THE TECHNICAL GUIDE
HUMAN
RESOURCES
IN CHINA
Enhance the effectiveness of the recruitment process in your
China organization and stay on top of the most relevant
regulatory issues on hiring and
managing staff in China
Labor Contract CompensationProbation
Social Security Individual Income Tax Severance Pay
Termination Confidentiality
In partnership with
Cover photo by Aaron Greenwood on Unsplash
Enhance the effectiveness of the recruitment process in your China organization and stay on top
of the most relevant regulatory issues on hiring and managing staff in China. Whether you are a
recruiting professional, a hiring manager or another HR-related professional with a focus on
China, this Guide covers the basic legal aspects around labor contracts, social insurance
payments, overtime, employee termination, and more. In addition, it introduces tools to design
interview questions, minimize recruitment biases, or assess competencies.
In partnership with
THE TECHNICAL GUIDE
HUMAN
RESOURCES
IN CHINA
MAY 2020
Every possible effort has been made to ensure that the information contained in this work is accurate at the time
of its publication. Direct HR Group, Rödl & Partner, their associated partners or their respective employees
cannot accept responsibility for any error or omissions.
While every effort has been made to provide accurate information in the preparation of this Guide, Direct HR
Group and Rödl & Partner make no representations or warranties with respect to the accuracy or completeness
of the contents of this work. The advice contained in this Guide may not be suitable for every situation. This
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THE TECHNICAL GUIDE
HUMAN
RESOURCES
IN CHINA
MAY 2020
Human Resources in China
The Technical Guide
7
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comprehensively supporting German businesses,
wherever in the world they may be.
Rödl & Partner in China
Rödl & Partner was one of the first German
professional services firms to receive a license to
operate in the country and has been advising clients in
China since 1995.
We also hold a license to provide legal services,
enabling us to support our clients in all legal, tax,
accounting and audit related matters. Our
comprehensive advisory from a single source
translates into a decisive advantage in ensuring the
success of our clients’ engagements in China.
We assist our clients from our wholly owned offices in
Beijing, Guangzhou, Shanghai, Hong Kong, as well
as Taicang. Our experienced teams support mainly
German and European companies that operate in
China via subsidiaries and offices, carry out one-off
projects or want to gain a foothold in the Chinese
market.
The focal point of rendered services is legal and tax
structuring and restructuring of foreign investors'
engagements in China. Many years of local
experience have allowed us to gain an in-depth insight
into the specific challenges and opportunities of China
as an investment destination. Our clients can benefit
from this knowledge, coupled with the high standard of
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Based on our rich experience, one of our main
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To learn more about us:
ABOUT RÖDL & PARTNER
As attorneys, tax advisers, management and IT
consultants and auditors, we are present with 111
own offices in 50 countries. Worldwide, our clients
trust our 4,900 colleagues.
The history of Rödl & Partner goes back to its
foundation as a solo practice in 1977 in Nuremberg.
Our aspiration to be on hand wherever our
internationally-active clients are led to the establishment
of our first, own offices, commencing with Central and
Eastern Europe in 1991. Alongside market entry in
Asia in 1994, the opening of offices in further strategic
locations followed, in Western and Northern Europe in
1998, USA in 2000, South America in 2005 and
Africa in 2008.
Our success has always been based on the success of
our German clients: Rödl & Partner is always there
where our clients see the potential for their business
engagement. Rather than create an artificial network of
franchises or affiliates, we have chosen to set up our
own offices and rely on close, multidisciplinary and
crossborder collaboration among our colleagues. As a
result, Rödl & Partner stands for international expertise
from a single source.
What Sets Us Apart
Our 'one face to the client' approach sets us apart
from the rest. Our clients have a designated contact
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Our interdisciplinary approach is not unique, nor is our
global reach or particularly strong presence among
family businesses. It is the combination that cannot be
found anywhere else a firm that is devoted to
MAY 2020
Human Resources in China
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13
INDEX OF FIGURES
Figure 1.1
Figure 2.1.1
Figure 2.2.1
Figure 2.3.1
Figure 2.4.1
Figure 2.5.1
Figure 2.6.1
Figure 3.1.1
Figure 3.1.2
Figure 3.2.1
Figure 3.2.2
Figure 3.2.3
Figure 4.2.1
Figure 4.2.2
Figure 4.2.3
Figure 4.3.1
Figure 4.3.2
Figure 5.1
Figure 6.1.1
Figure 6.1.2
Figure 6.1.3
Figure 6.1.4
Figure 6.1.5
Figure 6.1.6
Figure 6.1.7
Figure 6.1.8
Figure 6.1.9
Figure 6.2.1
Figure 6.2.2
Figure 6.3.1
Figure 6.3.2
Figure 7.1
Introduction
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1. INTRODUCTION
This Guide is the materialization of the effort between
Rödl & Partner and Direct HR Group to briefly
encapsulate the basics of recruiting, hiring and
termination of employment in China.
