Labor Laws in China

Overview of China's labor laws

In China, a wide range of government institutions are involved in HR processes. While numerous bylaws and regulations are instituted at the local level, the central government also establishes several laws that must be followed.

Contributing Advisor

Fuki Fu

Manager, Human Resources

Two primary sources of employment law are instituted by the central government - the Labor Contract Law (2008) and the Labor Law (1995).

The Labor Law defines the rights and obligations of both parties and protects the legitimate rights and interests of workers while the Labor Contract Law was adopted to ensure efficient implementation of the employment rules and principles mentioned in the labor law.

In August 2025, the Supreme People's Court (SPC) issued Judicial Interpretation II on Labor Dispute Cases (Fashi [2025] No. 12), effective September 1, 2025. This landmark ruling standardizes judicial outcomes on open-ended contracts, co-employment liability, non-compete enforceability, and mandatory social insurance — and now shapes how all labor disputes are assessed across China.

Other labor laws instituted centrally that investors should take note of when doing business in China include:

• Social Security Law;
• Labor Dispute Mediation and Arbitration Law;
• Employment Promotion Law;
• Labor Union Law;
• Law of the People’s Republic of China on Work Safety;
• Guideline for the Conclusion of Electronic Labor Contracts; and
• Law on the Protection of Rights and Interests of Women. 

Here we discuss some basic requirements under China’s labor code that employers should take note of:

• Labor contracts;
• Work hours provisions;
• Compensation and overtime;
• Retirement; and
• Social security.  

Labor contracts

Types of labor contracts

The labor law requires employers to sign a written contract with their employees within one month, starting from the employee’s first day of work at the company. Failure to do so results in double salary compensation for each month without a contract and a non-fixed term contract by default after one year without a contract.

Under the 2026 compliance environment, regulators and courts increasingly expect contracts to be signed on or before day one of employment — not merely within the one-month grace period. Employers should adopt a policy of contract execution prior to the employee's start date.

Part-time work is an exception to this rule, where an oral agreement is considered sufficient.

According to the China Labor Contract Law (2008), there are three types of employment contracts:

• Fixed-term contract;
• Non-fixed term contract; and
• Job contract.

Fixed-term contract

The fixed-term contract creates an employer-employee relationship for a fixed length of time and can be used for part-time or full-time work.

Fixed-term contract is the most commonly used type of labor contract in employment relationships.

For workers to qualify for a part-time fixed contract, they must have five characteristics:

• The employee may not work for more than four hours per day or 24 hours per week;
• No probation period is allowed; either the employer or employee may end the agreement at any time;
• The employee is not entitled to severance compensation;
• The employee must be paid at least every 15 days; and
• Part-time employees are not required to have a written contract.

Part-time work could be appropriate for roles where tasks can be completed within a relatively short period of time daily.

Non-fixed term contract

Based on its unrestricted term and limited grounds for termination, the non-fixed term contract effectively guarantees the employee job security until retirement. Specifically, an employee on a non-fixed term contract can only be terminated based on grounds eligible for immediate dismissal, dismissal with 30 days’ notice, or as part of a mass lay-off. During a mass lay-off, employees on non-fixed term contracts must be prioritized over other employees.

Judicial Interpretation II (Article 10) significantly tightens when the 'two consecutive fixed-term contracts' threshold is met — requiring employers to offer non-fixed term contracts in four new scenarios: (1) accumulated negotiated extensions totaling at least one year; (2) automatic extensions that have run their course; (3) intra-group entity swaps where the employee remains in the same role; and (4) other avoidance behaviors in breach of good faith. Employers can no longer rely on contract restructuring or entity switches to delay conversion to non-fixed term status. Courts across Beijing, Jiangsu, and Shenzhen are applying this standard actively.

Job contract

Job contracts are defined by the specific task or project an employee is to work on, not the length of time. Once the project is completed, the employment relationship ends, and the company must pay severance to the employee. No probationary periods are permitted under this contract.

The relevant legal framework offers no guidance on what to do when a project is left incomplete or how employees should be compensated in such a case.

Mandatory clauses in labor contracts

According to relevant laws, the following clauses are mandatory to be included in the labor contracts:

• Name of the company, address, name of the legal representative or a key person in charge of the employer;
• Name of the employee together with a valid address and identification number;
• The terms of the labor contract;
• Description of the job and the location where it is to be implemented;
• Working hours, rest periods, and off days;
• Salary details;
• A statement that the employer will contribute social insurance for the employee; and
• Labor protection, labor conditions, and protection from occupational hazards.

Recommended clauses in labor contracts

For specific situations, a number of additional terms to the labor contract are recommended, including:

• Probation period;
• Non-competition clauses;
• Confidentiality clauses;
• Allowances and benefits (particularly for foreign employees); and
• Reference to the company rulebook or staff manual.

