Non-Renewal of Labor Contract in China: Can Foreigners Claim Severance Pay?
Here’s a scenario every foreign employee working in China should have on their radar: your fixed-term labor contract is approaching its expiration date, and your employer tells you they won’t be renewing. The question that follows is almost always the same — do I get severance pay?
The honest answer is: it depends on where you’re working. Chinese law doesn’t offer a single, explicit nationwide rule on this, and judicial practice varies sharply from one jurisdiction to another. Below is a practical breakdown of how the law applies and what you should watch for.
I. The Baseline: Chinese Law Applies — But the Details Are Local
One foundational point worth keeping straight: under Article 43 of China’s Law on the Application of Laws to Foreign-related Civil Relations, labor disputes involving foreigners are governed first by the law of the workplace. In other words — if you hold a valid work permit and you’re employed legally in China, any fight over your employer’s refusal to renew runs through Chinese law and, just as importantly, through the local court’s prevailing habits.
China’s Labor Law and Labor Contract Law don’t carve foreign employees out. But the Regulations on the Employment of Foreigners in China only go so far — they lock in five baseline protections aligned with Chinese standards: minimum wage, working hours, rest and leave, occupational safety, and social insurance. What they don’t spell out is economic compensation when a contract expires or gets terminated. That silence is exactly what leaves the door open for regional divergence.
II. How the Major Cities Actually Rule: Two Competing Camps
1. Shanghai: Contract Language Carries the Day — No Automatic Statutory Pay
Shanghai sees a huge slice of China’s foreign workforce, and its courts have settled into a fairly steady line over the last several years. The reasoning goes like this: beyond those five baseline rights, everything else hinges on what you and your employer actually put in writing. The economic-compensation provisions of the Labor Contract Law don’t kick in by default.
A few practical ripple effects:
- If your contract explicitly says “economic compensation will be paid upon non-renewal” or “relevant matters shall follow the Labor Contract Law,” you can claim per the agreement.
- If the contract is silent, or the wording is fuzzy, or it flat-out says “no compensation will be paid,” Shanghai courts generally won’t stretch to hand you statutory severance — even though the employer is the one walking away.
- The Shanghai High People’s Court flagged this in a retrial ruling: where the contract stipulated “the employer will not pay any compensation for terminating the contract for any reason,” the court held that without a clear contractual hook, the employee had no basis to claim — even in a scenario that might otherwise look like unlawful termination.
The takeaway if you’re Shanghai-based: your contract is doing the heavy lifting, not the statute.
2. Beijing, Guangdong, Jiangsu, Chongqing: Labor Contract Law Applies in Full
Most other major jurisdictions go the opposite direction. Courts in Beijing, Guangdong, Jiangsu, and Chongqing tend to put foreign employees on the same footing as Chinese hires and apply the Labor Contract Law wholesale. Their logic: if you’re legally employed, you get the same compensation rights — no carve-out.
Beijing is especially explicit about it. In 2023, the Beijing Municipal Bureau of Human Resources and Social Security released a bilingual (Chinese–English) Model Labor Contract for Foreigners — Article 18 expressly provides that “contract rescission, termination, and renewal shall comply with the Labor Contract Law and national/Beijing regulations.” That’s a policy-level nudge pushing both sides toward statutory standards. In practice, Beijing courts have repeatedly held that the Regulations on the Employment of Foreigners don’t displace the Labor Contract Law, so foreigners can claim non-renewal compensation or damages for unlawful termination under it.
Guangdong and Jiangsu track the same line. The Guangdong High People’s Court noted in a retrial ruling that legally employed foreigners have a valid claim to Labor Contract Law compensation. Jiangsu courts have clarified that an employer refusing renewal without a valid reason triggers statutory pay. Chongqing courts go a step further conceptually: the Labor Contract Law is a detailed supplement to the Labor Law and should naturally extend to foreign-related labor disputes — otherwise you’d be left with a legal gap that defeats the statute’s purpose.
III. What to Do Up Front (and Along the Way)
Given the split, here’s how to protect yourself across the contract lifecycle — signing, performance, and exit:
- Get the contract language right before you sign. This is make-or-break if you’re in Shanghai. Explicitly spell out the “compensation standard for non-renewal upon expiration” and how liabilities split on rescission/termination — don’t leave it ambiguous. Outside Shanghai, it still helps to reference compliance with theLabor Contract Lawin the contract; it reinforces your position even where the statute already leans your way.
- Know the local stance before you relocate. Before joining a new employer, run a quick check — either through a PRC labor lawyer or via the judicial document platforms — on how courts in that city actually treat foreign-employee non-renewal claims. The regional difference isn’t academic; it shows up in the award (or denial) of several months’ salary.
- Keep the paper trail alive. Hang onto your labor contract, work permit, payslips, and anything tied to renewal or termination — negotiation emails, the non-renewal notice, any written communication. If a dispute lands, those are the exhibits that carry the case.
Wrapping Up
There’s no unified judicial interpretation in China yet on severance when a foreign employee’s contract runs out, and the regional split isn’t going away in the near term. The safest play is the one that travels well across jurisdictions: agree clearly up front, document as you go, and enforce in line with the rules where you’re sitting. If the situation in front of you looks like it’s drifting toward a dispute, a brief conversation with counsel who knows the local labor bench can usually tell you whether you’ve got a real claim — and what it’s worth — before things get expensive.
