Foreign businesses that wish to hire employees in China must jump through many hurdles, including making employment contracts that are recognized under China’s stringent labor laws.
Most employment relationships are based on a formal contract between the employer and the employee. These contracts often provide for continued work for the duration of the contract unless a rare circumstance arises that allows either party to get out of the contract early.
These contracts often require employment probation periods during which time the employer is free to test out the employee’s skills and potentially terminate the employee if he or she is not a good fit.
It is important for foreign employers to understand how labor contracts and employment probation works in China to avoid liability related to noncompliance.
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Duration of Employment Contracts in China
In China, there are three durations that may apply:
- Fixed-term employment contract – This type of employment contract establishes a contract for a certain amount of time, such as five or ten years.
- Non-fixed-term employment contract – A non-fixed-term employment contract does not have a specific duration included in it.
- Project-based employment contract – This type of employment contract is time-limited, but the time is connected to when the project is completed, rather than a specific date deadline.
Employment Probation in Chinese Employment Contracts
Chinese employment law permits domestic and foreign companies to build probationary periods into their employment contracts, as long as they meet the requirements of the Chinese government.
The China probation employment law associates the maximum term of probation with the duration of the employment contract. An employee can only have one probationary period. If the employer renews the employment contract, it cannot set up a new probationary period.
For example, the probation period would be as follows:
- For an employment contract for less than three months – no probation period
- For an employment contract with no fixed term – up to 6 month probation period
- For an employment contract for three months to one year – up to 1 month probation period
- For a 2-year labor contract, max 2 months
- For 3-year or indefinite (open-ended contract), max 6 months probationary.
Many employees are given a three month probation period. However, 3 months probation periods or any duration of a probation period are not mandatory terms that must be in a Chinese employment contract.
An employer who wants to test out a new employee and wants a 3 month probation period will have to clearly indicate this information in the employment contract. This clause must be agreed upon between the parties.
Chinese law prohibits imposing any probationary period for certain classes of employees, including the following:
- Part-time employees
- Temporary employees working less than three months
- Employees who are working on a term of employment based on completing a specific task
Salary During a 3 Month Probationary Period
During the probationary period, the employer may negotiate a reduced rate of pay. However, this information must be clearly indicated in the employment contract.
Furthermore, the salary during the 3 months probationary period must meet the following guidelines:
- Not less than 80% of the minimum wage for the same position
- Not less than 80% of the normal wage as indicated in the employment contract.
- Not less than the minimum wage for the employer’s location
Termination Procedures During the Employment Probation Period
Chinese labor laws do not allow employers to terminate employment contracts in a spontaneous manner. Instead, termination is only permitted if certain conditions are present, such as:
- The employee failed to satisfy the recruitment requirements during the employment probation period.
- The employee substantially violated the discipline code or internal rules of the employer
- The employee has substantially harmed the employer’s interests
- The employee committed a criminal act
- The employee has established a new employment relationship with a different employer and refuses to terminate it upon the request by the present employer
During the employment probation period, an employee can choose to terminate the contract if he or she gives the employer notice of at least three days.
When the employer terminates the employee, it must notify any impacted labor unions, but the union’s approval is not required.
Additionally, the employer must give the former employee proof of termination of the employment contract and documentation regarding the last day of work. The employee and employer should both sign these documents.
The employer must also settle any dues and remaining payments. The employer must also report the termination to the local social insurance authorities. Employers are required to maintain employment records for at least two years after termination.
Legal Consequences for Violating Rules Regarding the Probation Period in Employment Contracts
The China Labor Contract Law imposes penalties on employers that violate the employment probation rules.
If the employee has served the probationary period, the employer will be responsible for paying the employer an amount based on the time that the employee worked past the statutory probation period at the employee’s monthly salary after the probation period.
Contact Horizons for Assistance with Employment Probation Periods
As you can see, the Chinese rules related to employment probation periods can be quite complex and can result in substantial liability if the employer does not closely follow the rules. We can advise you on these rules.
Additionally, we provide PEO services so that we are the employer of record and are responsible for drafting compliant employment contracts and all legal requirements associated with them. Using our PEO services can save you time and hassle and help you avoid strict bureaucracies.
Contact us today to discuss how our leading experts can help your business.