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Why understanding China’s labour law is key to success

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Matthew Kong, Head of International Business at Talent Spot International explains why understanding China’s labour law is key to success

It is essential to have a registered legal entity in China to hire staff. Without a legal entity, it is only possible to hire staff through a licensed HR vendor who has the correct business license. These companies are able to provide contracts for staff and organise payroll. Whilst foreign HR companies can receive a recruitment license, they cannot be issued with a business license that allows them to hire staff on behalf of the company.

Establish your brand. A well known brand is more attractive to Chinese candidates than lesser known companies. A start-up might have to pay as much as 15 percent above the market average to attract the right member of staff due to a lack of brand recognition.

Make sure to retain staff. The cost of hiring new team members is much higher than keeping and training existing staff. As well as annual pay rises and good holiday packages, staff respond well to training and options for promotion.

Ensure you have a good company culture and localize accordingly. Understand the Chinese way of thinking and working and be aware that different mindsets might lead to a different approach in order to get results. Be flexible.

It is getting harder to hire non-local staff. In 2016, a policy was introduced to regulate foreigners working in China and to protect the local employment rate.

It is also important to be sensitive and aware of local culture and customs. Unlike in the UK, few people in China work part time or on short-term contracts. And it is essential to provide an annual bonus – normally around one month of salary – which should be given before Chinese New Year. The labour law in China is very much in favour of the employee and it is recommended that you sign a fixed term rather than an open ended contract.

Salary is still very much the main reason talent will take a job or not. Although do keep in mind also what opportunities for promotion and development you can provide them. The company’s brand and images is also important, as is the staff member’s relationship with their line manager. And, of course, employees want to ensure they have a good work life balance.

Pay and promotion are the main motivators that get Chinese staff working well. Also keep in mind training and some flexibility on holiday time off.

It’s essential to check references of new staff. Make sure you speak to their previous employers, especially those that are new to western firms. Don’t hire anyone without first getting references or it may cost you further down the line.

A start-up might have to pay as much as 15 percent above the market average to attract the right member of staff

When should a new labour contract be signed in China?


  1. Before the start date
  2. The actual start day is most common
  3. Within 30 days of the start date

Note that according to the Labour Contract Law, if a contract has not been signed within the first 30 days of the start date, then the employer is liable to compensate the employee for double their stated salary for the period they are employed.

If a contract is not provided within 12 months of the employee’s start date, not only will the employer be liable to pay double the agree salary for the preceding 12-month period but the employee will automatically be considered as a permanent employee and be entitled to remain employed at the company indefinitely.

What are the rules on probation?

 According to Article 19 of the Labour Contract Law,

  • If a labour contract is valid for over three months, but less than one year, the probation period shall not exceed one month;
  • If a labour contract is valid for over one year, but less than three years, the probation period shall not exceed two months;
  • In case of a three-year-or-above-fixed-term and non-fixed-term labour contract, the probation period shall not exceed six months.
  • An employee may notify the company of rescinding the labour contract three days in advance during the probation period.
  • If an employee is proved to be incompetent during the probation period, the employer may rescind the labour contract with the employee.

Only one probation period can be specified by an employee and an employer.

 What should be included in a labour contract?

  • Employer’s name, address, legal representative or principal responsible person
  • Employee’s name, address, ID card number or other valid identity document number
  • Term of the labour contract
  • Job contents and working location
  • Working hour scheme and number of annual leaves
  • Full scope of salary
  • Social contribution
  • Labour protection, labour conditions and occupational hazard prevention
  • Labour contracts must be in Chinese to have legal effect

Talent Spot International (www.talentspotgroup.com.cn), is a leading one-stop HR solution. Contact Matthew Kong at Matthewkong@talent-spot.com.cn.

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