Contacts:
Saway Wang
Tel: +86 18017682422
Email: sawaywang@billionslawyer.com
Secured Nearly 200,000 RMB of Severance Pay for a Foreigner In Labor Dispute
Our team recently represented a foreigner holding a Chinese “Five-Star Card” (Permanent Residence Permit) in a labor dispute with his employer over labor contract renewal, achieving a favorable resolution. Through precise legal positioning, a robust arbitration strategy, and multiple rounds of professional negotiations, we successfully secured a nearly 200,000 RMB settlement for our client in this labor dispute, effectively safeguarding the legitimate rights and interests of high-level foreign talent in China’s labor market.
1. Case Background: The Foreigner’s Renewal Dilemma
Our client, Mike (pseudonym), was embroiled in a labor dispute when his employer abruptly decided not to renew his second fixed-term labor contract upon expiration, leaving him facing involuntary job loss after several years of consecutive employment with the company.
As a foreign national holding a Chinese Permanent Residence Permit and enjoying its associated benefits, Mike was initially pessimistic about resolving the labor dispute and protecting his rights in the face of his employer’s unilateral non-renewal decision. Before seeking our team’s legal assistance, he had nearly resigned himself to the reality of involuntary termination stemming from the labor dispute.
2. Legal Positioning and Strategic Choice
Upon accepting this labor dispute case, we promptly assembled a specialized labor dispute team and conducted a comprehensive analysis from three key dimensions to address the core issues:
(1) Legal Status Determination in Labor Disputes
According to the “Measures on the Treatment Entitled to Foreigners with Permanent Residence Status in China,” foreign nationals holding a Chinese Permanent Residence Permit enjoy the same labor rights and assume the same obligations as Chinese citizens in labor dispute scenarios (except for specific excluded rights). This meant Mike was directly protected by China’s Labor Contract Law in this labor dispute, granting him equal treatment to Chinese workers. The critical labor dispute point was that Mike had consecutively signed two fixed-term labor contracts—satisfying the Labor Contract Law requirement for an open-ended labor contract.
(2) Arbitration Strategy Formulation for Labor Disputes
Based on Mike’s legal status, we confirmed he was entitled to identical labor protections as Chinese citizens in this labor dispute. The employer’s refusal to sign an open-ended contract (despite Mike’s clear renewal willingness) constituted suspected illegal termination of the labor relationship—an actionable claim in the labor dispute. We calculated Mike could legally seek compensation including illegal termination damages, contract completion bonuses, and unpaid annual leave wages, totaling a substantial sum for this labor dispute.
(3) Evidence System Construction for Labor Dispute Resolution
The team guided Mike to systematically collect three key evidence types critical to resolving the labor dispute:
- Labor relationship proof: Two complete labor contracts, work permit records, and salary payment records (foundational to establishing the labor dispute);
- Renewal intention proof: Email correspondence and renewal survey forms (demonstrating Mike’s clear willingness to renew—an essential factor in the labor dispute);
- Employer breach proof: Records of the company’s explicit refusal to renew (directly supporting the illegal termination claim in the labor dispute).
3. Professional Arbitration and Multi-round Negotiations
(1) Precise Labor Arbitration Application
On the basis of thorough preparation, we filed a labor arbitration application with the local Labor and Personnel Dispute Arbitration Commission, emphasizing three critical points: (1) the employer’s illegal refusal to sign an open-ended labor contract, a core violation in labor disputes; (2) the principle of equal rights for permanent resident foreigners and Chinese workers in labor disputes; (3) clear and reasonable compensation claims aligned with labor dispute regulations.
(2) Multi-round Professional Negotiations in Labor Dispute Resolution
Given the potentially lengthy timeline of labor dispute arbitration and litigation—even if successful, compensation could be significantly delayed—Mike expressed concern. Therefore, after filing the case, we did not merely wait for the arbitration hearing but proactively initiated multiple rounds of professional negotiations to resolve the labor dispute:
- First Round
Clarifying Legal Stance on Labor Dispute. We clearly communicated the special legal status of permanent resident foreigners in labor disputes to the employer’s representative lawyer. Simultaneously, we presented relevant legal bases and similar labor dispute cases, highlighting the severe legal risks of illegal termination.
- Second Round
Presenting Key Evidence for Labor Dispute. We selectively disclosed core evidence to the opposing party, demonstrating our evidential strengths and focusing on the completeness and credibility of the evidence chain in labor dispute cases.
- Third Round
Balancing Interests in Labor Dispute Settlement. We analyzed the pros and cons from various perspectives—including the company’s reputation risks and the impact on foreigner management in labor disputes—and proposed a reasonable and constructive settlement plan tailored to labor dispute resolution.
(3) Breakthrough in Mediation
Facing a strong employer, we seized the optimal timing, maintaining legal pressure while demonstrating sincerity towards mediation. This ultimately led both parties to reach a settlement agreement of nearly 200,000 RMB, far exceeding the client’s initial expectations .
4. Case Outcomes and Value
The successful resolution of this labor dispute case brought the following benefits to our client:
- Secured nearly 200,000 RMB in compensation through the labor dispute resolution, effectively alleviating financial pressure during the employment transition period.
- Protected his dignity and rights via legal channels in the labor dispute, thereby enhancing his confidence in China’s legal environment.
- Achieved rapid labor dispute resolution through settlement, avoiding protracted arbitration and litigation procedures.
For foreign nationals facing labor disputes in China, a professional legal team specializing in labor disputes must not only be well-versed in general labor regulations but also proficient in specific provisions governing foreign-related labor relationships to deliver precise and effective legal services for labor dispute resolution.
