China’s labor laws and regulations aim to protect employees and their interests in the workplace. Companies operating in China must ensure the well-being of their employees and remain compliant with local regulations.

This article provides insights into the most important labor contract topics that every company operating in China should consider. We will guide you through the requirements for labor contracts, mandatory and optional clauses, different types of labor contracts, salary, probation periods, annual leave, and termination procedures.

Requirements for a Labor Contract in China

In China, not every company can hire employees directly, depending on their legal status. Companies that can hire employees directly include domestic companies, Sino-foreign Joint Ventures, and Wholly Foreign Owned Entities.

Foreign companies that cannot fulfill the status of a legal entity in China must employ staff via a licensed Professional Employer Organization (PEO) or Foreign Enterprise Service Company (FESCO). Representative Offices and other foreign entities cannot directly hire Chinese nationals and must therefore engage a licensed labour dispatch or PEO provider such as FESCO to remain compliant with Chinese labour law.

Labor contracts become effective after both parties have signed the contract or the company chops are affixed. Both parties are required to keep an original copy of the employment contract.

Are Labor Contracts Required to be Written in China?

A Chinese labor contract must be in written form and signed within 30 days after employment starts. Failure to do so can result in financial penalties. Under Article 82 of the Labor Contract Law, employers that fail to execute a written contract for more than one month but less than one year must pay double wages; after one year without a written contract, the employee is deemed to have an open-ended (non-fixed term) contract. Labor contracts should be conducted in Chinese. If a second language is provided, it is usually for reference only, with the Chinese version legally binding. In disputes, Chinese courts have accepted contracts in other languages only if translated by court-approved institutions. In practice, if no governing-language clause is specified, Chinese authorities and courts generally treat the Chinese version as the controlling document.

Why an Employment Contract Must be Signed Within 30 Days

According to China’s Labor Contract Law, an employer must pay penalties if the contract is not signed on time. Article 82 stipulates that if the contract is not signed within 30 days, the employer must pay the employee twice their monthly salary. After one year without a contract, the employee is deemed to have a non-fixed term contract.

Mandatory and Optional Clauses in a Chinese Labor Contract

A Chinese labor contract must include several mandatory clauses to be legally compliant. These clauses ensure that both the employer and employee have a clear understanding of their rights and obligations.

Clause	Description
Employer Information	Name, address, and legal representative
Employee Information	Name, address, and ID number
Employment Period	Fixed-term or non-fixed-term contract
Job Responsibilities	General description of duties
Working Hours and Leave	Annual leave, sick leave, etc.
Remuneration	Basic salary, bonuses, commissions, and allowances
Social Insurance	Contributions by both parties as per law
Occupational Safety	Environment and occupational hazard prevention
Other Specifications	Company policies requiring inclusion

In addition to mandatory clauses, optional clauses can be included to address specific needs and protect the interests of both parties. These optional clauses can provide additional legal protections and clarify expectations.

Clause	Description
Non-competition	Restrictions on working with competitors
Confidentiality	Protection of sensitive information
Probation Period	Evaluation period for new employees
Allowances and Benefits	Additional benefits, especially for foreign employees
Employee Handbook	Reference to company policies

Different Types of Labor Contracts in China

Chinese labor contracts can be categorized into three main types: fixed-term contracts, non-fixed-term contracts, and freelance contracts. Each type has its own set of rules and regulations.

Contract Type	Description
Fixed-term Contracts	Agreed to a specific term applicable to full-time and part-time work
Non-fixed Term Contracts	Can be agreed upon mutually or by default if no contract is signed within a year
Freelance Contracts	Comparable to commissioning third parties, no employer-employee relationship requires precise scope.

Salary and Probation Period

Salary in China includes fixed and flexible parts. The fixed salary is the agreed amount in the labor contract, while the flexible part includes bonuses, commissions, and allowances. Salary must be paid on time and in full after the end of the related month.

Probation periods in China depend on the terms of the employment contract. They serve as an evaluation period for new employees and are regulated specifically based on the length of the employment term.

Employment Term	Maximum Probation Period
< 3 months	No probation period
> 3 months but < 1 year	1 month
> 1 year but < 3 years	2 months
> 3 years	6 months

According to Articles 19 and 20 of the Labor Contract Law, the maximum probation period is 1 month for contracts over 3 months but less than 1 year, 2 months for 1–3 year contracts, and 6 months for contracts over 3 years. No probation is allowed for contracts under 3 months or task-based work. During probation, the wage must be no less than the minimum for the post or 80% of the agreed salary.

Annual Leave in China

Annual leave in China is determined by an employee’s total working years, regardless of their current employer. This ensures that employees gain more leave entitlement as they accumulate more working experience.

Working Years	Annual Leave Entitlement
< 1 year	No statutory annual leave
1 – 5 years	At least 5 days
10 – 20 years	At least 10 days
> 20 years	At least 15 days

As confirmed by the State Council’s Regulation on Paid Annual Leave of Employees (Article 3), employees who have worked continuously for 1–10 years are entitled to 5 days, 10–20 years → 10 days, and more than 20 years → 15 days of paid annual leave. No statutory leave applies for less than one year of service. National holidays and weekends are not included in the annual leave days.

Termination & Severance Pay in Chinese Labor Law

A labor contract can be terminated upon expiration or early termination. Unilateral termination by the employer without fault is generally not allowed unless statutory reasons exist.

Reasons for termination can include mutual agreement, employee misconduct, or changes in business circumstances. Severance pay is typically one month’s salary for each year of service, with specific rules based on the length of employment.According to Article 47 of the Labor Contract Law, economic compensation is calculated as one month of the employee’s average wage for every full year of service. Employment shorter than six months is compensated at half a month’s wage, and six months or more is rounded up to a full year.

Termination Scenarios & Severance Eligibility (Quick Guide)

Termination Scenario	Who Initiates	Severance Owed?	Legal Basis / Notes
Contract expires and employer does not renew (no fault by employee)	Employer	Yes	Economic compensation per Articles 46–47 of the Labor Contract Law; exception if employee declines equal/better renewal.
Mutual agreement to terminate	Both	Negotiable	Compensation often mirrors the Article 47 formula as a benchmark.
Unilateral termination with cause (serious misconduct)	Employer	No	Requires statutory grounds and documented proof; local rules vary.
Unilateral termination without fault (e.g., redundancy or major change)	Employer	Yes	Must satisfy statutory conditions and pay per Article 47.
Employee resigns with proper notice (30 days / 3 days in probation)	Employee	No	Employee’s statutory right to quit; notice periods recognised under the LCL.
Termination during probation for not meeting job conditions	Employer	Sometimes	Must prove mismatch; wage ≥ 80 % rule still applies during probation.

Severance pay is designed to provide fair treatment to both employers and employees. If the employer terminates the contract, it must be paid for specific reasons, such as business changes or health issues.

Labor contract provisions around probation periods, compensation structure, and termination grounds are strictly interpreted by Chinese arbitrators—many Western contract formats fall short of local legal requirements and expose employers to back-pay liability. Template language rarely suffices. HR & payroll contract review ensures every agreement meets local enforcement standards. MSA Asia protects your workforce relationships. Have a conversation about labor contract compliance.