Practical Compliance Guide for Chinese Enterprises on Full-Cycle Employee Employment

I. Recruitment Stage: Guard the First Compliance Red Line

1. Strictly Prohibited Acts (Heavy Penalties for Violations)

1. Employment of child labour under 16 years old is forbidden. Once verified, fines start from RMB 5,000 per person. Juvenile workers aged 16–18 must be filed with the local human resources bureau and are prohibited from night shifts and high-risk positions.
2. Do not withhold identity cards or graduation certificates, and refrain from collecting deposits, uniform fees or security deposits. Violations require full refund plus fines ranging from RMB 500 to 2,000.
3. Job advertisements must not contain employment discrimination. Clauses such as “males only”, “no married women without children”, “hepatitis B carriers not accepted” are illegal.

2. Pre-employment Background Verification (Avoid Vicarious Liability)

1. Mandatorily obtain the separation certificate to confirm the termination of the candidate’s previous employment relationship. If the candidate cannot provide it, sign a Labour Relationship Liability Undertaking.
2. Verify original academic certificates and qualification certificates for core positions and retain copies; only identity information registration is required for general posts.
3. Candidates shall complete the Employee Onboarding Form, specifying emergency contacts and work history, with personal signature for confirmation.

II. Labour Contracts: The Primary Source of Employment Risks

1. Mandatory Deadline for Signing Contracts

• More than 1 month but less than 1 year: Payment of double wages;
• If no contract is signed after 1 year: The law deems an open-ended labour contract automatically formed.

2. Mandatory Contract Clauses (None Can Be Omitted)

3. Statutory Rules for Probation Periods (Frequent Compliance Pitfalls)

1. Maximum probation limits (only one probation period may be agreed for the same employee)
   • Contract term less than 3 months: No probation period allowed
   • 3 months ≤ contract term ＜ 1 year: Probation ≤ 1 month
   • 1 year ≤ contract term ＜ 3 years: Probation ≤ 2 months
   • 3-year fixed-term / open-ended contract: Probation ≤ 6 months
2. Two salary thresholds must both be satisfied:

   Probation salary ≥ 80% of the regular salary and ≥ local minimum wage standard.

3. Critical misunderstanding: A standalone probation contract is invalid. Such an agreement will be legally recognised as a formal labour contract, depriving the employer of the right to terminate employment during probation.
4. Five social insurances must be contributed during probation; there is no rule allowing contributions only after confirmation.

4. Contract Filing

III. Statutory Rules for Social Insurance & Housing Provident Fund (No Room for Negotiation)

1. Complete social insurance registration within 30 days of onboarding. Five social insurances are mandatory (pension, medical, unemployment, work injury and maternity insurance).
2. Agreements for employees to “voluntarily waive social insurance contributions” are completely invalid. Employees may file for arbitration at any time to claim supplementary contributions and economic compensation. If work injury occurs without social insurance, all compensation liabilities rest with the enterprise.
3. Mandatory requirements for housing provident fund vary across regions; contributions are compulsory for enterprises in most cities.

IV. Payroll, Working Hours and Overtime Administration

1. Mandatory Payroll Requirements

1. Salaries shall be paid monthly in currency. Payment in kind is prohibited. Wages must be disbursed at least once per month without unreasonable delay.
2. Payslips shall be issued monthly with employee signature confirmation. Bank payroll records and signed documents shall be retained for 2 years for inspection.
3. Salaries shall not fall below the local minimum wage standard (excluding overtime pay, meal allowances and transportation subsidies).

2. Statutory Overtime Pay Rates

• Extended working hours on workdays: 150% of regular wage
• Rest days (weekends): Priority shall be given to compensatory leave; if compensatory leave cannot be arranged, 200% overtime pay applies
• Statutory public holidays: 300% overtime pay; compensatory leave cannot be used as a substitute

3. Working Hour Systems

1. Standard working hour system: 8 hours per day, 40 hours per week, with at least one rest day per week.
2. Comprehensive working hour system / non-fixed working hour system: Must be filed and approved by the human resources bureau. Without approval, all working hours shall be calculated under the standard system with corresponding overtime pay.

