Reliant on the Law - Severance Pay

Click "Reliant 睿来" to follow us！

 Reliant on the Law

Severance Pay

When do I get compensation for leaving a job?

China’s Labor Contract Law (LCL) provides many protections for employees. One of the most important is the system for severance payments that LCL sets out. In English texts of the LCL economic compensation (经济补偿) is the term used for these payments, but for purposes of this article I will use the term severance. Knowing when you are due severance and how it should be calculated can help you in negotiations with employers because the severance requirements often give the employee significant leverage over the employer. So even if you only need to get your release documents, and don’t really want to get severance, making a legitimate severance claim can be a useful strategy.

The main LCL articles that deal with severance are 46 and 47, but it is also important to discuss articles 48 and 87 in the same context, as those deal with related remedies. LCL 46 outlines when an employee is entitled to severance. There are five main conditions which entitle an employee to severance.

The first is when the employee resigns due to the serious subjective fault of the employer as per LCL 38. The specifics of when this is allowed are covered in my article on contract termination, but the most common reasons are failure to pay wages in full or on time, failure to enroll the employee in or pay into social insurance, contract fraud on the part of the employer, unsafe work condition, or work rules that violate the law.

The second is when the employer proposes to end the contract and the employee agrees to a mutual termination as per LCL 36. Note that if the employee proposes to end the contract, and the employer agrees, that is different and not a situation which entitles the employee to severance.

Third, when the employer terminates the contract under any of the conditions in LCL 40. These include (1) firing the working when she still proves unable to return to work after using all sick leave; (2) firing the employee for unsuitability or incompetence; (3) and firing the employee because a change in objective conditions has made the contract unperformable (this is Force Majeure) and no agreement can be reached on how to modify the contract to fit the new conditions.

Fourth, when the employer enters bankruptcy reorganization, has its business license revoked, or is ordered to close.

Fifth, when the contract ends and the employer does not offer to renew the contract at equal or better terms. Conceptually this makes sense if we understand it as being similar to a termination. But if the employer does offer a renewal at equal or better terms, and the employee rejects it, then the employee loses severance rights.

LCL 47 deals with how severance is calculated. The basic principle is that for each year worked at an employer the employee gets one month of severance pay. For work under six months the employee only gets one half month of pay, but any period of six months or over counts as a year for calculation purposes. So if you worked for an employer for two years and seven months that would count as three years and thus three months of severance pay. But if you had only been with an employer for two years and four months that would get you two and a half months severance pay. The monthly base rate for severance calculation is an average of the employee’s monthly pay over the last twelve months. This includes any hourly pay, piece work pay, bonuses, or subsidies the employee should get. And if the employee has not worked for the employer for 12 months then the calculations should use a monthly average for the actual time the employee worked for the employer in question. (LCL Implementation Regulations Art. 27).

There are also two caps that apply to severance calculation. First, the monthly amount is limited to three times the prior year’s official average monthly income for the locale where the employment took place. This average is an official figure and is much higher than the minimum wage. For example the minimum wage in Beijing is RMB 2,200 per month, while the official average wage in 2018 was RMB 10,059.25, giving a maximum monthly base rate for severance calculation of RMB 31,776.75 (Work for a Year and Get One Month’s Salary Compensation). The overall severance amount is also capped at 12 times the monthly base rate for severance calculation, so if you work for an employer for more than 12 years your potential severance will not increase with time as it did before the 12 year mark.

LCL 48 does not technically deal with severance but is included here as it gives the employee a severance related option. If any employer terminates an employee illegally that employee can request reinstatement. Though there may be some cases where this is practical, in most cases the better option would be to leave the job and take the damages for illegal termination stipulated in LCL 87.

LCL 87 stipulates that in any case where the employer illegally terminates an employee, the employer has to pay the employee compensation (赔偿金) equal to twice the severance amount calculated based on the terms in LCL 47. Where an employer pays this compensation, there is no obligation to also pay standard severance; the one payment covers all the severance obligations (LCL Implementation Regulations Art. 25).

