Employee Handbook in China: Key Points for HR Compliance

The employee handbook plays an important role in human resources management in China, which not only sets forth daily management rules but also provides guidelines on employees’ behaviors in the workplace. However, not all employee handbooks are effective. It is imperative to ensure your employee handbook is made following the right procedures and is up to date.

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What is the employee handbook?

The employee handbook, also commonly referred to as staff handbook or work manual, is a set of written documents that stipulate the labor rules and regulations of the workplace and provides guidelines on employees’ behavior. It is like the “internal laws” that all employees must abide by.

Under the PRC Labor Contract Law, employers are required to “establish and improve upon labor rules and regulations pursuant to the law to ensure workers' entitlement to labor rights and performance of labor obligations”. The labor rules and regulations generally pertain to labor remuneration, working hours, rest periods and days off, labor safety and health, insurance and welfare, staff training, labor discipline, and labor quota management, and more.

To put it simply, an employee handbook should clearly indicate how employees will be treated in the workplace, what they will be provided, what they are encouraged to do, what they are forbidden to do, and what are the consequences of their non-compliant behavior.

What is the difference between an employee handbook and a labor contract?

The preceding paragraph partially explains why an employee handbook is different and separate from the labor contract.

While a labor contract can often be standardized and used as a template, applicable broadly across various companies, industries, and even cities in China (requiring only specific details, figures, and amounts to be customized for each employee and employer), an employee handbook should be tailored to each company's unique industry, business activities, corporate culture, and the capabilities of its HR management, among other factors.

Here is a more detailed comparison between an employee handbook and a labor contract.

Matters	Employee handbook	Labor contract
Whether mandatory	Not mandatory	Mandatory
Formulation	May be formulated any time when the company thinks proper.	Must be discussed, agreed upon, and signed by each employee and the company at the beginning of employment.
Applicability to employees	To all employees of the company (once properly formulated).	To each individual employee who has signed the labor contract.
Contents	The law does not stipulate mandatory clauses that must be included by an employee handbook, but the interpretation of “labor rules and regulations” indicates that it normally covers: 1)     rules or major matters pertaining to labor remuneration; 2)     working hours; 3)     rest periods and off days; 4)     labor safety and health; 5)     insurance and welfare; 6)     staff training; 7)     labor discipline and labor quota administration; and 8)     other matters which directly involves the vital interests of employees.	The labor laws and regulations require a labor contract must have the following mandatory clauses at least: 1)     name and address of the employer and the legal representative or key person-in-charge of the employer; 2)     name, address and identity card number or other valid identity document number of the employee; 3)     term of labor contract; 4)     job duties and work premises; 5)     working hours and rest periods and off days; 6)     labor remuneration; 7)     social security; 8)     labor protection, working conditions and occupational hazard prevention and protection; and 9)     any other matters to be included in a labor contract as stipulated by the laws and regulations.
Validity term	Once properly formulated, an employee handbook will become effective and binding for an indefinite period, until it is duly amended, or when the content becomes invalid due to law changes.	The validity term is stipulated in each labor contract, which could be renewed or terminated early in writing according to law.
Focus	The rules that all the employees shall comply with, and the corresponding punishment in case violation of rules.	The remuneration and work duty for each individual employee. The incentives based on the employee’s performance.

Why is it important for employers to have a well-drafted and properly formulated employee handbook in place?

As highlighted in the previous comparison between the employee handbook and the labor contract, a labor contract typically cannot encompass a wide range of specific details, especially those that pertain to the unique characteristics of various industries.

Consider this scenario: An employee frequently engages in minor infractions, such as consistently arriving late for work, leaving early, dishonesty with their manager, or making inappropriate remarks during working hours. While these may be minor transgressions, their repetition can lead to dissatisfaction or complaints from supervisors and colleagues. Consequently, the company may contemplate terminating this employee's contract.

The legal grounds for terminating an employee without compensation are typically limited and stringent, one of which is the occurrence of a "serious violation of labor rules and regulations."

In this context, if there is no established set of "labor rules and regulations," i.e., a well-prepared employee handbook, it becomes challenging for the employer to demonstrate the existence of a serious violation of the labor rules and regulations. Consequently, there may be no legal basis for dismissing the erring employee without compensation.

This scenario exemplifies why an employee handbook that clearly stipulates workplace rules and regulations is of utmost importance for employers.

How to ensure the validity of the employee handbook?

First and foremost, the contents of the employee handbook must align with applicable laws and regulations, including local mandatory rules. For example, if City A's local regulations grant employees 10 days of childcare leave per year, a company registered in City A should not reduce the childcare leave entitlement in its employee handbook. Any such attempt would render the rule invalid.

Additionally, aside from complying with legal requirements, the contents of the employee handbook should be reasonable and fair. Consider a consulting company as an example. If the handbook stipulates that the company can immediately terminate an employee without compensation after just two instances of tardiness, this policy would be deemed unreasonable and unfair for employees with flexible working hours. In the event of a labor dispute, such provisions could be invalidated by a court or arbitration tribunal.

