The legal framework

1. National statuteThe Labour Law (1995), the Labour Contract Law (2008, amended 2013), the Social Insurance Law (2011), the Labour Dispute Mediation and Arbitration Law (2008), and the Special Provisions on Labour Protection of Female Employees (2012).
2. National regulations and interpretationsImplementing Regulations for the Labour Contract Law, the Interim Provisions on Labour Dispatch (2014), and the Supreme People’s Court’s judicial interpretations on labour disputes — most recently Interpretation II, in force from 1 September 2025.
3. Provincial and municipal rulesMinimum wages, social insurance rates and bases, maternity and paternity leave extensions, sick-pay rates and holiday details are set locally. Shanghai, Beijing and Guangdong each have their own regulations and their own arbitration practice.
4. Company rules and the labour contractEmployee handbooks and internal rules are enforceable only if adopted through democratic consultation and communicated to employees — and they are what most disciplinary dismissals rest on. The individual contract may improve on the law but cannot reduce it.

Labour contracts

• Written and in Chinese. A written contract is mandatory within one month of the start date. Failure costs double monthly wages for each month without one, and after a year the contract is deemed open-ended. Bilingual contracts are common; the Chinese text prevails.
• Three types: fixed-term, open-ended, and task-based. Fixed-term is the norm for a first hire.
• The two-contract rule. Once an employee has completed two consecutive fixed-term contracts, or ten years’ service, they may require the next contract to be open-ended, and the employer must agree unless the employee is at fault. Practice varies by city — Shanghai arbitrators have historically given employers more room at the second renewal than Beijing’s — but the direction is clear.
• Mandatory terms include the parties, term, job description and location, working hours and leave, remuneration, social insurance, and occupational safety. Missing terms do not void the contract but weaken the employer’s position.
• Part-time (“non-full-time”) employment — under four hours a day on average and 24 a week — is a separate regime that may be oral and terminated without severance, and is not a workaround for full-time roles.

Probation

Contract term	Maximum probation
Under 3 months, or task-based	None
3 months to under 1 year	1 month
1 year to under 3 years	2 months
3 years or more, or open-ended	6 months

One probation period per employer per employee, ever. Probation pay must be at least 80 per cent of the contract wage and not below local minimum wage. Dismissal during probation still requires a ground — typically that the employee “does not meet the recruitment conditions”, which means you need documented recruitment conditions and a documented assessment.

Working hours and overtime

• Standard hours: 8 per day and 40 per week, with a statutory maximum of 44. Most white-collar employers use the standard system.
• Overtime: capped at 3 hours a day and 36 a month, and paid at 150 per cent on working days, 200 per cent on rest days (unless compensatory leave is given), and 300 per cent on public holidays. Employees on the standard system who work unrecorded overtime have a claim; keep records.
• Alternative systems — comprehensive working hours and flexible (non-fixed) working hours — relax overtime rules for eligible roles such as senior managers and field sales, but require approval from the local labour bureau. Applying them without approval is a common and expensive error.
• “996” schedules have been declared unlawful by the Supreme People’s Court and MOHRSS jointly in 2021 and are a reliable source of claims.

Pay, minimum wage and tax

• Minimum wages are set locally and adjusted every one to three years. As of 1 January 2026, Shanghai leads at RMB 2,740 per month, Beijing is at RMB 2,540 and Shenzhen at RMB 2,520; Beijing has the highest hourly rate at RMB 27.7. Social insurance contributions and overtime are excluded when testing compliance.
• Payment must be at least monthly, in RMB, with an itemised statement; deductions are restricted to statutory withholdings and limited categories.
• Individual income tax is withheld monthly on a cumulative basis at progressive rates from 3 to 45 per cent, after the standard deduction (RMB 5,000 per month) and special additional deductions. The annual bonus may be taxed separately under a preferential method extended to the end of 2027.
• Social insurance and housing fund are covered in our benefits guide; the employer share is roughly a third of gross in the first-tier cities.

Termination and severance

This is where the system is most different from common-law jurisdictions. An employer may terminate only on a ground listed in the Labour Contract Law, and must follow the procedure attached to it.

