China is a global economic powerhouse, no doubt about it. This makes it almost impossible to avoid for multinational companies (MNCs) that want to succeed worldwide. Any company active in the Chinese market, however, needs a comprehensive understanding of the country’s labor laws. Legal compliance, i.e. adhering to labor laws, not only means companies avoid scrutiny and/or fines, but it also fosters more harmonious relationships with employees.

When looking at Chinese labor laws, the following aspects bear mentioning: employment contracts, working hours and regulations regarding overtime, rules about wages and compensation, how leave and holidays are dealt with, what a termination entails and how severance pay is calculated, and how to go about labor dispute resolutions. Recent developments and updates are also important for any global company doing business in China in 2025. In addition to all of these, this article will also list a number of compliance strategies for MNCs active in China right now or planning on entering the Chinese market.

Employment Contracts

The topic of contract law in China is vast, but for the sake of brevity and clarity, let us focus on only employment contracts here - on the necessity of having written contracts, the different employment contracts permissible, and we will also take a look at the length of probation periods.

Mandatory Written Contracts

Employers are required by law to establish written labor contracts with employees to clarify rights and obligations. The Labor Contract Law of the People’s Republic of China (LCLPRC) states verbatim in article 10: “To establish a labor relationship, a written labor contract shall be concluded.” This means that spoken agreements are not binding and both parties have to adhere to what is explicitly written down in the contract.

It may seem obvious that this is the case, but the reality is sometimes not as clear cut. Especially when employing foreigners, I have seen cases where “side-agreements” were reached that were outside of the written labor contract. For the safety of both the employing company and the employee, this should be avoided at all costs.

Types of Employment Contracts

For Chinese nationals, contracts may be fixed-term, open-ended, or project-based, depending on the nature of employment as set out in articles 12-15 of the LCLPRC.

• Fixed-term labor contracts end at an agreed upon date

• Open-ended labor contracts do not have a definite ending date. This type of contract can only be concluded upon reaching consensus through consultation.

• Project-based labor contracts are those that expire upon completion of a given job. The period for completion of the job (agreed upon by the employing unit and the worker) is the term of the contract.

Probation Periods

It is lawful to have probation periods in fixed-term contracts of more than 3 months and in open-ended contracts, but they should be stipulated within the labor contract and adhere to legal timeframes. These timeframes are delineated in article 19 of the LCLPRC and can be summarized as follows:

Payment during the probation period cannot be lower than the lowest wage level for the same job within the company, less than 80% of the wage agreed upon in the labor contract, and must never be lower than the minimum wage where the company is located.

Working Hours and Overtime

According to article 36 of the Labor Law of the People’s Republic of China (LLPRC), a standard workweek in China is comprised of no more than 8 hours per day, and no more than 44 hours per week. In practice, many blue collar workers work 6 days per week (with employers , while most white collar workers have 5-day work weeks.

Overtime work should be compensated, and rates are specified by law as follows:

Flexible or alternative working hours may be implemented after applying for them and getting approved by the relevant labor administrative authorities.

Wages and Compensation

China has laws and regulations about minimum wages to be paid, about when and how wages should be paid, and also what mandatory social insurance contributions should be made by the employing entity.

Minimum Wage Standards

There are different levels of minimum wages set all across China, as local governments are tasked with defining what the requirement of “equal pay for equal work” and a level “raised on the basis of economic development” mean for their province/autonomous region/municipality. Look at the minimum wage levels for 2025 in this table published by the Ministry of Human Resources and Social Security of the People’s Republic of China for an overview.

The difference between the highest monthly minimum wage level (Shanghai) listed in the table and the lowest one (level 4 minimum wage level in Guangdong Province) is over CNY 1,000, or over a third of the total. These differences are due to the cost of living in the different cities and regions, which can easily be 5-10 times more expensive in metropolitan areas as compared to the countryside. The governments reevaluate the minimum wage levels periodically based on:

• the lowest living expenses of employees themselves plus that of the average number of family members they support

• the average wage level of society as a whole

• labor productivity

• the current employment situation

• regional differences in economic developments

as per article 49 of the LLPRC.

Payment of Wages

Wages need to be paid in full and on time, and no unjustified deductions are allowed (see article 50 LLPRC). The law states that payments are to be made monthly (which is common practice) and in the form of cash (which is unusual nowadays - payment directly to the employee’s bank card is more common).

