Under China Labor Law, employment termination must follow lawful and fair procedures. This section outlines the legal grounds for ending a labor contract and the rules for severance pay, helping employers and employees ensure compliance and transparency in termination practices.
1. Legal Grounds
Under China Labor Law, employment can only be terminated under lawful and justified reasons. Below are the major categories recognized by law:
1) Mutual Agreement
Both employer and employee agree to terminate the contract voluntarily, usually accompanied by a negotiated severance.
2) Employee Resignation
Employees may resign by giving advance written notice — 30 days during regular employment or 3 days during probation
3) Employer-Initiated Termination
Employers may terminate contracts in cases such as:
- Employee incompetence after training or reassignment
- Major changes in business operation requiring downsizing
- Serious violation of company rules
- Misconduct causing significant damage
4) Contract Expiration
The contract ends naturally upon expiry, except where renewal obligations exist under law
2. Severance Pay
When employment is terminated under certain circumstances initiated by the employer—such as company downsizing, business restructuring, or redundancy—the employee is entitled to severance pay. The standard formula is:
Severance Pay = Years of Service × Average Monthly Salary
- Partial year less than 6 months = 0.5 month’s salary
- Partial year more than 6 months = 1 month’s salary
- Maximum cap = 3 × local average monthly wage
Severance must be paid on or before the termination date. Failure to pay on time may result in penalties or double compensation under Chinese labor law.
💡 Employer Tips
- Review employment contracts carefully before making termination decisions.
- Provide written notice and document employee acknowledgment.
- Keep records of payment calculations and signed receipts.
- Seek professional HR or legal consultation to ensure compliance.
China Labor Law defines key rules for fair and legal employment. By complying with China Labor Law, businesses protect rights, avoid risks, and ensure workplace stability.
At China Payroll, we help foreign companies manage payroll, navigate regulations, and stay compliant, so you can focus on growing your business. Contact us today to see how we can help your business succeed in China.
