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Employment Laws in China

mariblack3 Author:
Mariana Villa da Costa – Littler Mendelson

The Chinese labor environment has changed considerably over the past few years, to keep up with China’s shift towards capitalism and explosive economic growth.  The world’s attention is on China now, and in particular, the abuses of employees’ rights have caught the attention of the government and the international community, triggering new sets of laws that are being strictly enforced today.

Companies doing business in China must pay attention to these new laws and, in particular, HR practitioners need to understand the PRC’s employment laws to avoid conflicts in the country.

2008 PRC Employment Contract Law – A Very Liberal Piece of Legislation for Workers

The 2008 PRC Employment Contract Law (effective January 1, 2008) is a very generous law for workers, granting employees more protection than the old legislation.  For example, employers in China used to profit from using temporary workers; however, with the new law,  if employers keep using a temporary individual for more than one short-term contract period, this person would be viewed as a permanent employee, receiving all the benefits associated with permanent status.

 Even though employers had concerns about the legislation they knew it would be important to show more clarity in the employer – employee relationship.  This would, ultimately, send a message to the world about China’s willingness to adopt more transparent principles in support of positive employer-worker relations.

 Below are more details on provisions of the new law.

 2008 PRC Employment Contract Law – Mandatory Employment Contract

 This considerably new law does not replace 1995 Labor Law of the People’s Republic of China, but substitutes some of the chapters in individual employment contracts and also, details and adds other portions of the existing labor laws.

Before 2008, it was not very common for employees to have formal contracts with the Chinese companies, a  path to violations and abuses.  With this new law, a very detailed written employment contract is mandatory.  The contract must include details such as job description, working hours, and compensation, and it must be created during the first month of employment.

If the company fails to create the contract on time, then the employer is required to pay the worker twice his or her salary for every month that there is no contract.

More Protective Provisions

The law also has other interesting rules that increase the protection of employees in the workplace.  Some of them are:

  • Limitations of reasons for dismissal to serious issues such as incompetence or  rule breaking company rules
  • Determining that in mass layoffs some categories of employees are spared, such as sole family wage earners, and those who support a minor or an elderly person
  • Specifying actions and penalties for unlawful terminations
  • Prohibition of employers retaining employee’s documents and ID’s
  • Definition of what constitutes a fixed-term, an open and a specific contract
  • Stipulating grounds for termination that requires 30 days’ written notice or the payment of one month’s salary 

 Complying With the New Provisions:  Some Advice

Companies doing business in China are expected to comply with the new rules; therefore, it is important that HR practitioners bear in mind the following:

  • Use specialized legal counsel for interpretation of the new provisions
  • Establish a good relationship with the government authorities and with the trade unions
  • Complete the contracts in a timely manner and add all the specific provisions addressing the employee-employer relationship
  • Work along with the Chinese HR practioners to ensure a better understand of the cultural aspects
  • Create HR systems to manage the work relations
  • Carefully decide on termination of employees in China

 China, with its increasing economic power, has caused employers to focus more on operations there.  HR Professionals should pay careful attention to how business is conducted in China and especially, how labor and employee relations are managed.  Full compliance with the domestic laws will ultimately ensure the success of your operations in this fascinating land.

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Littler Mendelson

Reducing the Cost of International Assignments


Mariana Villa da Costa – Littler Mendelson 

The current worldwide economic crisis is putting businesses under increasing pressure to control costs.  In spite of the challenging economic environment, however, companies are continuing to do business globally and even more small and medium enterprises are starting up international operations.  Along with this growth of international business operations comes the globalization of employment.  In addition to traditional “expatriate” assignments, more and more organizations are looking for alternative types of assignments which better address their needs, and have the potential to reduce costs as well.

Below are some ideas on how to tailor your approach to international assignments in today’s environment.

Examine Your Population 

For companies going global, look for early-in-career professionals who are seeking international assignments for their own professional development. This group is typically younger, and often anxious for the opportunity.  A lot of expenses associated with expatriate assignments are related to family members.  Since these assignees are often single, or married but have not yet started a family, many of these costs can be avoided.  Companies can create a developmental policy specifically for this situation, with allowances that are scaled back.

 “Volunteers” are a similar group – those employees that raise their hand to go overseas for personal reasons, or those with a lot of geographic flexibility.  Older employees, without the burdens of young children, are often in this category.  An added bonus – these are often the most experienced technical talent in an organization, and can be deployed effectively for technology transfer and other training missions.

Introduce Flexibility 

Expats are always keen to get cash and manage their own expenses.  Many companies have introduced lump-sum options in lieu of traditional expatriate allowances.  This allows costs to be capped, and also offers flexibility to the employees.  It is widely known that if the company gives the employee US$ 5,000 for housing, it is likely that the entire amount will be used for monthly rent.  On the other hand, if the cap for total housing expenses is US$ 20,000, the employee will allocate his expenses more wisely.

 Keep in mind, however, that in some locations, lump sums will not be very tax-effective, and could actually result in higher costs.

Proactively Manage Your Assignments

Another issue facing companies is so-called “permanent expatriates.” These are employees occupying important positions in highly desirable locations of the foreign operation for many years, who for a variety of reasons have not been reclassified as locals. The company needs to establish, in their internal policy and in the international assignment agreement, clear guidelines that outline when such a localization would take place, and then follow the guidelines.  Our experience shows that many organizations have policies for localization, but few companies actually use them!

Use Tiered Policies 

Many companies use a tiered approach to international assignments.  Depending on the type and reason for the assignment, the terms and conditions for the expat package vary.  For example, local or “local plus” packages are used for development or volunteer assignments; expat “lite” might be used for moves in markets where talent is widely available or early localization is desirable; and full expatriate packages would be used for senior level executives and leadership positions.  Regardless of the pay approach, though, companies must always be mindful of the career planning issues of managing expatriates.

Consider International Pay Scales

For employees in managerial positions, and executives that are going to a foreign location to develop and assess business, and that likely will undertake future assignments, the use of a single global pay scale is another idea.  The design of such a scale needs to account for the rates in which the company competes for this key talent.  In addition to pay, benefits and some allowances might be included as well.  


Managing a global workforce prudently can be an important factor in the success or failure of a company doing business internationally.  Therefore, it is wise for companies to cultivate and develop new strategies to ensure their international compensation program is strategically aligned to their business, and also designed with costs in mind.

More About Mariana

Mariana Villa da Costa

Mariana on LinkedIn

Email Mariana

Littler Mendelson