Comprehensive Guide to China’s Five Insurances and One Fund for Foreigners
Understanding China’s Mandatory Employee Benefit System
China’s social security system is built around the mandatory framework known as “Five Insurances and One Fund” (五险一金), a cornerstone of social protection in Mainland China. This statutory requirement consists of five social insurance programs and the Housing Provident Fund, forming a comprehensive social security package designed to safeguard employees.
All businesses operating in China—including foreign-invested enterprises—must comply by enrolling eligible Chinese and foreign employees who hold valid work permits. Failure to participate in China’s social security system may lead to serious penalties, such as fines equivalent to 100%–200% of overdue payments and additional legal consequences.
Employers should ensure full adherence to the Five Insurances and One Fund to avoid non-compliance risks and contribute effectively to China’s social security framework.
1. The Five Social Insurances: Coverage and Contributions
(1) Pension Insurance (养老保险)
A key component of China’s social security system, the Five Insurances and One Fund (五险一金), includes Pension Insurance (养老保险), which is mandatory for most employees. Here’s what employers and workers need to know:
- Purpose
Pension Insurance provides retirement pensions and survivor benefits to eligible participants.
- Contributions
-Employer: Contributes 16% of the employee’s monthly salary (based on the national baseline; rates may vary by province, e.g., 14% in Guangdong).
-Employee: Contributes 8% of their monthly salary.
- Eligibility for Foreign Employees
Foreign nationals working in China with valid permits must enroll. Upon permanent departure from China, employees can apply to withdraw the balance of their personal account, which consists of their personal contributions (8%) plus any accrued interest. The portion contributed by the employer (16%) enters the national social pooling fund and is non-refundable.
（2）Medical Insurance (医疗保险)
- Coverage: Hospitalization, outpatient services, chronic disease treatment, and designated drug costs.
- Contribution:
- Employer: 6–10% of salary (varies by city; e.g., Beijing: 9.8%, Shanghai: 10%)
- Employee: 2% + fixed fee (e.g., ¥10/month in Shanghai)
- Critical Note: Foreign employees leaving China may transfer medical insurance to home country systems if a bilateral social security agreement exists (e.g., with Germany, South Korea). Absent such agreements, only personal account balances are refundable.
(3) Unemployment Insurance (失业保险)
- Benefits: Up to 24 months’ living allowance post-involuntary termination (amount = local minimum wage × 70–90%).
- Contribution:
- Employer: 0.5–1.5% (e.g., Shanghai: 0.5%)
- Employee: 0.5%
- Foreign Employee Access: Benefit eligibility typically requires ≥1 year of contributions. Few foreign nationals claim this due to visa-linked employment termination.
(4) Work-Related Injury Insurance (工伤保险)
- Coverage: Medical costs, disability compensation, and survivor pensions for occupational injuries/illnesses.
- Contribution: 0.2–1.9% of salary (employer-only; industry-risk adjusted).
- Claim Process: Employers must report injuries to the HRSSBwithin 30 days. Foreign employees enjoy equal claim rights.
(5) Maternity Insurance (生育保险)
- Benefits: 98–128 days paid leave (region-dependent), prenatal care, and delivery cost coverage.
- Contribution: 0.8–1.2% of salary (employer-only).
- Foreign Employee Eligibility: Applies regardless of nationality. Male employees’ spouses may claim partial benefits.
2. Housing Provident Fund (住房公积金)
- Purpose: Facilitates home purchases, construction, renovations, or mortgage/rent payments.
- Contribution:
- Employer and Employee: Each contribute 5–12% of employee’s monthly average salary(locally capped; e.g., Shanghai 2024 cap: ¥31,068/month).
- Foreign Employee Policy:
| City | Enrollment Requirement | Contribution Basis |
| Shanghai | Mandatory | Actual salary |
| Beijing | Mandatory | Actual salary |
| Shenzhen | Voluntary | Negotiated (min. 5%) |
| Suzhou | Mandatory | Actual salary |
- Withdrawal for Departing Foreigners: Full account balance (employee + employer contributions + interest) is withdrawable upon permanent departure after presenting:
- Cancelled work permit
- Exit-entry administration departure record
- Tax clearance certificate
3. Critical Compliance Deadlines & Procedures for Foreign Employees
- Enrollment Timeline: Employers must register employees within 30 daysof work permit issuance.
- Pension Withdrawal Process:
[Step 1]: Cancel work permit/residence permit
[Step 2]: Obtain tax clearance certificate
[Step 3]: Submit withdrawal application + original passport at local Social Security Bureau
[Step 4]: Funds transferred within 15 working days (avg.)
- Medical Insurance Personal Account Refund: Requires separate application at Medical Insurance Management Center.
- Penalties for Non-Compliance:
- Late contributions: 0.05% daily interest on arrears
- Evasion: Fines up to 3× underpaid amounts (Social Insurance Law, Art. 86)
4. Practical Recommendations for Employers
For foreign nationals enrolled in China’s social security system—specifically the Basic Pension Insurance as part of the Five Insurances and One Fund—who permanently leave China (ceasing both work and residence), certain provisions allow for the withdrawal of their pension contributions. Below is a structured overview of the process and key considerations:
- Eligibility and Process
Qualified individuals may apply to withdraw the accumulated balance from their personal pension account, which includes their individual contributions plus any interest earned.