Secondly, once the employee handbook's contents are drafted, it must undergo a "democratic process" as mandated by the PRC Labor Contract Law.

The "democratic process" entails a series of interactions between the employer and employees involving discussion, negotiation, and potential amendments to the employee handbook. This process is designed to demonstrate that the handbook's content has been thoroughly deliberated with employees, securing their full understanding and substantial consent.

To achieve this purpose, the democratic process is recommended to encompass the following steps:

Step 1: Carry out equal negotiation with the labor union or employee representatives before making a decision
Legal requirement	Suggested actions*	Suggested documents* to make along with the actions
Paragraph 1, Article 4 of the PRC Labor Contract Law: When an employer formulates, revises or decides on rules or major matters pertaining to labor remuneration, working hours, rest periods and off days, labor safety and health, insurance and welfare, staff training, labor discipline and labor quota administration etc. which directly involves the vital interests of workers, such matters shall be discussed by the employee representatives congress or all staff who shall make proposal and give their opinion and the employer shall carry out equal negotiation with the labor union or employee representatives before making a decision.	Call a meeting with labor union or all staff regarding the formulation/ amendment of employee handbook.	Notice of meeting
	Have the meeting with employees to discuss the draft of employee handbook and solicit initial comments and suggestions.	Meeting sign-up sheet
		Minutes of meeting
Step 2: Revise the employee handbook based on concerns raised by the labor union or employee
Legal requirement	Suggested actions*	Suggested documents* along with the actions
Paragraph 2, Article 4 of the PRC Labor Contract Law: During the decision and implementation of rules or major matters, the labor union or staff can raise their concern with the employer on any inappropriate issues and such issues shall be revised through negotiation.	Collect the concerns and comments from employees.	Opinion collection and summary form
	Decide whether and how to amend the draft based on employees’ comments.	Minutes of the executive management discussion
	Call the second (and additional) meetings.	Notice of meeting
	Have the meeting with employees to discuss the revision to employee handbook in the second (and additional) meetings.	Meeting sign-up sheet
		Minutes of meeting
Step 3: Announce the decision on rules or major matters or notify the employee
Legal requirement	Suggested actions*	Suggested documents* along with the actions
Paragraph 3, Article 4 of the PRC Labor Contract Law: Employers shall announce decisions on rules or major matters or notify the employees.	Call training meeting(s) with all employees to interpret and learn the final version of the employee handbook.	Notice of meeting
		Meeting sign-up sheet
		Minutes of meeting
	Distribute the final employee handbook to all employees.	Receipt for all employees to sign.

* The listed steps and documents are suggested based on legal requirements and experience. Employers should determine what steps and documents to adopt according to their actual situation.

Common misunderstandings

In reality, some employers may hold certain misconceptions that should be avoided. Let's address these misunderstandings:

Misunderstanding 1: "I don't need an employee handbook if I only have a small number of employees. The rules can be written in the labor contract."

Truth: While this notion might be acceptable for employers with only 1-2 employees and minimal expectations, labor rules and regulations are typically comprehensive and systematic. It is impractical and unwise to include these extensive guidelines in individual labor contracts. Furthermore, if labor rules are embedded in the labor contract, any necessary amendments due to internal changes or legal updates will complicate matters and consume more time compared to modifying an employee handbook through the democratic process. Here's why:

1. Firstly, any modification to the labor contract requires the agreement of each individual employee, and the changes must be re-signed in writing by both the individual employees and the employer. In other words, the employer must engage in discussions and negotiations with each employee for every amendment, regardless of its significance.
2. Secondly, while an employee handbook amended through the democratic process applies universally to all employees, an amended labor contract only pertains to the specific employee and the employer. To extend the amended rules to all employees, the employer must ensure that all employees agree to the same amendment and subsequently re-sign their contracts accordingly.

Misunderstanding 2: “As long as I have all my employees sign the employee handbook, it will automatically become effective and valid.”

Truth: The mere act of having all employees sign the employee handbook does not guarantee its effectiveness and validity. To ensure the employee handbook is indeed effective and valid, two key criteria must be met:

• The contents must be in compliance with the law, reasonable, and fair.
• The formulation of the handbook must have undergone the democratic process as outlined earlier.

Misunderstanding 3: "A company can create only one comprehensive employee handbook that applies to all employees."

Truth: As mentioned at the beginning of this article, an employee handbook encompasses a set of written documents that outline labor rules and regulations. It doesn't have to be a single document, nor must it be explicitly named as an "employee handbook." For example, in a manufacturing factory, the employer may wish to enforce "Work Plant Safety Rules" for production line workers, establish "Anti-Corruption Rules" for sales department employees, and implement a "General Employee Code of Conduct" for all employees. Such an approach is permissible and reasonable, provided that the essential labor rules and regulations have been subjected to the democratic process.