The provisions of article 51 LLPRC are interesting, as they state that employers have to pay employees for statutory holidays, marriage, or funeral attendance, as well as periods where employees participate in social activities. These types of social activities like volunteering have been encouraged more and more by the government in recent years.

Social Insurance Contributions

Both employers and employees are required by law to participate in social insurance programs, with payments for

• Pension

• Medical insurance

• Unemployment contributions

• Work-related injury payments, and

• Maternity insurance

The provisions for the so-called “5 insurances and 1 fund” (五险一金, wǔ xiǎn yī jīn in pinyin) are set down in article 70 of the LLPRC and also discussed in detail in the Social Insurance Law of the People’s Republic of China (SILPRC). The five insurances are the ones mentioned above, the “1 fund” refers to the housing fund that enables employees to get a mortgage for purchasing a house or apartment.

According to the CN iCalculator, in 2024, the contributions by employees and employers for the 5 insurances and 1 fund were as follows:

The law requires employers to pay those rates for all employees, Chinese or foreign. In reality, there are some companies that try to evade this. The December 2024 integration of work permits with the social security card for foreign employees has made this harder for companies, and given foreign employees more security.

Leave and Holidays

There are laws and regulations in the PRC regarding employees’ statutory leave entitlements, rest on public holidays, as well as some special leave policies. Let’s have a look at all of them in turn.

Statutory Leave Entitlements

According to article 45 of the LLPRC, employees are entitled to paid annual leave if they have worked in the employing entity for more than a year. The exact minimum leave days have been fixed in article 3 of the Regulation on Paid Annual Leave for Employees (RPALE) and are as follows:

Public Holidays

On public holidays, employees have a right to rest. Those public holidays are:

• New Year's Day (always on January 1)

• Spring Festival (varies, in 2025, January 28 - February 4 are off, make-up working days are January 26 and February 6)

• Qingming Festival (varies; in 2025, April 4 - April 6 are off, no make-up working days)

• Labor Day (always on May 1, but holidays vary; in 2025, May 1 - May 5 are off, April 27 is a make-up working day)

• Dragon Boat Festival (varies; in 2025, May 31 - June 2 are off, no make-up working days)

• National Day (always on October 1, but holidays vary; in 2025, October 1 - October 8 are off, make-up working days are September 28 and October 11)

• Mid-Autumn Festival (varies, in 2025 celebrated at the same time as National Day, October 1 - October 8)

The make-up working days mentioned above are unique to the PRC. There is a system in place which gives a number of consecutive days off, but asks employees to work extra days on weekends before or after the holiday to compensate.

If an employee has to work on official days off, employers shall pay overtime (see section Working Hours and Overtime for more information).

Special Leave Policies

There are additional leave policies for certain circumstances, such as marriage (10-30 days depending on the province/municipality) and bereavement leave (1-3 days depending on the province/municipality). There are also no less than 90 days of maternity leave (as per article 62 LLPRC) for childbirth. Some regions/municipalities give paternity leave to the new father as well, ranging from 7 to 30 days depending on the location.

For special leave policies, companies are well-advised to check with local HR experts so they are sure to comply with the regulations at their place of business.

Termination and Severance

The rules for termination and severance are complex, and employers should make sure they know what constitutes grounds for termination, that they observe the correct notice periods, and ensure they calculate severance pay correctly.

Grounds for Termination

There are special circumstances under which employers are allowed to terminate labor contracts. These are laid out starting from article 23 of the LLPRC. These circumstances are (among others):

• Mutual agreement after consultation or mediation

• The employee not having been up to the requirements of recruitment during the probation period

• The employee having seriously violated work discipline or company rules and regulations

• The employee having caused grave losses through gross neglect of duty or malpractice for personal gains

• The employee having been investigated for criminal responsibility

There are other circumstances that allow a termination, but with a notice period of 30 days, such as when

• An employee becomes unfit to work due to a non-work-related injury or illness

• An employee is and remains unqualified for the work they were employed for even after re-training

• The company is on the brink of bankruptcy (but then, trade unions and the authorities need to be consulted)

A company may not cancel a labor contract when, among other regulations

• An employee has become unfit for work due to occupational diseases or work-related injuries

• An employee is receiving medical treatment for diseases or injuries within the prescribed period of time

• A female employee is pregnant, up to 6 weeks postpartum, and while she is breastfeeding

Notice Periods

The notice period to be observed by employees wanting to cancel their work contract is generally 30 days. However

• During the notice period

• If the employer forces the employee to work through violence, intimidation or illegal restriction of personal freedom

• If wages are not paid

employees can cancel their labor contracts with immediate effect.