Under Judicial Interpretation II (Article 13), non-compete clauses are enforceable only if the employee had actual access to trade secrets or confidential information. Courts will invalidate non-compete agreements applied to employees in ordinary roles without such access. Employers should audit all non-compete clauses and tailor scope, geographic reach, and duration to each employee's actual access level.

Language of labor contract

All labor contracts should be executed in Chinese language for legal certainty.

Electronic labor contracts — those executed and stored digitally — are treated as valid written contracts provided they meet regulatory conditions on electronic signatures and tamper-proof storage. This was affirmed by the Guideline for the Conclusion of Electronic Labor Contracts and remains fully operative in 2025–2026.

Working hours

The Chinese labor code defines three main work-hour systems:

• Standard work hour system;
• Comprehensive work hour system; and,
• Non-fixed (flexible) work hour system.

The latter two systems are considered ‘special work hour systems’, which require special approvals and compliance.

The standard work-hour system

The standard workhour system requires that an employee’s workday is not more than eight hours, and an average work week is not more than 40 hours. Most white-collar jobs operate according to this system, equating to a five-day work week, although some domestic companies institute six-day work weeks.

The comprehensive work-hour system

The comprehensive work hour system accumulates work hours over a specified cycle (weekly, monthly, quarterly, or yearly). The average number of hours is then determined based on this accumulation period. This system is most suited to work roles with irregular shifts, including seasonal or project-based work.

The non-fixed (flexible) work-hour system

The non-fixed work hour system accommodates employees whose working hours are impractical to measure. Employees on such a work-hour system will generally be paid as salaried employees. This salary is a set amount paid per period, often monthly.

The Ministry of Human Resources and Social Security published Opinions on Several Issues Concerning Work-Related Injury Insurance (III), which clarified that 'workplace' includes modern arrangements such as remote work sites. This affects work-injury protections for employees on flexible or remote schedules.

Compensation structure under the labor code

Minimum wages

A minimum wage is the lowest remuneration that employers can legally pay their employees. The minimum wage doesn’t include overtime payment, allowance for special working environments, or different forms of welfare, such as social security contributions.

China's minimum wages have continued to rise incrementally across major cities in 2024–2025. Regional divergence remains significant: Tier-1 cities such as Shanghai, Beijing, and Shenzhen maintain considerably higher thresholds than inland regions. Employers with multi-city operations must verify local rates regularly, as adjustments occur at different times throughout the year.

Base salary

Base salary is the fixed monthly amount that the company guarantees to pay the employee. The employee’s base salary needs to be stated in the labor contract. Employers can also include some one-off payments.

For example, many companies make a 13th-month salary payment to their employees around Chinese New Year. Companies should beware of including any payments that are separate from the base salary in the labor contract, as they will be legally bound to make the payment. Instead, employers can choose to pay this amount as an annual bonus.

Allowances

The Chinese Tax Bureau allows foreign staff (including those from Hong Kong, Macau, and Taiwan) to deduct certain “allowances” before calculating the tax burden on their monthly salary, provided that:

• In the employment contract (and sometimes also in a board resolution depending on the location of the company), there should be a clear reference to the amount being paid to the employee under the title of each specific allowance; and
• Each month, the employee should produce evidence to show the company that this money was indeed spent on the services described in the contract; this is done using the “fapiao” or official invoice.

Overtime calculation

Overtime is paid differently depending on the work-hour system adopted by the employer.

Working hours in the standard work hour system are subject to the usual overtime rates:

• For overtime work, not less than 150 percent of the normal wage shall be paid;
• For work on a rest day, and where such rest days cannot be postponed and taken at another time, not less than 200 percent of the normal wage shall be paid; and
• No less than 300 percent of the normal wage shall be paid for work on an official public holiday.

In a comprehensive work hour system, overtime is applicable for hours worked above the standard set per cycle. Such rates match those of the standard workhour system for extra hours worked and work on public holidays. However, no rest day is outlined under this system.

Effective January 1, 2025, China added two new statutory public holidays — one day to the Spring Festival (Lunar New Year's Eve) and one day to Labor Day — bringing the total national public holidays from 11 to 13 days. This directly affects overtime calculations and workforce scheduling for employers using the standard work hour system.

Termination and severance pay

Terminating an employee in China is more difficult and often more expensive than in many other countries since the Chinese Labor Contract Law offers a high degree of protection for workers’ job security.

Employees may resign with 30 days’ notice, but for employers, there are limited grounds for terminating an employee before their contract expires. The employer must notify the labor union of the reasons for the dismissal before terminating a worker, and the circumstances surrounding the termination will determine its legitimacy.

