Do I have to have a written contract with my PRC employees?
Yes, you must enter into a written contract with your employees in the PRC. The only exception is if your employee works on a part-time basis (i.e., this employee's compensation is calculated by the hour and this employee averages no more than four hours of work per day and no more than 24 hours of work per week), in which case this agreement can be oral.
Am I required to sign the contract with my employee before commencement of employment?
It is a good practice to put in place a written contract before commencement of employment although the law allows you to sign the contract within one month from your employee's first day of employment. Failure to have a written contract within one month is risky (see below).
What are the risks of not having a written contract in place?
If the written contract is not concluded within one month, but is concluded within one year from the first day of employment, then you will have to pay double salary to the employee from the second month until the written contract is concluded.
If no written contract is concluded after a year of employment, then in addition to the double salary obligations for the previous 11 months, you will be deemed to have concluded an indefinite contract with the employee on the first anniversary of employment.
If the employee intentionally delays or refuses to sign the written contract with me, what can I do to eliminate the above risks?
If you can demonstrate that you have provided a written contract to the employee and requested the employee to sign the written contract within a period of time, but the employee has failed to do so, then you will be entitled to terminate the employment relationship immediately as long as the de facto employment relationship between you and the employee has not been in place for one year or more.
You are not required to pay economic compensation to the employee if the termination occurs within one month from the first day. However, a termination after one month but within one year from the first day will trigger both economic compensation (generally calculated at one month's salary for each full year of service) and double pay (from the second month until the written contract is concluded).
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