Forget to Follow These Key China Labor Laws At Your Factorys Peril

Forget These Best Practices for Hiring Staff in China at Your Peril

This series of 8 blog posts is designed to offer both a general framework for how to structure your dealings with the employees in China (both Chinese and Foreign) as well as provide practical tools, tips and best practices for your day-to-day interactions with staff…

Last time we took a look at China labor laws and how you should go about managing your expectations about labor disputes, and this time around I’m going to introduce some of the best practices for hiring staff in China your factory should be following!

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China”which can be downloaded in its entirety right here!

Labor Contracts in China

In addition to the usual items you would find in a labor contract back home, extra emphasis should be put on the following items in a China labor contract:

  1. Jurisdiction & Enforceability

Many companies make the mistake of having a labor contract between the Chinese employee and the parent company in HK or overseas rather than directly between the Chinese employee and the WFOE.

Even if you put the jurisdiction of that contract in China, it won’t be binding because the WFOE is not a signatory to the document. The WFOE can also get hit with penalties for illegally hiring staff who don’t have a contract.

  1. NNN

If the staff will have access to any sensitive information, you’ll want to make sure your contract has good terms for non-disclosure, non-complete & non-circumvention.

  1. Penalties

It’s fairly rare in the West to have pre-agreed penalties in a labor contract. But in the West there is a mature legal system and the law of the land provides employers with certain protection. In China, if you and the employee pre-agree on reasonable penalties for breaking certain aspects of the labor contract, you will be happy to learn that the courts will generally enforce those penalties. The key is “reasonable” penalty. If you say the employee needs to pay 1 million USD if they go an work for a competitor within 2 years of termination of employment, that wouldn’t be considered “reasonable”.

  1. Due Diligence

Fake job experience. Fake diplomas. Even fake identities!

Those items are much more common in China than in the West. So do your due diligence on new employees and make sure that the employee is signing the contract with their real name and real identification card.

When onboarding new staff or trying to retain current staff, here are some tips to help ensure a smooth relationship: 

Tips to Help Ensure a Smooth Relationship

  1. Grass is greener right here

If your company is paying wages, OT and/or bonuses above or equal to industry averages, share the data with your staff. Show staff they are better off staying with you!

  1. Don’t make staff beg

Salaries should be paid on time with clear documentation of hours worked and vacation days left.

  1. No side jobs

You are legal responsible for the actions of your staff during work hours. For example, there is a case where an employee of a company was running an online taobao store during office hours. That Taobao store sold fake medicine. The police penalized both the employee and the employer even though the employer was not aware, let along supporting these activities. So monitor the actions of your staff and make it clear from day 1 in the labor contract that moonlighting is not allowed. You also want to confirm the employee has officially left his/her old job.

  1. Pay close attention during probation

Once the probation period is up, it’s difficult and expensive to let staff go. So make sure you found a winner before you end the probation period.

That concludes post no. 7 out of 8 in my ‘hiring in China’ series. Stay tuned for the final post which shares a survey of salaries, taxes and benefits for Shenzhen, Guangdong and Hunan to give you a bit of an inside look at compensation benchmarks in China.

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