Employers in China can only fire employees with cause, and unless an employee has done something severely wrong (as described in LCL 39 and in my article on contract termination), then in almost all cases employees are due severance pay. Understanding severance is another way that Reliant on the Law can help you protect your labor rights.

References

Labor Contract Law of the PRC

http://english.www.gov.cn/archive/laws_regulations/2014/08/23/content_281474983042501.htm 

中华人民共和国劳动合同法

http://www.gov.cn/flfg/2007-06/29/content_669394.htm 

Article 46

In the case of any of the following circumstances, employers shall make an economic compensation to the workers:

(1) Any worker discharges the labor contract according to Article 38 of this Law;

(2) Any employer intends to discharge the labor contract with the workers according to Article 36 of this Law and reaches consensus with the workers through consultations;

(3) The employer discharges the labor contract pursuant to Article 40 of this Law;

(4) The employer discharges the labor contract subject to the first Paragraph of Article 41 of this Law;

(5) The labor contract is a contract with a fixed period, which is terminated in accordance with Paragraph (1) of Article 44 of this Law, except that the worker disagrees to renew the contract even though the conditions offered by the employer are the same as or better than those stipulated in the current contract;

(6) The labor contract is terminated in accordance with Subparagraphs (4) and (5) of Article 44 of this Law; or

(7) Other circumstances as prescribed by laws and administrative regulations.

第四十六条

有下列情形之一的，用人单位应当向劳动者支付经济补偿：

（一）劳动者依照本法第三十八条规定解除劳动合同的；

（二）用人单位依照本法第三十六条规定向劳动者提出解除劳动合同并与劳动者协商一致解除劳动合同的；

（三）用人单位依照本法第四十条规定解除劳动合同的；

（四）用人单位依照本法第四十一条第一款规定解除劳动合同的；

（五）除用人单位维持或者提高劳动合同约定条件续订劳动合同，劳动者不同意续订的情形外，依照本法第四十四条第一项规定终止固定期限劳动合同的；

（六）依照本法第四十四条第四项、第五项规定终止劳动合同的；

（七）法律、行政法规规定的其他情形。

Article 47

The economic compensation shall be paid to workers according to the number of years he has worked for the employer by the rate of one month's salary for each full year he worked. Any period of above six months but less than one year shall be deemed as one year. The economic compensations that are paid to a worker for any period of less than six months shall be one-half of his monthly salary.

If the monthly salary of a worker is three times higher than the average monthly salary of workers as announced last year by the people's government at the municipal level directly under the central government or at the level of districted city where the entity is situated, the rate for the economic compensations paid to him shall be three times the average monthly salary of workers and may not exceed 12 years of work.

Monthly salary as mentioned in this Article means the average monthly salary of the worker for the 12 months before the discharge or termination of the labor contract thereof.

第四十七条

经济补偿按劳动者在本单位工作的年限，每满一年支付一个月工资的标准向劳动者支付。六个月以上不满一年的，按一年计算；不满六个月的，向劳动者支付半个月工资的经济补偿。

劳动者月工资高于用人单位所在直辖市、设区的市级人民政府公布的本地区上年度职工月平均工资三倍的，向其支付经济补偿的标准按职工月平均工资三倍的数额支付，向其支付经济补偿的年限最高不超过十二年。

本条所称月工资是指劳动者在劳动合同解除或者终止前十二个月的平均工资。

Article 48

In the case of any employer discharges or terminates a labor contract that violates this Law, if any worker requests for continual performance of the contract, the employer shall do so as required. If the worker does not request so or if continual performance of the labor contract is impossible, the employer shall pay compensation to him in accordance with Article 87 of this Law.

第四十八条

用人单位违反本法规定解除或者终止劳动合同，劳动者要求继续履行劳动合同的，用人单位应当继续履行；劳动者不要求继续履行劳动合同或者劳动合同已经不能继续履行的，用人单位应当依照本法第八十七条规定支付赔偿金。

Article 87

Where any employer is in violation of this Law because of discharge or termination of the labor contract, a compensation shall be paid to the worker at the rate of twice of the economic compensations as prescribed in Article 47 of this Law.

