Ask any experienced HR manager who has worked across multiple countries, and they’ll tell you the same thing: China is different. Not impossible but genuinely different. And nowhere is that more apparent than when it comes to labour law.
China’s legal framework strongly favours employees. The rules around contracts, termination, working hours, and pay are not just guidelines, they are enforceable obligations, and the consequences of getting them wrong are real. Wrongful dismissal can result in double severance pay. Operating without written contracts from day one can expose you to backdated double wages. Failing to pay overtime correctly invites inspections and penalties.
If your business employs people in China whether you’re a growing SME or a multinational managing a regional team, understanding China labor law is not optional. It’s fundamental to running a legally sound operation.
This guide walks you through the areas that matter most.
The Legal Foundation: What China’s Labor Laws Are Built On
China’s employment framework rests on two core pieces of legislation: the Labour Law of the People’s Republic of China (1994) and the Labour Contract Law (2008). Together, they set the baseline for how employment relationships must be structured, managed, and ended.
These national laws apply universally, but it’s important to understand that implementation often happens at the local level. Cities and provinces can – and do – set their own minimum wages, social insurance rates, and procedural requirements. A company operating in Shanghai faces a different compliance landscape than one operating in Chengdu, even though both are bound by the same national framework.
That local variation is one of the reasons so many foreign businesses get caught out.
Employment Contracts: Non-Negotiable From Day One
Under China labor law, a written employment contract is not optional – it is a legal requirement. Employers must sign a written contract with every employee within one month of their start date.
Fail to do this, and the law turns against you quickly. If an employee works without a signed contract for more than one month, they are entitled to claim double their monthly wage for every month they worked without a written agreement. That liability accumulates fast and is very difficult to dispute.
China recognises three types of employment contracts:
Fixed-term contracts have a defined start and end date. They are the most common type, especially for new hires. Importantly, if you renew a fixed-term contract twice consecutively, the employee gains the right to request an open-ended contract something many employers don’t anticipate until they’re in the middle of it.
Open-ended (indefinite) contracts have no set end date and provide employees with stronger job protections. Terminating an open-ended contract requires solid legal grounds and careful process.
Project-based contracts are tied to a specific piece of work and end automatically when that work is complete. They’re less common but valid for defined project engagements.
One more thing worth knowing: any significant change to a contract job duty, salary, work location requires the written agreement of the employee. Unilateral changes, even well-intentioned ones, are considered a breach of contract under Chinese law.
Working Hours and Overtime: The Rules Are Strict
China’s standard working schedule is an 8-hour day, 40-hour week. Employees are entitled to at least one rest day per week. This is the national baseline, and while flexible or comprehensive working hour systems exist for specific roles, these require prior government approval and cannot simply be applied by employer discretion.
Overtime is permitted in limited circumstances but must be compensated at defined legal rates:
- Weekday overtime: 150% of normal hourly wage
- Weekend work (when not compensated with a rest day): 200% of normal hourly wage
- Public holiday work: 300% of normal hourly wage
Employers often underestimate how carefully Chinese labour authorities scrutinise overtime records during inspections. Accurate time-tracking is not just good practice — it’s a compliance requirement.
Minimum Wage: Varies by City, Not by National Rate
Unlike many countries with a single national minimum wage, China sets minimum wages at the provincial and municipal level. This means the floor is different depending on where your employees are based.
In 2025, monthly minimum wages ranged from approximately RMB 1,420 in lower-tier cities to RMB 2,690 in top-tier cities, with Shanghai and Beijing sitting among the highest. These figures are reviewed and adjusted periodically, so employers need to stay current particularly those with teams spread across multiple cities.
Late salary payments are also taken seriously. Failing to pay on time can trigger penalties and give employees grounds for resignation with severance entitlement.
Termination: The Area Where Foreign Employers Stumble Most
If there is one area of China labor law that catches foreign businesses by surprise, it is termination. Chinese employment law is deliberately protective of workers, and the bar for lawful dismissal is high.
There are specific legal grounds on which an employer can terminate a contract, including serious misconduct, failure to meet job requirements after training or reassignment, significant changes to business circumstances, and economic redundancy. Each of these has its own procedural requirements, and employers are expected to document everything carefully.
Notice and severance apply in most termination scenarios. Employers generally must provide 30 days’ written notice — or pay one month’s salary in lieu- unless termination is due to proven serious misconduct. Severance pay is calculated as one month’s average salary for each year of service, based on the employee’s average earnings over the previous 12 months.
Unlawful dismissal carries significant consequences. If a termination is found to be illegal, the employer must either reinstate the employee with back pay, or pay double the statutory severance. Labour arbitration is mandatory before any court action, and employees have up to one year to file an arbitration claim after a dispute arises.
The practical lesson here is simple: do not terminate an employee in China without proper legal grounds, proper documentation, and ideally, the input of someone who knows the process well.
Leave Entitlements: What Employers Are Required to Provide
China labor law mandates several forms of paid leave, including:
Annual leave based on years of service – ranging from 5 to 15 days for employees with more than one year of continuous service. Unused leave must be compensated, and failure to do so can result in a fine of 300% of the employee’s daily wage for each unused day.
Maternity leave of at least 98 days for female employees, with many provinces extending this further. Male employees are also entitled to paternity leave, the length of which varies by city.
Sick leave entitlements based on the employee’s tenure and local regulations.
Public holidays – China observes 11 national public holidays annually, with many cities adding additional local holidays. Employees required to work on public holidays must be paid at 300% of their normal rate.
Social Insurance: Mandatory for All Employees
Every employer in China must enrol their employees in the social insurance system from the date of hire. This covers five types of insurance – pension, medical, unemployment, work-related injury, and maternity – plus contributions to the housing provident fund. Both employer and employee contribute, with the rates varying by city.
This is not a benefit you can opt out of or delay. And because rates and bases are city-specific, companies operating across multiple locations need to manage different calculations for each city.
Staying Compliant Is an Ongoing Effort
China labor law is not static. Regulations are updated at both national and local levels, sometimes with limited advance notice. New judicial interpretations – like those issued by the PRC Supreme People’s Court in September 2025, which clarified important rules around contracts and termination – can shift how existing law is applied in practice.
For most foreign businesses, trying to track and interpret all of this internally is neither practical nor cost-effective. The risk of missing an update that affects your compliance position is simply too high.
Let an Expert Handle It for You
China Payroll has been helping international businesses navigate the full complexity of China labor law since 2002. From employment contract drafting and payroll compliance to termination support and HR outsourcing, their team provides the practical, ground-level expertise that foreign companies need to operate confidently in China.
Whether you’re hiring your first employee in China or managing an established team across multiple cities, they bring the local knowledge and compliance experience to keep your business on the right side of the law.
👉 Explore the full China Labor Law resource at china-payroll.com and get in touch to find out how they can support your business.
