20 February 2013
Conclusion of Employment Contract
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., the employee's compensation is calculated by the hour and 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. Furthermore, if no written contract is concluded after a year of employment, then you will be deemed to have concluded an indefinite contract with the employee as of the first anniversary of employment.
In most localities (e.g., Beijing), an employer may be held by the labour dispute arbitration tribunals and courts to be liable to pay double the employee's salary as penalty for a period of up to 11 months. However, it is also possible that such a penalty can be imposed for the period during which there is no written employment contract.
Note: The penalty mentioned above also applies to any renewal of the employment contract. That is to say, in the event that you do not renew the employment contract with the employee within one month after the original contract expiring, you are at risk.
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 reasonable period of time, but the employee has failed to do so without justified reasons, then you will be entitled to terminate the employment relationship immediately without paying severance. However, you must exercise the above right on a timely basis (i.e., within one month after the first day of employment). Otherwise, as of the second month, you will, in any event, be exposed to the penalty of double salary as well as the payment of statutory economic compensation (i.e., severance pay).