If you have staff in China, it is important that you have a thorough understanding of Chinese labor laws. China’s employment contract law dictates working hours, breaks, workdays, annual leave, and overtime payment.
The rules pertain to local workers as well as expatriates and are equally imposed on Chinese companies and wholly foreign-owned enterprises (wfoe). If you are planning to hire employees in China, it is important that you understand the complex labor laws in China and remain compliant with them.
Laws Regulating Overtime in China
Chinese labor laws are predicated on the idea that employees have the right to know which days and hours that they are expected to work each week. These laws protect the rights of the Chinese workforce and help establish harmonious employment relationships.
When hiring Chinese employees, it is important that employers be aware of the following specific rules regarding overtime pay in China:
- 8-hour workday
The typical workday should last up to eight hours. Any work that is performed after this time limit must be paid at 1.5 times the employee’s normal working wage.
- 3 hours of overtime
The law also requires that any overtime on a given day be limited to 3 hours.
- 36 hours of overtime
The law also limits the total number of overtime hours at 36 hours per month.
- Extra pay for weekend overtime
Any overtime hours that are worked on a weekend must be compensated at 2 times the employee’s normal working wage.
- Holiday pay
If an employee in China is required to work on a Chinese national holiday, he or she must be paid 3 times the employee’s normal working wage.
If you are hiring employees in China, it is important that you remain compliant and on good terms with the Chinese government and local trade councils.
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Formal Overtime Pay Modifications
Although most employers are required to follow the rules as described above, some employers can legally modify their employment contracts to stay within the bounds of PRC labor laws.
These laws permit an employer to use one of the methods discussed below to modify overtime pay rules, so long as the contract is approved by the local labor council and the Chinese government, if necessary.
Because the employer has governmentally-sanctioned approval to modify overtime rules, employers enjoy a degree of insulation from potential liability.
Overtime Pay Clause
The first option is for Chinese employers to include any overtime pay clause in their employment contract or handbook that deviates from the standard overtime pay in China rules.
To be enforceable, the employee must agree to the modified terms. Horizons can help you find qualified employees and negotiate a favorable deviation from Chinese overtime pay rules that suit your business model.
One way to accomplish this favorable approach is to adopt a Comprehensive Working Hour system that specifically outlines the exact number of hours that should be worked before overtime payments would be due under the PRC labor law.
For example, rather than stating that 8 hours is a typical workday, you may state that 9 hours is a standard workday and that overtime benefits do not begin to accrue until after 9 hours are worked on any given day.
The professionals at Horizons can discuss the needs of your business and work to define a standard working schedule so that you can negotiate the most favorable terms in your agreement. We can also assist with submitting your proposal to the Chinese government so that you can minimize the hassles associated with complying with Chinese overtime pay laws.
Flexible Working Hour System
Another option to deviate from the standard labor laws while remaining compliant with the intent behind these laws is to adopt a flexible working hour system.
Under this method, high-ranking management, employees in transport, warehousing, and railway sectors, and sales workers who work more than 40 hours per week are not paid overtime wages until they have worked a certain number of hours designated by the local labor council.
This system is used to accommodate employees whose working hours are difficult to measure. These workers are generally paid on a salary and do not receive overtime pay. Under this system, employers are required to observe appropriate rest schedules.
The local labor bureau must generally approve this working hour system before it can be implemented. Each city has its own rules and requirements for this system, so it is important to be aware of the regional variations. Contact with the relevant authority can help you learn about your requirements and ensure you remain compliant with them.
For example, Beijing does not require senior management to get pre-approval before implementing a flexible working hour system before they undertake it. Companies in Beijing can look to their Articles of Association to determine which individuals within the company are considered “senior management” and can use this system.
In contrast, Shanghai does require pre-approval before engaging in a flexible working hour system.
Informal Overtime Pay Options
Employers may also be able to adopt informal overtime pay options. However, they must be cautious using such methods that are not governmentally sanctioned because employees may still make a claim for overtime pay.
One such informal method is to not pay an employee for more than 8 hours on one workday but to allow the employee to leave early another day during the workweek to compensate for the extra time.
Another informal method is to pay an employee on salary regardless of the actual number of hours worked. These workarounds do not meet the intent of Chinese labor laws and leave an employer susceptible to wage and hour claims.
It is an employer’s best interest to remain compliant with Chinese labor laws. A professional company like Horizons can ensure that you employ best practices for your business, including:
- Hiring enough employees to avoid having to pay overtime pay
- Negotiating employment contracts and terms that are most favorable to your business
- Maintaining a current employment contract for each employee
- Submitting employment contracts to local and national government entities as necessary
- Advising you regarding Chinese labor laws
- Ensuring that your China payroll team understands Chinese policies and regulations regarding the payment of overtime wages
Additionally, Horizons can directly hire employees for a company that does not have a legal entity in China through employee leasing and PEO. Contact us to learn more about our service offerings.