A WFOE’s employee handbook is its first line of defense in employment disputes. Chinese labor law gives considerable weight to an employer’s internal rules and regulations, provided they’re properly adopted and communicated. A handbook that covers the right topics, uses clear language, and was properly promulgated can make the difference between winning and losing an employment dispute.
The handbook should be in Chinese. The Chinese version is the legally effective version. An English translation can be provided for expatriate managers, but the Chinese version governs. Here are the clauses every WFOE should include.
Working Hours and Attendance
The standard working hours in China are eight hours per day and forty hours per week. The handbook should state the company’s working hours — for example, 9:00 AM to 6:00 PM with a one-hour lunch break — and the attendance recording method. The attendance record is the primary evidence of attendance, and a handbook that defines the recording method — card reader, fingerprint scanner, electronic sign-in — establishes what the company will rely on in a dispute about working hours.
The overtime provisions should define what constitutes overtime, how overtime is authorized, and how overtime is compensated. Overtime must be authorized in advance — an employee who works late without authorization is not entitled to overtime pay, but the employer’s ability to enforce this depends on having a clear advance authorization rule in the handbook and consistently enforcing it. The overtime compensation rates are statutory — 150% for weekdays, 200% for weekends that are not rest days, 300% for public holidays — and the handbook should reference these rates.
Leave and Public Holidays
The handbook should list the statutory annual leave entitlement — five days for employees with one to ten years of cumulative work experience, ten days for ten to twenty years, fifteen days for more than twenty years — and the procedures for applying for and approving leave. The handbook should also address the company’s approach to unused leave — whether it carries over to the next year, whether it’s paid out, or whether it’s forfeited.
The public holiday schedule should be listed — New Year’s Day, Chinese New Year (three days), Qingming, Labor Day, Dragon Boat Festival, Mid-Autumn Festival, and National Day (three days) — and the handbook should explain how the weekend adjustment works. The Chinese government adjusts weekends around public holidays to create longer continuous holidays, and employees sometimes work on weekends in exchange for extra consecutive days off. The handbook should make clear that the company follows the government’s official schedule.
Sick leave is more complicated than many companies expect. The handbook should state the procedure for requesting sick leave — typically, a medical certificate from a designated hospital — and the sick pay rate. The statutory sick pay rate is 60% to 100% of the employee’s salary depending on the length of service and the length of the illness, and the rate varies by city. The handbook should state the applicable rate or refer to the applicable local regulation.
Maternity leave is 98 days nationally, with additional days added by provincial and municipal regulations — Guangdong Province adds 80 days, for example. The handbook should state the maternity leave entitlement and the maternity pay arrangements, including the interaction between the social insurance maternity benefit and the employer’s salary payment obligation.
Probation Period
The statutory maximum probation period is one month for employment contracts with a term of less than one year, two months for contracts of one to three years, and six months for contracts of three years or more or for open-ended contracts. The handbook should state the probation period for new employees by reference to the contract term, not as a fixed number of months for all employees.
The probation period is used to assess the employee’s suitability for the position. The handbook should define the performance standards that apply during the probation period and the process for confirming or not confirming the employee at the end of the probation period. A company that terminates an employee during the probation period on the ground that the employee doesn’t meet the recruitment conditions must be able to show what the recruitment conditions were and why the employee didn’t meet them.
Remuneration
The handbook should describe the company’s salary structure — base salary, position allowance, performance bonus, subsidy — and the salary payment date. The standard salary payment date is a specific day of the month, and the company must pay salary at least once a month. Late payment of salary is a breach of the employment contract and exposes the employer to claims for unpaid salary plus a penalty of 50% to 100% of the unpaid amount.
The bonus structure should be described, including the criteria for bonus eligibility, the bonus calculation method, and the bonus payment timing. A bonus that’s described as discretionary — “the company may pay a bonus at its discretion” — may not create a legal entitlement. A bonus that’s described as formula-based — “the bonus is calculated as X% of revenue above Y” — creates a legal entitlement, and the company must pay it if the formula conditions are met.
