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Legal Update

Malicious Failure to Pay Wages to an Employee: China Issues New Interpretation

24 January 2013
Mayer Brown JSM Legal Update

On 22 January 2013, the Supreme People's Court in China released a judicial interpretation concerning the crime of maliciously failing to pay wages to an employee (the "Interpretation"). The Interpretation takes effect from 23 January 2013. The Interpretation provides more details on the crime of malicious failure to pay wages, which was first introduced by the PRC Criminal Law Amendment (VIII) that took effect on 1 May 2011.

Under the PRC Criminal Law Amendment (VIII), where the judiciary determines that in cases where an employer has been "maliciously failing to pay wages" to an employee, or has been holding a "substantial amount" of an employee's "wages" in arrears after an order for payment has been issued by the "relevant authority", the appropriate sentence should be not more than 3 years of imprisonment or criminal detention, and/or a fine. Where the non-payment has caused "serious consequences" to the employee, the employer's directly responsible person and other directly liable persons may be sentenced to imprisonment of not less than 3 years but not more than 7 years, and the employer may also be fined.

The Interpretation clarifies the expressions mentioned above, which we discuss below.

What is meant by "wages"?

The meaning of an employee's "wages" as used in the PRC Labour Law and PRC Labour Contract Law encompasses more than just basic salary. It includes, in respect of work done by an employee, any bonus, subsidies, allowance, overtime pay and any other remuneration paid under special circumstances.

What is meant by a "substantial amount" of wages in arrears?

An employer commits an offence if it owes an employee more than 3 months' wages in arrears and the outstanding amount is not less than a certain threshold. The relevant threshold will be determined by the local High Courts in the particular locality in accordance with the different economical development levels. However, the relevant threshold will range from CNY5,000 to CNY20,000. If an employer owes 10 or more employees wages in arrears and the outstanding amount is not less than a relevant threshold, again to be determined by the local High Courts in the particular locality, ranging from CNY30,000 to CNY100,000, then the employer will also commit an offence.

What amounts to a "serious consequence"?

An employer commits an offence if it uses violence or threatens violence against an employee who asks to be paid his wages, or if the non-payment of wages has seriously affected the livelihood of the employee and the employee's dependants. This includes discontinuation of education and rendering the affected individual unable to seek immediate medical advice for serious illnesses.

What amounts to "maliciously failing to pay wages"?

The following would amount to "maliciously failing to pay wages".

  • Concealment of assets, malicious settlement of debts, false debts, false bankruptcy, false closing down of business or any other way of transfer/disposal of assets
  • Abscondment and concealment
  • Concealing and destroying accounts, employee roster, payroll records, attendance records and other employment related materials
  • Any acts that indicate the employer's intention to evade its obligation to make payment of wages

The Interpretation has clarified that it is the Human Resources and Social Security Department that will be the "relevant authority" directly responsible for the issuance of orders. Where an employer has absconded, the order to pay wages in arrears is deemed to be issued if it has been posted to the employer’s residence and office address, supported by documentary evidence.

The Interpretation has further clarified that a unit or individual which is not qualified as an appropriate employer under the law, as well as the de facto controller of an employer, may also be liable for such crime.

For inquiries related to this Legal Update, please contact Duncan AbateHong Tran or your usual contacts with our firm. 


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