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[ESTABLISHING A BUSINESS ENTITY IN CHINA]
c) Social security The employer shall contribute social security insurances and housing fund for employees on a monthly basis. Social security insurances are comprised of five categories of contributions: pension, medical, work-related injury, unemployment, and maternity insurance. The contribution ratio of social security insurance and housing fund for the employer and the employee varies from location to location. d) Termination of employment There is no “at - will” termination in China. The employer can only terminate an employee relying on limited statutory grounds, such as serious violation of the employer’s policies, incompetence, mass layoffs due to economic reasons, etc. The employee may claim double severance pay or reinstatement of employment in the case of a wrongful termination. The statutory severance pay is calculated based on the service years of the employee with the employer. The employer shall pay to the employee his/her average monthly wage for each full year’s service, and half of his/her average monthly wage for service of less than six months. The average monthly wage of an employee means the average wage of the employee during the last twelve- months period before the termination of the labor contract. The average monthly wage is also subject to a cap calculated based on the local social average monthly
wage where the employer is located. e) Foreign employee Foreigners are required to obtain work permits for the purpose of working in China. The employer is not allowed to sign a labor contract with a foreign employee that has a term of more than five years. When a foreigner enters into China, he/she is required to apply for a residence permit to the local public security department. The foreigner needs to re-apply for the work permit if he/she lefts the previous sponsor company when changing the job. Normally, a foreigner will have thirty days to leave China after de- registration of the work permit if he/she is no longer working for a Chinese company. f) Labor union An employer in China is not obligated to proactively establish a labor union. However, if there are more than twenty-five labor-union members in the company, they could propose to set up an internal grassroots labor union, and the employer shall not obstruct the unionization initiated by its internal union members. In general, labor unions in China are not considered disruptive and maintain a peaceful relationship with their employers; with only rare exceptions. The company labor union can initiate the collective bargaining with the company in relation to the compensation and benefits, rest and leaves etc.
ILN Corporate Group – Establishing a Business Entity Series
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