Required documents usually include:
– Valid passport
– Proof of termination of employment in China
– Evidence of permanent departure (e.g., cancellation of work permit/residence permit, or exit visa)
It is important to note that the portion of contributions made by the employer cannot be withdrawn and remains in the national social pooling fund.
- Key Practical Tips:
– Verify Local Policies: Contribution bases, rates, and withdrawal procedures can vary by city. Always consult the local Human Resources and Social Security Bureau (e.g., via 12333.gov.cn)for updated rules.
– Check Bilateral Social Security Agreements: To prevent dual social security contributions, confirm whether a totalization agreement exists between China and the employee’s home country (e.g., Germany, South Korea, Japan).
– Retain Contribution Records: Keep full records of all social security contributions for at least 15 years, as this is the standard statutory audit period in China.
Understanding these rules is essential for any foreign employee participating in China’s social security system and complying with the Five Insurances and One Fund requirements.
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
File Your Labor Case Now: Understand Key Process & Timeline of Labor Dispute
For foreign employees and foreign-invested enterprises in China, labor disputes are a common occurrence. Understanding China’s unique labor dispute resolution mechanism is crucial for safeguarding your rights. Unlike in other countries, China employs a mandatory “Arbitration-First and Two-Trial Finality” system for labor disputes, which dictates that cases must start with labor arbitration. Should either party be dissatisfied with the awards of labor arbitration, they have the right to initiate a labor litigation in court. Labor litigation follows the same procedures as ordinary litigation, adhering to a two-instance final trial system. This article will clearly explain the core steps, timeline, and legal basis of this process.
1. The Mandatory Pre-Litigation Step: Labor Arbitration
According to Article 5 of China’s Labor Dispute Mediation and Arbitration Law, labor arbitration is a mandatory prerequisite for litigation. Courts will not accept labor litigation which has not gone through the prior labor arbitration.
(1) Jurisdiction of Labor Arbitration
The labor arbitration shall be governed by the District Labor Dispute Arbitration Commission (LDAC) either by the place where the labor contract is performed or where the employer is registered.
Nevertheless, in certain cities (for instance, Shanghai), the jurisdiction over labor arbitration for foreigners falls under the municipal labor arbitration committees. Hence, it is advisable to verify with the labor arbitration committee prior to initiating labor arbitration.
(2) Statute of Limitations
- General Rule
The labor arbitration must be filed within 1 year from the date the employee knew or should have known their rights were infringed.
- Important Exceptions
– wage disputes during the employment relationship are not subject to the one-year limitation period.
– If the employment relationship has terminated, labor arbitration (including wage disputes) must be filed within one year from the termination date.
- Interruption of Limitation
– Claims against the other party
– Request for relief from the authority
– The other party agreeing to perform its obligations
- Suspension of Limitation
– Force majeure
– Other legitimate reasons
(3) Required Filing Materials
- Arbitration Application (clearly stating claims, facts, and reasons)
- Identity Documents (for both employee and employer representative)
- Proof of Employment Relationship (e.g., labor contract, wage records/slips, termination letter)
- Other relevant evidence.
(4) Processing Timeline:
- Decide whether to accept the case within 5 days of receiving the application.
- Close the case within 45 days upon acceptance (can be extended with approval, but the extension cannot exceed 15 days).
(5) Final Awards
If either the employee or the employer is not satisfied with the award, they may file a lawsuit with the people’s court within 15 days from the date of receiving the award; otherwise, the award will take effect.
- Exceptions:
Labor arbitration awards shall be final and legally binding from the date of issuance under the following circumstances (however, the employee retains the right to file a case in court if dissatisfied with the awards):
(i) Claims for labor remuneration, work-related medical expenses, economic compensation, or damages not exceeding twelve times the local monthly minimum wage;
(ii) Disputes arising from compliance with national labor standards regarding working hours, rest periods, holidays, and social insurance.
2. First Instance Litigation: From Filing to Judgment
If dissatisfied with the arbitration award, either party may file a lawsuit with the Basic People’s Court within 15 days of receiving the award.
（1）Jurisdiction
Basic People’s Court at the place of the employer’s domicile or where the labor contract is performed.
（2）Essential Documents
- Civil Complaint(detailing claims, facts, and reasons against the arbitration award)
- Original Arbitration Award
- Identity Documents
- Evidence Materials
（3）Court Fee
RMB 10 for each labor dispute case.
（4）Procedure & Timeline
- Filing: After submitting the filing documents, we must wait for the court’s formal acceptance. The waiting period varies among different regional courts, as they handle varying volumes of cases. For example, in Shanghai, some courts may require a waiting period of 2-3 months due to their heavy caseloads.
- Payment of court fees: Upon formal acceptance, the court will issue a payment notice for the court fees. It is essential to settle the court fees promptly; failure to do so may result in the case being considered withdrawn. Subsequently, you will need to wait for the assignment of a judge.
- Summons: In the next step, the judge will schedule a court hearing and issue a summons to both parties, along with providing the complaint and evidence to the defendant.
- Court hearing and judgment: In a summary procedure, the case will be concluded within three months, whereas the ordinary procedure will be concluded within six months.
3. Second Instance Appeal: The Final Remedy
(1) Appeal period
If dissatisfied with the first-instance judgment, a party may appeal to the higher-level (Intermediate) People’s Court within 15 days of the judgment being served. For foreign party without domicile in China , the appeal period for both judgments and rulings is 30 days.
(2) Form
Generally, the court will hold a court hearing. However, it may render a judgment based on the case files (“paper review”) if no new facts or evidence are submitted.