Route	Grounds	Notice and severance
Mutual agreement	Any — by far the most common route in practice	Negotiated; statutory severance is the floor in practice
Immediate dismissal	Serious breach of lawfully adopted rules, serious dereliction causing major loss, criminal liability, fraud in hiring, and similar	No notice, no severance — but the burden of proof is entirely on the employer
Termination with notice	Incompetence after training or reassignment; medical incapacity after the treatment period; major change of circumstances making the contract unperformable	30 days’ notice or one month’s pay in lieu, plus statutory severance
Economic redundancy	20+ employees or 10%+ of the workforce, for defined business reasons, with 30 days’ consultation with the union or all staff and a report to the labour bureau	Statutory severance
Expiry of a fixed term	Non-renewal by the employer	Statutory severance, unless the employee refuses renewal on equal or better terms

Statutory severance is one month’s average wage (the previous twelve months) per year of service, with half a month for a period under six months and a full month for six to twelve. Where the wage exceeds three times the local average, the monthly figure is capped at that level and the years counted are capped at twelve. Add the month of notice in lieu and you have the “N+1” that appears in every negotiation.

Non-compete and confidentiality

Post-termination non-compete covenants are enforceable only against senior management, senior technical staff and others with confidentiality obligations, for a maximum of two years, and only if the employer pays monthly compensation during the restricted period — commonly 30 per cent of the previous average wage and never below local minimum wage. Stop paying and the covenant lapses. Confidentiality obligations may be indefinite. Training bonds with service periods are permitted where the employer has funded specialised training, with liquidated damages capped at the unamortised cost.

Labour dispatch and outsourcing

Labour dispatch — an agency employs the worker and places them with a client — is lawful only through a licensed agency, on contracts of at least two years, and at a Chinese employing unit is confined to temporary, auxiliary or substitute positions within a 10 per cent workforce cap. Service outsourcing, where the provider delivers a defined service with its own staff, is outside those rules but will be recharacterised if the client in substance manages the workers. These are the structures every Employer of Record and PEO in China relies on; our EOR ranking explains how to check which a provider is using.

Foreign employees and work permits

• A foreign national needs a work permit and a Z visa converted to a residence permit, sponsored by a licensed Chinese employer. The points-based system classifies applicants as Category A (high-end talent), B (professionals, typically a degree plus two years’ experience) or C (other, subject to quotas).
• The Labour Contract Law applies to foreign employees working lawfully in China, including on termination — a point some employers discover in arbitration.
• Social insurance participation is required in principle, with totalisation-agreement exemptions and city-level variation; see the benefits guide.
• Employing a foreigner without a permit exposes both parties to fines, and the employer to a bar on future sponsorship.

Disputes

Labour disputes go first to mandatory arbitration at the local labour dispute arbitration commission, which is free to the employee, quick, and statistically favourable to employees. Either party may then sue in the people’s court. The limitation period is one year from when the employee knew of the breach, except for wage arrears during employment. The burden of proof on dismissal, working hours and wage records rests with the employer: if you cannot produce the record, the employee’s account tends to stand.

Practical consequences: keep signed contracts, attendance records, payslips and the acknowledgement of your employee handbook, in Chinese, for at least two years after employment ends.

Frequently asked questions

Can we dismiss an employee without cause in China?

No. Termination requires one of the grounds in the Labour Contract Law and the procedure attached to it. In practice most separations are negotiated mutual terminations at or above statutory severance, because a contested dismissal that fails costs double severance or reinstatement.

How is severance calculated?

One month’s average wage over the previous twelve months for each year of service, half a month for under six months, with the monthly wage capped at three times the local average and years capped at twelve where that cap applies. Add a month’s notice pay where notice is required — hence “N+1”.

How long can probation be?

It depends on the contract term: none under three months, one month for terms under a year, two months for one to three years, six months for three years or more or open-ended. One probation per employee per employer, and dismissal during probation still needs a documented ground.

Do we have to give an open-ended contract?

Generally after two consecutive fixed-term contracts, or ten years’ service, if the employee asks. Some cities have historically given employers more latitude at the second renewal, but the rule is national and the trend is towards enforcing it. Plan on the third contract being open-ended.

Is an English-language contract valid?

A bilingual contract is fine and common. In a dispute the Chinese text governs, and an English-only contract puts the employer at a serious disadvantage in arbitration. Have the Chinese version prepared properly rather than machine-translated.

What is the maximum working week?

Eight hours a day and 40 a week as standard, 44 as the statutory maximum, with overtime capped at 36 hours a month and paid at 150, 200 or 300 per cent. Alternative hours systems exist for eligible roles but need bureau approval first.

Can we use a non-compete clause?

Only for senior management, senior technical staff and others bound by confidentiality, for up to two years, and only if you pay monthly compensation during the restricted period. Unpaid non-competes are unenforceable.