How Increased Compliance With Employment Laws Can Affect Your Company

2017 was the first year that China started implementing a series of detailed procedures on government oversight of employment-law compliance among employers, designed to enforce a 2004 regulation, Regulations for Supervision of Labor Security. The 2004 directive authorized labor authorities to monitor and supervise employers’ compliance with employment-related laws and regulations.

The latest rules provided substantial specificity, in an effort to button-up enforcement loopholes in China’s existing employment laws. Specifically, the latest rules require relevant authorities to conduct random inspections of employment-law compliance, categorize companies based on their level of employment-law compliance, announce labor violations publicly, and share violations with other agencies. Some local authorities have started enforcing the new rules through on-site inspections of randomly selected employers and publication of violations found in 2017. The Ministry of Human Resources and Social Security’s established a new “compliance ranking system” that aims to categorize employers’ compliance levels. However, the extent to which these rankings are comprehensive is unclear, and employers are best served to assume they will be inspected and ranked at some point in 2018. 

Employment laws are often local, and sometimes available in Chinese only—but employers can tackle an internal audit by targeting some of the lowest-hanging fruit first, including violations like: (1) the use of “labor dispatch” agencies for permanent roles and core functions; (2) expatriate employees’ use of business-visitor (M) visas while working in China; (3) failing to track hours worked and pay overtime compensation, to which any employee is entitled unless the company has obtained government approval for an overtime exemption; (4) failing to correctly pay out unused vacation time every calendar year(employers must ensure that employees take their minimum statutory vacation time and pay out unused vacation time at 300 percent rather than permit employees to carry it over). Companies that are not headquartered in China should also ensure that they have visibility to their Chinese employment practices, ideally through a visit from someone from the corporate office. In this regard, as a first step, the company will want to ensure that employment contract templates and other important policies are available in the local language and English We reviewed some pitfalls of employment-law compliance in China in our article, “It’s All Good in China, Until It Isn’t: Tips and Flags for PRC Employers.”  

Under the new rules, local authorities are required to evaluate a broad array of items—to serve as the basis of their compliance ranking. Among the enumerated areas affecting an employer’s compliance ranking is its internal “rules and regulations” (essentially, a handbook), which is subject to review during contemplated random inspections. Employment handbooks, although not required under Chinese employment laws, serve an important function; and there are statutorily-required procedures for their implementation with which employers often neglect to comply.

Written by Bonnie Puckett of Ogletree Deakins