第八十七条

用人单位违反本法规定解除或者终止劳动合同的，应当依照本法第四十七条规定的经济补偿标准的二倍向劳动者支付赔偿金。

Implementation Regulations for the Labor Contract Law of the People’s Republic of China

http://www.fdi.gov.cn/1800000121_39_521_0_7.html 

中华人民共和国劳动合同法实施条例

http://www.gov.cn/zwgk/2008-09/19/content_1099470.htm 

Article 25

Where any employer dissolves or terminates the employment contract with an employee against the Labor Contract Law, if it has paid a compensation according to Article 87 of the Labor Contract Law, it is not required to make economic compensations. The working time based on which the aforesaid compensation is calculated shall be calculated from the day when the employee was hired.

第二十五条　

用人单位违反劳动合同法的规定解除或者终止劳动合同，依照劳动合同法第八十七条的规定支付了赔偿金的，不再支付经济补偿。赔偿金的计算年限自用工之日起计算。

Article 27

In accordance to Article 47 of the Labor Contract Law, the monthly wages for calculating the economic compensation to be paid to an employee shall be the monthly wages that the employee deserves, including the hourly wages or piecework wages and other monetary incomes such as bonuses, allowances and subsidies. If the average wages of the employee in the 12 months before the employment contract is dissolved or terminated are below the local minimum wages level, the economic compensation shall be calculated based on the local minimum wages. If the working time of the employee is less than 12 months, the average wages shall be calculated based on the actual work time.

第二十七条

劳动合同法第四十七条规定的经济补偿的月工资按照劳动者应得工资计算，包括计时工资或者计件工资以及奖金、津贴和补贴等货币性收入。劳动者在劳动合同解除或者终止前12个月的平均工资低于当地最低工资标准的，按照当地最低工资标准计算。劳动者工作不满12个月的，按照实际工作的月数计算平均工资。

Work for a Year and Get One Month’s Salary Compensation, the Maximum Amount Cannot Exceed Three Times this Municipality’s Average Monthly Wage, the Maximum Compensation Per Month is RMB 31,776.

工作一年补一个月工资，封顶基数不得超过全市平均工资三倍 解聘员工最多一年补31776元。

http://rsj.beijing.gov.cn/xwsl/mtgz/201912/t20191206_920576.html

Recommended Reading

Contact Us

Wechat: Reliant-cn

Long Press the QR Code for Free Group Invitations or Paid Service Bookings

Follow Us

Official Account: Reliantinfo

Long Press the QR Code to get more info

We also offer paid services including: Private Consultations, Labor Supervision Complaint and Labor Arbitration Case Support, Labor Dispute Strategy Planning, Labor Dispute Related Translation and Interpretation.

我们还提供有偿服务，包括：私人咨询、劳动监察投诉和劳动仲裁申请支持、劳动争议战略规划、劳动争议相关翻译和解释。

Copyright Notice版权声明

This article is the author’s original, non-profit work product. The original author and publishing information must be retained in any reproductions. For commercial use, please contact the author: [e-mail].

本文为作者原创，非盈利性质的转载，须保留作者和原始发布地址。商业用途请联系[e-mail]。

How Reliant can help
We can help you get better results when in a China labor dispute. We offer nationwide strategy consulting, planning, translation, and editing services, as well as work permit processing and consulting, and we can act as an agent for many matters in Beijing.About Reliant
Reliant’s co-founders are Josh and Lee. Josh is a former Fullbright Scholar educated at Yale and Tsinghua University. He is a native English speaker who has been featured on Chinese language television programs for his Mandarin language abilities, and has lived and worked in China since 1999. A native of Beijing, Lee was educated at Renmin University and holds a Chinese Human Resources Professional certificate. As specialized labor consultants we know China labor laws and administrative regulations. We are not lawyers but we work with attorneys as needed.

Like the article? 

Click WOW to share with friends！