Ready to expand your Chinese team? Before you put pen to paper on that employment contract, it’s essential to familiarise yourself with the three main forms of employment contracts in China: fixed-term, open-ended, and project-based.
Understanding these options will streamline your hiring process and help you avoid potential issues further down the line.
What Are the Main Types of Employment Contracts in China?
There are three types of employment contracts in China (well, four if we count part-time contracts, but more on that in a minute).
Contract Type | Description | Who’s It For |
Fixed-term Contracts | These contracts are for a specific duration, usually lasting from a few months to several years. They can apply to both full-time and part-time positions. | Ideal for most new employees and for seasonal work where flexibility is needed. |
Open-ended Contracts | Also known as indefinite contracts, these do not have a set end date. They can only be terminated by mutual agreement between the employer and employee or under specific legal circumstances. This type of contract offers greater job security for employees. | Best suited for long-term employees who are integral to the company’s operations and growth. |
Project-based Contracts | These contracts are linked to the completion of a specific project rather than a fixed time frame. Once the project is finished, the contract ends. This makes them ideal for temporary roles or freelance work. | Perfect for freelancers or consultants brought in for specific tasks or projects with clear endpoints. |
In most circumstances, your first hires in China will be on fixed-term contracts. However, if an employee has signed two consecutive fixed-term contracts, they automatically qualify for an open-ended contract upon renewal.
This means that after the second consecutive fixed-term contract, you cannot offer another fixed-term contract; instead, you must provide an open-ended contract.
Here’s how it works:
- Legal Requirement: Once an employee completes two consecutive fixed-term contracts, you are legally obligated to inform them of their right to choose an open-ended contract. This is designed to protect employees’ rights and provide them with job security.
- Employee Agreement: If the employee agrees to renew or establish this open-ended contract, you must comply. It’s not just a nice-to-have; it’s a legal requirement!
- Consequences of Non-compliance: If you try to impose another fixed-term contract instead of offering the open-ended one, that new contract may not be legally valid. Employees who feel their rights have been overlooked can seek recourse through labour arbitration or litigation.
Do I Need a Contract for Part-Time Staff?
If you’re hiring someone part-time (which means they work no more than 24 hours a week and average four hours a day), they are subject to different requirements.
But don’t be fooled—while verbal agreements are legally acceptable, it’s always best practice to have a written contract in place. This not only provides clarity on roles and responsibilities but also offers protection for both you and your employee.
So, for peace of mind and to avoid any potential disputes down the line, opt for a written agreement whenever possible!
What Should Be Included in a Chinese Employment Contract?
So, what exactly should you include in your employment contracts? A labour contract must include several mandatory clauses to be legally compliant. Here are some essential elements:
- Identification of Parties: Clearly state who the employer and employee are.
- Contract Duration: Specify whether it’s fixed-term, open-ended, or project-based.
- Job Description: Outline the employee’s responsibilities and expectations.
- Working Hours: Define the hours and any overtime policies.
- Compensation Details: Include salary information and any bonuses or allowances.
- Social Security Obligations: Clarify contributions for pension, medical insurance, etc.
- Termination Conditions: Detail how either party can terminate the contract.
In addition to those must-have clauses, you can also add optional ones that cater to your specific needs and protect both parties.
- Non-competition: This restricts employees from jumping ship to work for competitors after they leave your company.
- Confidentiality: A clause that protects sensitive information shared during employment. It’s all about keeping your trade secrets safe!
- Probation Period: An evaluation period for new hires to see if they’re a good fit for your team. It’s like a trial run!
- Allowances and Benefits: Additional perks, especially for foreign employees, like housing or travel allowances. Who doesn’t love extra benefits?
- Employee Handbook: A reference to company policies that employees are expected to follow. It keeps everyone on the same page!
What About Probation?
Different employment contract types also have slightly different probation rules.
Contract Type | Duration | Probation Period Allowed |
---|---|---|
Less than three months or part-time | Any | Not allowed |
Fixed-term | 3 months to 1 year | Up to 1 month |
Fixed-term or Open-ended | Exceeding 1 year | Up to 6 months |
How can I Terminate an Employment Contract?
It’s complicated. Employment contracts in China can be ended either when they expires or through early termination. However, if you’re thinking about firing someone without a valid reason, you might want to think again — unilateral termination by the employer without fault is generally not allowed unless there are statutory reasons.
Reasons for Termination
Here are some common scenarios where termination is permissible:
- Mutual Agreement: Both you and the employee agree to end the contract. This is often the smoothest route.
- Employee Misconduct: If an employee has done something wrong or violated company policies, you can terminate their contract for cause.
- Changes in Business Circumstances: Sometimes, business needs shift, and you may need to let someone go due to restructuring or financial difficulties.
We have a full guide on when you can and can’t fire somebody in China here.