The thirteenth-month salary — a customary year-end payment equal to one month’s salary — should be addressed if the company pays it. The handbook should state whether the thirteenth-month salary is a contractual entitlement or a discretionary payment, and whether an employee who resigns before the end of the year is entitled to a pro rata thirteenth-month payment.
Discipline
The disciplinary section is arguably the most important part of the handbook from the employer’s perspective. Chinese labor law permits the employer to terminate an employee for serious violation of the employer’s rules and regulations, but the employer must be able to show what the rule was, how the employee violated it, and that the violation was serious.
The disciplinary rules should be specific enough to give employees fair notice of what conduct is prohibited, but not so narrow that unaddressed misconduct escapes. A rule that says “serious misconduct is grounds for termination” is too vague to enforce. A rule that says “the following conduct constitutes serious misconduct: unauthorized disclosure of confidential information; theft of company property; fighting in the workplace; falsification of expense reports; refusal to follow a lawful management instruction after two written warnings” provides the necessary specificity.
The disciplinary process should be described — verbal warning, written warning, final written warning, termination — and the escalation between levels should be clear. An employee who receives a written warning should understand what the next step is and what conduct will trigger it. The handbook should also state that the disciplinary process is progressive in general but that certain serious misconduct may result in immediate termination without prior warnings.
Confidentiality and Intellectual Property
The handbook should require employees to maintain the confidentiality of the company’s trade secrets and confidential information, both during employment and after termination. The definition of confidential information should be broad enough to cover the types of information the company actually uses — customer lists, pricing information, technical specifications, business plans, financial data.
The intellectual property clause should state that all intellectual property created by the employee in the course of employment belongs to the company. This is the default rule under Chinese law — works created in the course of employment belong to the employer — but a clear contractual provision reinforces the rule and eliminates arguments about whether a particular creation was in the course of employment.
The post-employment non-compete clause should be included in the employment contract, not in the handbook, because a non-compete is a contractual obligation that requires the employer to pay compensation during the non-compete period. But the handbook can reference the non-compete obligation and explain the company’s general policy on post-employment restrictions.
Harassment and Discrimination
Chinese law prohibits discrimination in employment on the basis of ethnicity, race, gender, and religious belief, and it requires employers to prevent sexual harassment in the workplace. The handbook should state the company’s policy against harassment and discrimination, the procedure for reporting complaints, and the consequences for violations.
The harassment policy should be specific about the types of conduct that constitute harassment — unwelcome sexual advances, requests for sexual favors, verbal conduct of a sexual nature, physical conduct of a sexual nature, and conduct that creates an intimidating, hostile, or offensive work environment. The reporting procedure should identify at least two people to whom complaints can be made, so that an employee who has a complaint about one person can report to another.
Termination
The handbook should list the grounds for termination by the employer — mutual agreement, employee resignation, non-confirmation during probation, serious violation of rules, gross negligence causing significant damage, criminal liability, incapacity after medical treatment, incompetence after training or position adjustment, and redundancy — and the notice periods and severance payment that apply to each ground.
The termination procedure should be described — how the company conducts a termination meeting, what documents the employee receives, and how the final salary and severance payment are calculated and paid. An employee who understands the termination procedure from the handbook is less likely to challenge the termination on procedural grounds.
Communication and Record-Keeping
The handbook should be communicated to every employee and the employee should sign a written acknowledgement of receipt. The acknowledgement is the evidence that the employee received the handbook and had the opportunity to read it, and it’s the employer’s proof that the employee was aware of the rules and regulations that the employee is accused of violating.
The handbook should state that it’s subject to amendment and that employees will be notified of amendments. Major amendments — changes to disciplinary rules, changes to working hours, changes to salary structure — should be communicated in writing, and employees should acknowledge receipt of the amended handbook.
The handbook is a legal document, not a marketing document. It should be reviewed by an employment lawyer who knows Chinese labor law, and it should be updated when the law changes or when the company’s practices change. A handbook that was written five years ago and hasn’t been updated since is a liability, not an asset.
