Operating an American-owned business in China requires knowing how to hire and fire employees legally.
Labor laws in China are different than those in America, so business owners should know what to expect to avoid lawsuits or penalties.
1. Direct hiring requires a specific business designation
Only businesses established as Wholly Foreign Owned Entities (WFOE) can directly hire Chinese employees. Companies that have not yet obtained this designation can hire local workers through a third-party employment agency.
2. Independent contractors may be illegal
Since it may take several months for companies to become WFOEs, businesses may try to hire employees as contractors right away. However, China prohibits foreign entities from creating consulting agreements with Chinese workers.
3. Employment offers must be in writing
Employees and business representatives must sign contracts written in Chinese to validate employment. Companies that do not offer these written contracts within a month of hiring employees might have to pay workers twice their salaries until remedied.
4. Businesses may have to provide severance pay
The Labor Contract Law of the People’s Republic of China protects employees from suddenly losing their jobs. This law requires employers to give employees a 30-day notice before firing them for cause. Under some circumstances, employers may fire employees immediately and offer an extra month of pay. These situations include:
- worker injury or illness
- the employee or employer can not uphold the employment contract
Companies must also provide severance pay equal to one month’s salary for every year worked when releasing employees.
Knowing China’s labor laws allows American-owned businesses to operate legally and be successful in a foreign market.