(3) Time Limit
Will be concluded within 3 months from appeal acceptance.
(4) Legal Effect
The second-instance judgment takes effect immediately upon service. Parties cannot appeal further.
4. Conclusion
Foreign individuals and companies involved in a labor dispute in China should seek advice from professional lawyers promptly to navigate the complexities, ensure strict compliance with procedures and deadlines, and maximize the protection of your rights.
Note: This guide is based on Chinese laws and regulations as of July 2025. Subsequent legal revisions or policy adjustments may occur. Always consult with professional lawyers or refer to the latest official sources for the most current information.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
How to Acquire Resident Permit in China Without A Job?
Exploring legal residence options for foreigners in China can be challenging without conventional pathways such as employment or family ties. However, establishing a company and applying for a work permit and residence permit presents a viable alternative.
By leveraging entrepreneurial endeavors, individuals can not only secure legal residency but also engage in business activities within China’s dynamic market. Collaboration with legal experts and thorough preparation are essential for meeting regulatory requirements successfully. Through strategic planning and adherence to relevant statutes, foreign individuals can realize their aspirations for long-term residency in China while contributing to its flourishing business environment.
Step 1: Register A Company
There are several notable advantages to applying for a visa through the establishment of one’s own company. Firstly, pursuing a visa in conjunction with company ownership offers a more pragmatic and rational approach, aligning one’s residency status directly with their entrepreneurial endeavors.
Secondly, the process of visa renewal is often streamlined and expedited for individuals who are registered business owners, facilitating smoother transitions and continuity of residency. Moreover, fulfilling certain predetermined criteria within the framework of business ownership can lead to eligibility for permanent residency status, providing a pathway to long-term settlement in the host country. You may have the following inquiries regarding the specifics of launching a company, such as
- Q1: Do expatriates need to be present during the process of starting a company? Can it be handled online?
Expatriates who possess a real-name certified cell phone number and bank card have the option to complete the process online.
- Q2: How long does it take for a foreigner to start a company in China?
Usually only about 2 weeks to register a company.
- Q3: Is it possible for a company to be established by a single individual?
The establishment of a company requires of three distinct roles:
Firstly, at least one shareholder, who may concurrently serve as the legal representative, is indispensable.
Additionally, a supervisor and an individual who is responsible for the financial matters of the company are imperative.
It is pivotal to note that the roles of supervisor and financial person must be held by distinct individuals, precluding the possibility of a single person occupying both positions. Furthermore, it is stipulated that the accountant person must not be a foreigner who cannot speak Chinese.
- Q4: Can we forgo the appointment of the supervisor?
Under the impending new”Company Law,” scheduled for implementation on July 1, 2024, a notable change pertains to the governance structure of limited liability companies with fewer shareholders.
Specifically, according to the revised provisions, smaller limited liability companies, characterized by a reduced number of shareholders, will have the option to forgo the appointment of a supervisor. This exemption is contingent upon unanimous consent among all shareholders.
- Q5: Is the registered capital required to be fully paid in at once?
According to the amended Company Law, effective from July 1, 2024, shareholders are mandated to fully pay up their contributed capital within five years from the company’s incorporation date, as stipulated in the company’s articles of association. This requirement replaces the previous provision under the current company law, wherein the payment of registered capital was not obligatory at the time of incorporation.
- Q6: What are the liabilities of shareholders?
Shareholders typically assume limited liability concerning the company’s debts, restricted to the extent of their subscribed capital contributions.
However, in cases where the sole shareholder limited liability company fails to demonstrate the autonomy of the company’s assets from the shareholder’s personal assets, the sole shareholder may be subject to joint and several liabilities for the company’s debts.
Consequently, we strongly advise registering a company with two or more shareholders to mitigate such risks and uphold prudent corporate governance.
- Q7: Do foreigners’ passports and other materials need to be notarized and certified?
In the company registration process, there is no requirement for notarizing or certifying passports or any other documentation. However, for the application of a work permit, it is mandatory to provide a non-criminal record and education certificate that have been notarized with apostille certification.
- Q8: Following the company’s successful registration, what additional tasks must be completed?
To establish your company effectively, several essential steps must be taken, including applying for an official seal, opening a company bank account, registering tax certificate, and engaging the services of an accountant to provide assistance with financial matters. These steps collectively ensure the smooth operation and compliance of your company with regulatory requirements.
Step 2: Apply for Work Permit
Upon successful registration of the company, individuals can proceed to apply for a work permit. It’s important to note that various categories of work permits entail distinct application requirements. Therefore, applicants should meticulously review and adhere to the specific prerequisites outlined for their respective work permit classifications.
- Q1: What type of work permit am I eligible to apply for?
In China, foreign workers are categorized primarily into three classifications:
Class A for high-end talents, Class B for professionals, and Class C for other talents. While a strict quota management system is commonly enforced for Class C individuals across most regions, the application process typically prioritizes Class A and B categories.
For Class A high-end talents, the option exists to apply for a work permit valid for up to five years, offering an extended period of employment eligibility.
Conversely, Class B professionals may apply for a work permit with a maximum duration of two years, providing flexibility within the regulatory framework for their employment arrangements.
- Q2: What’s the duration for work permit during the initial application, and is it possible to extend or renew afterward?
Under ordinary conditions, an initial period of six months is typically granted for the issuance of a work permit. However, in cases where the applicant exhibits high qualifications, an initial period of one year may be approved. Furthermore, renewal of the work permit can be sought up to 30 days before its expiration date, facilitating a smooth continuation of employment arrangements.