The notice periods to be observed by the company are mentioned in the section Grounds for Termination.

Severance Pay

When an employer cancels a labor contract before it naturally comes to term, employees are entitled to severance pay. Severance pay is calculated based on the provisions laid out in article 47 of the LCLPRC. It is paid out as either N, N+1, or 2N, depending on the circumstances of the termination. N stands for the standard severance pay, calculated by counting 1 average monthly salary for each full year the employee has worked at the employing company. For less than 6 months of work, 0.5 average monthly salaries are counted. For 6 months to 1 year, 1 average monthly salary is counted.

Sample Severance Pay Calculations for N

An employee with an average monthly salary of CNY 20,000 who has worked at a company for 4 years and 5 months would receive:

(CNY 20,000*4) + (CNY 20,000*0.5) = CNY 90,000

If the same employee had worked for 4 years and 7 months, they would receive:

(CNY 20,000*4) + (CNY 20,000*1) = CNY 100,000

in severance pay.

If the employer does not give the required 30 days notice, an additional average monthly salary is added, leading to N+1.

2N is double severance pay in case of wrongful termination.

The average monthly salary is capped at three times the average monthly salary in the local area, and the calculation period is capped at twelve years.

Labor Dispute Resolution

The Chinese legal system places heavy emphasis on resolving disputes through mediation. When mediation fails, arbitration and litigation follow.

Mediation and Arbitration

Any time there is a labor dispute, employer and employee should first seek to resolve it through mediation. Step one is for the employee to seek a consultation with the employer, ideally with the trade union or a third party present. Then, if the consultation is not desired or the consultation fails, the parties can apply to a mediation institution to help them solve the issue.

If no resolution is found within 15 days, the parties can apply for arbitration. Likewise, if an agreement is reached through mediation, but one of the parties fails to perform the agreement, arbitration can be applied for.

The rules and regulations surrounding mediation and arbitration are laid out in the Law of the People's Republic of China on Labor-dispute Mediation and Arbitration (LMAPRC).

Litigation

When both mediation and arbitration fail, one or both parties can initiate litigation in the Chinese court system. The key laws and regulations governing labor dispute litigation in the PRC are the LMAPRC mentioned above, the Civil Procedure Law of the PRC (CPLPRC), and the Supreme People’s Court Judicial Interpretations on Labor Disputes.

A party is allowed to file a labor dispute lawsuit if

• The arbitration tribunal rejects their claim.

• The arbitration decision is not in favor of one party, and the dissatisfied party wishes to challenge it.

• The dispute involves issues that require a court’s judgment, such as high-value compensation claims or employer misconduct.

The main steps in labor dispute litigations are

• Filing a lawsuit within 15 days of the arbitration decision with the relevant People’s Court

• The case being accepted after a preliminary review, and a notice of acceptance being issued within 7 days

• Pretrial proceedings being initiated, with both parties submitting supporting evidence

• The court hearing(s) and the verdict - usually issued within 6 months

• An appeal (if needed) that has to be filed with an Intermediate People’s Court within 15 days of the judgment

MNCs active in China should always ensure that their labor contracts comply with Chinese labor law so they can minimize litigation risks. Companies should also maintain detailed employee records, so that they can provide written evidence should it come to litigation. And it may be wise to partner with local legal professionals familiar with the Chinese labor litigation procedures.

Recent Developments and Updates

As mentioned previously, Chinese laws and regulations often change, so it is important to stay abreast of recent developments. Here are some changes that have come into effect in recent months:

Retirement Age Reform

Probably the biggest change in labor law recently has been the gradual increase in the statutory retirement age, effective from January 1st, 2025. Before, the PRC had one of the lowest retirement age regulations on the planet - 60 years for men, 55 for white-collared female employees, and 50 for female blue-collar workers. These ages will be increased over a 15 year period, to reach the following retirement ages by 2040:

The adjustment will happen by a few months each year, trying to balance workforce sustainability with individual retirement planning.