4. Key Evidence Preservation

V. Compliance Points for Daily In-service Administration

1. Three prerequisites for legally valid corporate rules

   ① Contents do not violate labour laws; ② Adopted through discussion by the employee representative congress or all staff (retain evidence of democratic procedures); ③ Publicised to all employees with signed Rule Acknowledgement Forms. Rules without democratic adoption and public notification will not be recognised in labour arbitration.

2. Job transfer and salary reduction

   Priority shall be given to amending the labour contract through written mutual consultation. Unilateral job transfer is permitted only if justified by business needs, with unchanged salary and no humiliating reallocation. Otherwise, employees may resign and claim compensation.

3. Confidentiality and non-compete agreements
   • Confidentiality agreements: May be signed with all employees with no mandatory compensation requirement;
   • Non-compete agreements: Restricted to senior management, technical staff and confidential positions. Monthly compensation shall be paid after termination (no less than 30% of the local minimum wage). The agreement becomes void if compensation is suspended. Non-compete clauses cannot be imposed on ordinary employees.
4. Statutory leave entitlements (salaries shall not be deducted)

   Full salaries shall be paid in accordance with local regulations for statutory holidays, paid annual leave, marriage leave, maternity leave and sick leave.

VI. Full Procedures for Employee Termination & Offboarding (Source of 90% of Labour Disputes)

(I) Voluntary Resignation by Employees

1. Probation period: Written notice 3 days in advance; confirmed employees: written resignation 30 days in advance.
2. Unauthorised absence: Retain written notices urging return to work. Terminate employment according to absence rules to avoid unlawful dismissal claims.

(II) Lawful Dismissal Without Compensation (Employee Fault)

1. Failure to meet recruitment criteria during probation (predefined written standards plus formal assessment records required);
2. Serious violation of legally valid corporate rules;
3. Severe dereliction of duty causing substantial economic losses to the enterprise;
4. Establishing concurrent employment with another entity and refusing to rectify;
5. Entering the labour contract through fraud such as falsified academic credentials or work experience;
6. Being subject to criminal liability.

(III) Scenarios Where the Enterprise Must Pay Economic Compensation

1. Mutual termination proposed by the enterprise;
2. The employee suffers illness or cannot perform job duties, and remains unqualified after job transfer or training;
3. Corporate restructuring & layoffs, or non-renewal of fixed-term contracts initiated by the enterprise;
4. Employees resign due to enterprise breaches such as wage arrears or failure to contribute social insurance.

(IV) Protected Groups Who Cannot Be Unilaterally Dismissed

(V) Offboarding Formalities (To Be Completed Within 15 Days)

1. Settle all outstanding wages, compensation for unused annual leave and overtime pay in a lump sum;
2. Issue a Certificate of Termination of Labour Contract;
3. Complete social insurance and housing provident fund de-registration and file transfer within 15 days;
4. Complete work handover with signed handover documents, and retain all paperwork.

VII. Distinction of Flexible Employment Models (Cost-Saving Alternatives for Enterprises)

1. Full-time labour contract (labour relationship)

   Social insurance contributions are mandatory and all labour regulations apply. Suitable for long-term core staff.

2. Service contract (commercial cooperation relationship)

   Applicable to retirees and short-term part-time projects. No five social insurances required. Service remuneration shall be specified and delivery records retained.

3. Labour dispatch

   Limited to temporary, auxiliary and substitute positions. Dispatched staff shall not exceed 10% of the enterprise’s total workforce; exceeding the ratio constitutes a violation.

4. EOR / Human Resource Outsourcing

   Enterprises without domestic legal entities may employ staff compliantly via outsourcing and transfer employment compliance risks.

VIII. Enterprise Employment Self-Inspection Checklist (Risk Avoidance Summary)

1. Sign labour contracts and process social insurance contributions within 30 days of onboarding;
2. Probation periods shall not exceed statutory limits; no standalone probation contracts;
3. Pay full salaries monthly; retain attendance and payroll documents for 2 years;
4. Complete democratic procedures and public notification for corporate rules with employee signature confirmation;
5. Document all job transfers, salary adjustments and dismissals in writing;
6. Issue separation certificates, transfer social insurance and settle wages within 15 days upon termination;
7. Do not withhold identity documents, collect deposits or engage in employment discrimination;
8. Non-compete restrictions apply only to core confidential positions with monthly compensation payments.

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