- Q3: What does the process entail when applying for a work permit?
When applying for a work permit from outside of China, the company initiates the process by submitting the application and relevant documents through the online Service System for Foreigners Working in China.
Subsequently, upon approval, the company receives the Notification Letter of Foreigner’s Work Permit. Foreign nationals utilize this notification letter to apply for a work visa in their respective country. Following the acquisition of the work visa and entry into China, individuals proceed to apply for the formal work permit.
- Q4: What is the typical timeframe required for completion?
The application process for the Notification Letter of Foreigner’s Work Permit typically involves a timeframe of approximately 5-10 business days for completion.
Similarly, the application for the formal work permit also requires a timeline of approximately 5-10 business days.
- Q5: Is it possible to apply for a work permit without possessing a bachelor’s degree or higher education, or evidence of relevant professional qualifications?
Certainly. As a shareholder in the company being registered, individuals have the opportunity to apply for a visa as an investor. Notably, this process does not necessitate the submission of additional documents such as diplomas, certificates, or employment contracts.
- Q6: Which documents are necessary for an investor’s application of work permit?
You need a copy of the original business license and other documents proving that you are an investor, passport, certificate of no criminal record and medical certificate.
- Q7: What are the drawbacks of seeking a work permit as an investor?
During the renewal process of a work permit, the entry and exit bureau conducts a comprehensive review to ensure the continued normal operation of the company and the ongoing status of the applicant as the company’s investor. The assessment of the company’s normal operation primarily focuses on the regular payment of Value Added Tax (VAT).
- Q9: What should an applicant do if uncertain whether the company will settle VAT within six months of the initial application?
We advise you to pursue the application for a work permit as an employee of your company. However, it’s important to note that the eligibility criteria typically require candidates to possess a bachelor’s degree or higher educational qualification, along with relevant work experience.
- Q10: Which documents are required when applying for a work permit as an employee?
The application for a work permit entails the submission of the following documents:
(1) Completed Application Form for Work Permit;
(2) Valid passport;
(3) Non-criminal record certificate;
(4) Certificate of highest academic qualification (bachelor’s degree or above) or other professional qualifications;
(5) Certificate of work experience covering the last two years;
(6) Employment contract;
(7) Medical certificate;
(8) Electronic photo;
(9) Original photo.
Step 3: Apply for Resident Permit
- Q1: Where can I apply for a residence permit? Can I apply online?
Residence permits are exclusively obtainable through in-person applications at the Immigration Office located within each district.
Unlike other processes, online applications are not available for residence permits, it requires applicants to submit their requests offline, in accordance with the prescribed procedures.
- Q2: What documents are required to apply for a work-related residence permit?
The essential documents are:
(1) original passport;
(2) work visa;
(3) temporary accommodation registration form;
(4) medical report;
(5) work permit;
(6) company application letter;
(7) individual application letter;
(8) company business license.
- Q3: What’s the typical duration taken to complete the process?
It normally can take up to 10 working days but in some cases two weeks.
- Q4: How long will I be granted for residence permit?
Normally the period will be the same with work permit
If you have any inquiries regarding the specifics of launching a company, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
How Much Severance Pay Am I Entitled To in China?
KEY TAKEAWAYS
1. The severance pay will vary between “N”, “N+1” and “2N” depending on the specific circumstances of termination.
2. “N” is calculated by multiplying the monthly average salary for the twelve months prior to terminating the labor contract with years of employment.
3. “N+1” = standard severance pay (N) plus one month’s average salary.
4. The severance pay is limited to three times the average monthly salary in the local area, with the calculation period capped at twelve years.
5. In addition to severance pay, you may also claim unpaid bonuses, commissions, overtime wages, wages for unused annual leave, compensation for refusing to sign a written labor contract, and compensation for non-competition if applicable.
6. Not all courts in China will uphold the termination of a foreigner’s contract. However, it is worth noting that the majority of courts do so, with the exception of the ones in Shanghai.
1. What does “N” stand for?
The term “N“ typically denotes standard severance pay. Article 47 of the Labor Contract Law (“LCL”) outlines that standard severance pay is calculated by multiplying the monthly average salary of the twelve months leading up to the termination of the labor contract by the length of employment. (“the monthly average salary of the twelve months leading up to the termination of the labor contract” hereinafter referred to as “average salary”)
If an employee has worked for less than six months, their severance pay will be calculated based on half a year; if they have worked for more than six months (including six months) but less than one year, their severance pay will be calculated based on one full year.
For example, the average salary amounts to CNY 10,000, with a working period of 3 years and 4 months. As a result, the corresponding severance pay of “N” is CNY 35,000.
Another instance shows an average salary of CNY 10,000 and a working period of 3 years and 9 months, leading to a severance pay (“N”) of CNY 40,000.
2. What does “N+1” refer to?
Article 40 of LCL mandates that employers must either provide one month’s prior notice to employees or pay one month’s salary as compensation in lieu of notice to terminate labor contracts legally and unilaterally. This implies that in the event of legal termination without one month’s prior notice, the employer must offer an additional one month’s salary as severance pay. Conversely, one month’s salary is not mandatory.
Therefore, “N+1” refers to the standard severance pay plus an additional month’s average salary (to compensate for the absence of a notice period).
For example. If the average salary is CNY 10,000, and the employee has worked for 3 years and 4 months. The severance pay of “N+1”=CNY 10,000×3.5+CNY 10,000 =CNY 45,000.