An employer is required to make severance payment to employees upon termination for:

• Termination by mutual agreement and the proposal is put forward by the employer;
• Termination upon 30 days’ notice according to Article 40 of the Labor Contract Law;
• Termination upon bankruptcy/license revoking/permanent dissolution of the company;
• Termination in a mass layoff; and,
• Termination upon the expiration of the labor contract, except where the employer offers the employee a renewed contract on equal or better terms than the expired contract, but the employee refuses to accept it.

Judicial Interpretation II (Article 19) eliminates any remaining gray area on social insurance and severance: if an employer fails to make mandatory social insurance contributions, the employee may lawfully terminate the contract and demand full statutory severance pay — even if the employee previously agreed to an opt-out or cash-in-lieu arrangement. Courts confirmed that such agreements are void from the outset, and subsequent back-payments do not cure the original violation (though employers may recover the employee's share of retroactive contributions). This provision is commonly referred to as the 'new social insurance rule.'

Mandatory social security

China’s social security system is made up of six different kinds of insurance:

• Pension;
• Medical;
• Maternity;
• Work-related injury;
• Unemployment; and
• Housing fund.

Although both employer and employee are obligated to make contributions, it is generally the employer’s responsibility to correctly calculate and withhold the payments for both parties. Employer’s obligation to make adequate and timely contributions cannot be alleviated or exempted by reaching a mutual agreement with employees.

Local labor and tax bureaus are increasingly using data-matching between individual income tax (IIT) filings and social insurance records to identify mismatched contribution bases, delayed registrations, or improper probation-period exclusions. In 2025, inspections in major cities specifically prioritized overtime and social insurance compliance. Employers should reconcile IIT filings and social insurance records regularly and enroll employees from their first day of work, including during the probationary period.

Retirement age

China has officially launched a gradual overhaul of its mandatory retirement age, representing a significant transformation in employment policy. Through legislation passed in September 2024, retirement ages will be progressively raised across a 15-year timeframe.

The policy rollout will use a step-by-step methodology. As an example, a female manager born in the early 1970s will experience only a one-month extension to her retirement age, while women born in 1981 or afterward will be required to work three additional years before becoming eligible for retirement.

Pension system requirements are also being modified. Starting in 2030, the minimum period for pension contributions to qualify for basic benefits will expand from 15 to 20 years, with gradual increases of six months annually. Workers who satisfy the minimum contribution requirements may choose to retire up to three years ahead of schedule, as long as they don't retire below existing statutory minimums. On the other hand, employees who prefer to remain in the workforce past their designated retirement age may continue for up to three extra years, contingent on employer approval.

New Interim Measures for Disability Allowance under the Enterprise Employee Basic Pension Insurance took effect, providing financial support to insured employees who lose working capacity before reaching retirement age. Separately, the Administrative Measures for Work Capacity Appraisal took effect July 1, 2025, establishing a standardized national framework for assessing work-capacity impairment — relevant to both pension eligibility and work-injury claims.

Hiring foreign employees

Hiring foreign employees entails several steps and procedures.

To be eligible for work in China, foreigners should meet the following basic criteria:

• Attained 18 years of age and are healthy;
• Possess the requisite professional skill and the corresponding work experience for the work;
• Have no criminal record;
• Has a confirmed employer in China; and
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• Hold a valid passport or any other international travel document.

The administrative procedures for hiring foreign employees depend on the intended working period in China. According to the Administrative Regulations on the Employment of Foreigners in China and the Entry-Exit Regulation, the due procedures for a company to hire foreign employees who will work in China for over 90 days include:

• Applying for Notification Letter of Foreigner’s Work Permit in China;
• Applying for a Z-visa or R-visa;
• Applying for a Foreigner’s Work Permit; and
• Applying for Residence Permit.

Judicial Interpretation II clarifies the conditions under which a Chinese employment relationship is recognized for foreign nationals, and specifies that foreign enterprises and representative offices may participate as parties in domestic labor dispute proceedings. This provides greater legal certainty for multinational structures but also increases exposure to Chinese labor law obligations for employees working across group entities.

Exemption

Citizens of Hong Kong, Macao, and Taiwan do not need to go through the administrative procedures for hiring foreign employees – they are under the same treatment as mainland Chinese in employment management.

Cross-border HR data transfers

The Provisions on Facilitating and Regulating Cross-Border Data Flow (effective March 2024) introduced relaxed compliance requirements for HR-related personal data transfers abroad. Where an employer transfers employee personal data for legitimate HR management purposes, such as payroll processing, talent mobility, or global workforce planning — the company is exempt from several obligations under the Personal Information Protection Law (PIPL), including conducting a government security assessment, signing a standard cross-border data transfer contract, and obtaining a personal data protection certification. Businesses must still align data transfer practices with cybersecurity and corporate governance obligations.