Another change is that employees are now allowed to retire up to three years earlier or later than the statutory retirement age for the first time. This flexibility is a nod to promoting prolonged workforce participation by accommodating the employees’ individual circumstances.

Interim Measures for Illness and Disability Benefits

Another recent change that has been made to China’s labor law are the Interim Measures for Illness and Disability Allowances for Basic Pension Insurance for Enterprise Employees. Since January 1st, 2025, employees who become fully incapacitated due to illness or non-work-related disabilities and fall under the basic pension insurance in China can now benefit from financial support. The benefits they receive depend on their contribution years and how close they are to retirement. Payments are funded by the pension insurance fund, and while receiving benefits, recipients are exempt from any further contributions to the fund.

Benefits are calculated as follows:

• Those who will retire within 5 years receive benefits based on their local pension formula and retain the same pension once they retire.

• Employees who have more than 5 years of work left before retirement receive less, and their benefits get recalculated once they are 5 years away from retirement age.

• Those with less than the minimum contribution years to the pension insurance fund only receive benefits for a limited period, depending on their contribution history.

All applicants must prove they are incapacitated, and benefits are reassessed periodically. Family members of deceased beneficiaries get financial support similar to what the employee would have received.

Review and approval of all applications is conducted by the provincial authorities.

These new measures replace previous disability-related retirement policies, and previous beneficiaries will now receive payments under these updated regulations.

Provisions on Facilitating and Regulating Cross-border Data Flow

Another change in laws that majorly affects multinational firms in China and that touches on labor law is the Provisions on Facilitating and Regulating Cross-border Data Flow. These regulations, issued by the Ministry of Justice on October 30th, 2024, want to ensure the secure storage and transmission of data as well as protect personal information rights. They are based on the PRC’s Cybersecurity Law, Data Security Law, and the Personal Information Protection Law (PIPPRC).

Most relevant for MNCs are the stipulation that where a transfer of personal information of an employee across borders for HR purposes is necessary, the employing company (i.e. the data processor) is exempted from some of the obligations requested under the PIPPRC. This means that MNCs do NOT have to

• Conduct security assessments of outbound transfers of personal information

• Conclude a standard contract of the outbound transfer of personal information

• Pass a personal information protection certification

This means less paperwork and hassle than expected previously, surely a relief to HR departments across the board.

Compliance Strategies for Global Companies

There are certain best practices recommended to multinational companies to ensure compliance with Chinese labor law, such as legal consultations, proactive internal audits of the company to identify compliance gaps, and partnerships with local subject matter experts.

Seeking advice from legal experts of Chinese labor law helps your company make sure it is compliant and also mitigates risks. Good addresses for initial information gathering are the website of the Chinese Ministry of Justice (en.moj.gov.cn) as well as the Legal Services of China website. This last one allows one to seek legal consultation by registering a free account and then contact the “national authoritative team of star lawyers” in English.

Another good source of information is the information on Labor Law Updates on the National People’s Congress website.

To figure out where your firm’s compliance gaps are, it is recommended to conduct regular audits within the company. This way, you can address the problems before worse issues arise. In addition to checking the resources on employer compliance on the website of the Ministry of HR and Social Security of the PRC, it is recommended to search local Labor Bureau guidelines by region, depending on where the company is located.

No MNC should do without the support of a local HR service provider or compliance expert who is familiar with the various regional regulations in China’s labor laws. Places to find good partners are the China Employment Promotion Office, and the All-China Federation of Trade Unions for contact with the local trade union.

China’s labor law landscape is complex. But understanding the country’s requirements for employment contracts, knowing about working hours and overtime regulations, getting clear on how wages and compensation are organized, learning rules on leave and holidays, understanding the laws around terminations and severance pay calculation, and how to resolve labor disputes is hopefully easier after reading this article. Also, mentioning the recent developments and updates such as the retirement age reform, the measures for illness and disability benefits, and the provisions on cross-border data flow that are relevant for global companies should help you keep abreast of what is happening in Chinese labor law in 2025. By working on proactively complying with national and local labor laws and regulations, MNCs can maintain their legal standing, foster positive workplace relations, and avoid penalties.

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