3. What does “2N” stand for
If the employer violates the law by terminating the labor contract, the employee has the right to either request the reinstatement of the labor relationship or demand that the employer pay double the standard severance pay, which is 2N.
For example, if the average salary is CNY 10,000 per month and the employee’s total working period is 3 years and 9 months, then the severance pay of 2N would equal CNY 80,000.
4. Scenarios for “N”, “N+1”, “2N”
For the sake of clarity, we provide the following summary of the scenarios pertaining to “N”, “N+1”, and “2N” as presented in our previous article:
- Scenarios for “N” or “N+1”
(1) Legal bilateral termination;
(2) Failure of renewal;
(3) Mass-layoff
(4) Bankruptcy, dissolution, cancellation;
(5) Employer’s legal unilateral termination (health issues or injury, incompetent in work, significant changes);
(6) The employee’s legal termination (ONLY “N”)
“N+1” only applies in situations where the employer fails to provides the employee with 30 days’ prior notice of termination.
“N” applies when the employer has given the notice period mentioned above, or when employees terminate the labor contract as per Article 38 of LCL.
- Scenarios for “2N”
As previously stated in our article, the employer is obligated to compensate the employee “2N” under the following circumstances:
(1) Terminating an open-ended labor contract by the employer (“open-ended labor contract” does not apply to foreign employees as the employment period can not exceed 5 years.)
(2) Dismissing a female employee during her pregnancy, confinement or nursing period.
(3) Dismissing an employee who suffers from sickness or non-work-related injury within the prescribed medical treatment period.
(4) Dismissing the employee who has worked in conditions exposing them to occupational disease hazards during employment without a pre-employment occupational health examination, or dismissing an employee suspected of suffering an occupational disease during the period of diagnosis or medical observation;
(5) Dismissing the employee who has been working for 15 years consecutively with the employer and will retire in less than five years; or
(6) Any other dismissal that is unlawful or prohibited by law.
5. Is there a limit for severance pay?
Certainly. Severance pay shall be capped at three times the local average salary where the employee’s average salary exceeds three times the average monthly salary of the previous year. Additionally, the calculation years of severance pay shall be limited to twelve years.
6. What else you may claim for?
- Unpaid bonus,allowance, commission, etc.
As long as these are agreed in the labor contract or other agreement.
- Overtime wage
Overtime wage on working days = hourly wage x overtime hours x 1.5
Overtime wage on weekend = daily wage x overtime days x 2
Overtime wage on statutory holiday = daily wage × overtime days ×3
- Wages for unused annual leave
Wages for unused annual leave=daily wage × overtime days ×3
- Compensation for failing to sign a written labor contract
If the employer fails to sign a written labor contract within the period of more than one month but less than one year, it has to compensate the employee double salaries every month (generally capped at 11 months).
- Compensation for non-competition
Only when the employer and employee have entered into a non-competition agreement.
7. Will the court uphold the severance pay of a foreign employee?
- Judicial Practice of Shanghai
(1) In the event that both parties have expressly agreed in the labor contract that the foreign employee is entitled to severance pay, the Shanghai courts will uphold the severance pay as per the Answers of Shanghai High People’s Court to Several Issues Concerning the Trial of Labor Dispute Cases (“ALDC”);
(2) Otherwise, most Shanghai court may not uphold the severance pay pursuant to the ALDC as they believe that foreigners are not eligible to apply the LCL since there are no laws explicitly stating that foreigners can apply the LCL.
Therefore, it is highly advised that foreign employees negotiate with their employer to cover a severance payment clause in the labor contract.
- Judicial Practice of Beijing, Guangzhou, Jiangsu, Zhejiang
Courts in Beijing, Guangzhou, Jiangsu, and Zhejiang province typically support the severance of foreign employees by arguing that the Administrative Provisions on Employment of Foreigners in China do not grant foreigners an exemption from the LCL. Thus, foreigners are eligible to cite the LCL.
Q&A
Q： How should I claim for severance pay?
A： You can initiate a labor arbitration procedure at the Labor Dispute Arbitration Committee where the labor contract is implemented or where the employer is located. For foreign employees in Shanghai, the labor arbitration procedure must be commenced at the Shanghai Municipal Labor Dispute Arbitration Committee.
Q： If I’m not satisfied with the arbitration verdict, what should I do?
A： You may file a lawsuit in court. Otherwise, the arbitration verdict will be enforced. When you are unsatisfied with the court judgment, you may initiate a second instance by submitting an appellate petition.
Q： If the employer fails to comply with the verdict or judgment, what should I do?
A： The employee may apply for enforcement once it takes effect.
If you would like us to assess whether you are entitled to severance pay, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Am I Entitled to Severance Pay in China?
KEY TAKEAWAYS
(1) The employee is entitled to severance pay (“N” or “N+1”) under the circumstances of legal bilateral termination, failure of renewal, mass-layoff, bankruptcy, dissolution, health issues or injury, incompetency, significant changes.
(2) The employee is entitled to “2N” of severance pay when the employer’s termination is not permitted under the law or violates the law.
(3) Even if the termination is initiated by the employee, the severance pay (typically “N”) shall be paid by the employer in the event of the employer’s termination of open-ended labor contract, failure of paying remuneration or social security premiums and the employer’s fraud, coercion, violence or other conducts contrary to laws and regulations.
