structure, payment dates, social insurance contributions, and health and safety requirements. The contract must also cover statutory elements such as minimum wage compliance, grounds for termination, and severance entitlements.

Penalty for Missing Written Contracts
If a full-time employee works for more than one month without a written employment contract, the employer is required to pay the employee double their monthly wage starting from the second month until the contract is properly signed. The calculation may vary by region and can include additional compensation elements such as bonuses or overtime pay, depending on local interpretation.

Automatic Open-Ended Contract
If an employee continues working without a signed contract for over one year, the employment relationship is automatically converted to an open-ended (indefinite-term) contract. Once this happens, the employer is legally obligated to continue the employment relationship until the employee reaches statutory retirement age, unless a lawful reason for termination is present.

Types of Contracts and Renewal Rules
There are three main types of employment contracts in China: fixed-term, open-ended, and project-based (task-specific). An open-ended contract must be offered if an employee has worked continuously for ten years or if they have completed two consecutive fixed-term contracts, unless the employee requests otherwise. Project-based contracts are designed to end once a specific task is completed and generally do not include a probation period.

Probationary Periods
An employee can only be placed on probation once, and the length of the period depends on the contract duration. For contracts longer than three months but less than one year, probation is limited to one month. For contracts between one and three years, the limit is two months. For contracts longer than three years or those with no fixed end date, probation may last up to six months. During probation, employees must be paid no less than 80% of the agreed wage and not below the local minimum wage. Employers must also provide clear, lawful reasons for termination if dismissal occurs during probation.

Probation Period

In China, the maximum duration of a probation period is determined by the length of the employment contract.

• For contracts lasting three months or more but less than one year, the probation period may not exceed one month.
• For contracts of one year or more but less than three years, the maximum is two months.
• Contracts with a duration of three years or more, or open-ended contracts may include a probation period of up to six months.

Employers are prohibited from assigning multiple probation periods to the same employee, and remuneration during probation must meet minimum statutory requirements.

Statutory Leave Policies

Employees in China are entitled to paid annual leave based on their years of continuous service with the current employer.

• Those with less than one year of service are not eligible for paid annual leave.
• Employees with one to ten years of service are entitled to five days of paid leave annually
• Employees with ten to twenty years receive ten days
• Employees with more than twenty years are entitled to fifteen days.
• Unused statutory leave must be compensated financially if not carried over, unless the employee voluntarily forgoes it.

When employees are required to work on designated rest days, they must be compensated at double the normal wage or granted compensatory rest on another day. If work is performed on official public holidays, it cannot be exchanged for a day off, and employees must be paid three times their regular daily wage.

Maternity and Paternity Leave

Female employees are entitled to a minimum of 98 days of paid maternity leave, which may commence up to 15 days before the expected date of delivery. Additional maternity leave may be granted depending on local regulations, often 30 days for “late childbirth,” typically defined as giving birth at age 24 or older, although this threshold may vary by province.

Paternity leave is also subject to local policies, but it generally ranges from 7 to 14 days. Pregnant employees are entitled to medical leave as needed and are protected against dismissal during pregnancy, maternity leave, and until the child reaches one year of age.

In China, employment termination is tightly regulated. Employers are required to present valid and sufficient evidence of employee misconduct or underperformance before initiating termination. Additionally, a 30-day written notice must be given to both the employee and the labour union (if applicable).

When termination proceeds lawfully, employers are obliged to provide severance pay. The statutory minimum is one month’s wages for every full year of service.

There are strict protections in place preventing dismissal under certain conditions. Employers may not terminate employees who fall into the following categories:

• Those who have been with the company for at least 15 years and are within five years of statutory retirement age.
• Employees awaiting diagnosis of a work-related illness or injury.
• Employees whose work capacity has been impaired due to an occupational injury or illness.
• Pregnant employees, those on maternity leave, or those in the nursing period.
• Employees currently undergoing medical treatment for non-work-related illnesses or injuries.

Moreover, employers cannot terminate an employee for the same reason they have previously attempted and failed to justify.

During probation, an employee may resign by providing three days’ written notice.

Severance pay is calculated as follows:

• For each year of service, one month’s average wage must be paid.
• If the employee has worked less than one year:
  1–6 months is counted as half a year (0.5 months’ pay).
  7–12 months is counted as a full year (1 month’s pay).
• For example, if an employee has worked for 2 years and 3 months, they are entitled to 2.5 months of severance pay. If they have worked for 2 years and 8 months, it becomes 3 months’ pay.
• Severance is based on the employee’s average monthly wage over the 12 months prior to termination.

The statutory cap for severance is 12 months’ pay.

China’s social security system comprises five mandatory insurance schemes, known as the “five insurances,” along with a housing provident fund for Chinese employees. Foreign nationals working in China are generally required to participate in the five insurances, but are usually exempt from contributing to the housing fund—though this may vary by city.

Both employers and employees are required to contribute to the five insurance schemes, except for maternity and work-related injury insurance, which are solely the responsibility of the employer. Typically, employee contributions total around 8–10% of their monthly salary, while employers contribute approximately 20–30%, depending on the city.

The five insurance schemes include:

Pension Insurance: Employers usually contribute around 14–16%, while employees contribute approximately 8%. These contributions are divided between a pooled public fund and an individual account. Pension benefits are available upon retirement after meeting the required contribution period.

Unemployment Insurance: Employer contributions generally range from 0.5% to 0.8%, with employees contributing about 0.2% to 0.5%. To qualify for benefits, employees must have contributed for at least one year. Benefits can typically be received for up to 24 months.

Medical Insurance: Employer contributions typically range from 5% to 12%, and employee contributions are usually around 2%. This insurance covers costs related to non-work-related illnesses and medical treatment. In many cities, maternity insurance has been merged with medical insurance.

Work-Related Injury Insurance: Fully funded by the employer, with rates ranging from 0.5% to 1.9% depending on the industry’s risk level. This scheme covers medical costs and compensation for injuries sustained at work.

Maternity Insurance: Employers contribute approximately 0.5% to 1%. Female employees are entitled to 98 days of maternity leave, including pre- and post-natal periods. Additional leave may be available under local regulations. If a foreign employee is not enrolled in the maternity scheme, the employer is typically responsible for covering the full salary during the leave period.

The Housing Provident Fund is another mandatory scheme for Chinese employees. Both employer and employee contribute, usually between 5% and 12% of the monthly salary. The funds are reserved for housing-related purposes, such as purchasing or renting property. Foreign employees are generally exempt from this scheme unless local policies specify otherwise.

Make-Up Workdays in China (2025)

In China, when public holidays result in extended time off, it is common for the government to designate make-up workdays typically weekends to maintain the overall working schedule.

For 2025, the official make-up workdays are as follows:

• 26 January – Spring Festival (Chinese New Year)
• 8 February – Spring Festival (Chinese New Year)
• 27 April – Labour Day Holiday
• 28 September – National Day & Mid-Autumn Festival
• 11 October – National Day & Mid-Autumn Festival

Please find our China office addresses below:

Shanghai:
Unit G, 5th Floor, Zhaofeng World Trade Building,
No. 369, Jiangsu Road,
Changning District, Shanghai, PRC

Beijing:
Block 3, Level 9,
Unit 2, No. 1 Bei Qing Road,
Chang Ping District, Beijing, PRC

Email: lg@linkcompliance.com