1. When You Are Entitled To Severance Pay?
Under Article 46 of the Labor Contract Law of PRC (“LCL”), the employer may terminate the labor contract but has to pay severance pay to the employee in the following circumstances:
- Legal Bilateral Termination (Article 36 of LCL)
When a company desires to terminate the labor contract, the LCL allows the company to enter into a mutual agreement with its employee on termination of employment relationship.
In such circumstance, a severance package (normally “n” or “n+1”) shall be involved in this termination agreement. The bilateral termination agreements are often used in the event of downsizing as it may avoid conflicts between both parties and legal costs for the potential legal proceedings.
- Failure of renewal
When a fixed-term employment contract expires, and the employer is not satisfied with the employee’s performance, it may choose not to renew the contract. However, a severance (typically “n” or “n+1”) has to be paid by the employer.
This rule changes when the second fix-term contract expires, in which case the contract becomes an open-term labor contract, and the employ has no right to not renew the contract, otherwise, it shall pay a severance of “2n” to the employee.
- Mass-layoff (Article 41 of LCL)
Under Article 41 of LCL, a mass-layoff refers to the collective termination of more than 20 employees or 10% of the total employees. A legal mass-layoff requires notification and explanation to labor union and all employees in advance, report to the labor administrative department for review.
Without the above procedures, the mass-layoff will be deemed as illegal termination which means the employee will likely be entitled to severance pay of up to “2N”. If the mass-layoff is approved by the labor administrative department, the employer still has to pay severance (normally “N” or “N+1”) to all the employees who were terminated.
- Bankruptcy, dissolution, cancellation
When the labor contract is terminated due to the employer’s bankruptcy, dissolution and cancellation, the employee is entitled to “N” or “N+1” of severance pay (Cause 4 and 5, Article 44 of LCL).
- Employer’s legal unilateral termination
The LCL (Article 40) allows the employer, in any of the following circumstances, to lawfully terminate the labor contract by either sending the employee a written notice 30 days in advance and paying severance of “N” or paying severance of “N+1” instead of 30 days’ written notice in advance:
(1) Health issues or injury:
A worker suffers from an illness or a non-work-related injury and, after the expiry of the prescribed medical period, is unable to fulfil his/her original work or fulfil the work that has been otherwise arranged by the employer;
(2) Incompetent in work
A worker is incompetent in performing his/her work and remains to be incompetent in performing the work after training or adjusting the position; e.g. the employee fails to meet the standard of performance appraisal for several times.
(3) Significant Changes
The objective circumstances under which the labor contract was concluded have significantly changed (e.g. enterprise migration, department abolishment), making it impossible to perform the contract, and the employer and the employee fail to reach a mutual agreement on changing the contents of the labor contract after negotiation.
- Employer’s illegal unilateral termination
The employer’s illegal unilateral termination will make the employee entitled to a severance pay of “2N”, and it refers to the following circumstances:
(1) Termination of an open-ended labor contract by the employee;
An open-ended labor contract has no expiration date and will continues until either the employer or the employee terminates the contract. If the employer and employee have entered into two consecutive fixed-term labor contracts, or if the employee has worked continuously in the company for 10 years, regardless of the labor contract, the employer and employee will automatically enter into an open-ended labor contract.
(2) Dismissing a female employee during her pregnancy, confinement or nursing period;
(3) Dismissing an employee who suffers from sickness or non-work-related injury within the prescribed medical treatment period;
(4) Dismissing the employee who has engaged in work exposed to occupational disease hazards during employment without a pre-employment occupational health examination, or dismissing an employee suspected of suffering an occupational disease during the period of diagnosis or medical observation;
(5) Dismiss the employee who has been working for 15 years consecutively with the employer and will retire in less than five years;
(6) Any other dismissal that is unlawful or prohibited by law.
2. When You Are NOT Entitled To Severance Pay？
However, the severance pay shall not be payable in the following circumstances:
(1) The employee does not satisfy the recruitment criteria during the probationary period;
(2) The employee commits serious violation of the company rules and regulations.
(3) The employee commits gross negligence in duties or malpractice, thus causing significant damage to the employer;
(4) The employee simultaneously works for another company without consent of the current employer, which seriously affects the fulfillment of the current employer’s work tasks, or who refuses to rectify the situation upon the employer’s request;
(5) Where the labor contract is rendered void under the circumstances stipulated in item (1) of the first paragraph of Article 26; or
(6) The employee has been held criminally liable pursuant to the law.
3. Are You Entitled To Severance Pay Even If The Termination Is Initiated By Yourself.
Under Article 38 of LCL, the employee is also entitled to severance pay of “N” even if the termination is initiated by the employee in the following circumstances:
(1) The employer fails to provide labor protection or working conditions as defined in the labor contract
(2) The employer fails to pay remuneration in full and on time;
(3) The employer fails to pay social security premiums for employees;
(4) The rules and procedures of the employer are contrary to laws and regulations to the detriment of the employee’s rights and interests.
(5) The employer induces the employee enter into the labor contract against the employee’s true intention by illicit means such as fraud, coercion, or taking advantage of the employee’s unfavorable position, which ultimately leads to the invalidity of the labor contract;
(6) If an employer forces an employee to work by means of violence, threat or unlawful restriction of personal freedom, or if an employer violates the safety regulations and instructs an employee to engage in hazardous work and that jeopardizes the employee’s personal safety, the employee may terminate the employment contract immediately without prior notice to the employer.
(7) Other circumstances stipulated by laws and regulations.
If you would like us to assess whether you are entitled to severance pay, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