When putting this Guide together, we aimed to bring
recruiting professionals, hiring managers, and other
HR-related professionals a framework for systematical
approach by the recruitment function, while remaining
compliant with the current regulatory framework in
China.
Chapter 2 covers some of the most relevant issues
involved in hiring and managing staff in China: labor
contract, employment handbook, probation period,
non-compete and confidentiality agreements,
employment of foreigners in China, and working
overtime.
Chapter 3 presents the latest developments on Social
Security and the new Individual Income Tax (IIT) Law -
since January 2019. They are both highly relevant to
employers, for it is their responsibility to calculate and
withhold the payments on social security and IIT.
Distinctions are also made between the obligations of
Chinese nationals and those of foreign employees with
regards to contributions to Social Security and IIT
payments when such differences are relevant.
Having covered the basics on Social Security and IIT,
Chapter 4 lays out a map of the different funds that go
on top of the gross salary of the employees: how the
contributions to social security funds and individual
income tax are calculated, based on the gross salary.
Chapter 5 covers the legal requirements to terminate
an employment contract in China. Labor laws and
regulations are very employee-friendly in China, thus
employers need to be aware of the tools at their
disposal to remain compliant in the event of revoking
an employment contract.
In Chapter 6, recruiters - whether in-house or external -
will find a series of field-proven techniques to minimize
dead-angles, oversights, or biases during the selection
process. The goal is to present a systematic approach
when conducting structured interviews: a selection
method with one of the highest prediction values in
future performance (See Figure 1.1 in the next page)
This Guide intends to offer HR
managers, directors, or
executives with responsibility
over the recruiting function, a
tool to stress-test hiring and
managing processes for their
China operation, while
remaining compliant with
Chinese labor laws and
regulations.
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to enhance the effectiveness of the recruiting process,
without compromising on the quality of hire.
Hiring managers will get to understand why their
contribution is essential when working hand in hand
with recruiters, to shape the profiles of new hires in a
way they are relevant to the business. Hence the
importance of collaboration, of tearing down silos that
add friction to the exchange of information. We are
aware that it is not always possible to have hiring
managers and recruiters sit together in the same
location. However, given the current state of
technological advancements in communication this
should not be an obstacle for crystal clear and open
interchanges of critical information to secure proper
alignment.
Finally, Chapter 7 tackles an often overlooked but
highly critical step when recruiting staff: the
confirmation of a candidate’s credentials and other
relevant information. Although screening for academic
credentials and past employment may look relatively
straightforward, this chapter introduces some useful
recommendations. It also offers some insights on how
to screen for evidence of criminal conduct, for certain
jobs in China require to have a clean criminal record.
Regulatory issues are based on the state of legislation
in China as of May 2020. However, it should be
noted that laws and regulations may be amended at
any time, as the regulatory landscape is constantly
evolving. Furthermore, the content of this Guide is
based on legislation at the national level. In the
provinces as well as at lower administrative levels
(cities, districts), further, differing regulations and
requirements for approvals may exist. Such deviating
regulations and requirements from the national laws
may contain stricter as well as milder regulations.
Employers need to be aware that it is not enough to
be compliant with the national guidelines: they must be
mindful of the requirements that apply by the
jurisdiction(s) where they operate in China.
For HR managers, directors or executives in China with
responsibility over the recruiting function, this Guide will
help them to stress-test their hiring and managing staff
processes. Hopefully, it will help them to find some
inspiration on how to improve them too.
Figure1.1
PREDICTIVE VALIDITY OF SELECTION METHODS
Source: Adapted from Hunter, John E; Schmidt, Frank L.(1998) “The
Validity and Utility of Selection Methods in Personnel Psychology:
Practical and Theoretical Implications of 85 Years of Research
Findings”. Psychological Bulletin Vol. 124. N.2, pp 262-274.
Validity (r)Selection procedure
# 01
.54
Work sample tests
General mental
ability tests (GMA)
Structured employment
interviews
Job knowledge tests
Unstructured employment
interviews
# 02
.51
# 03
.51
.48
# 04
# 05
.38
Assessment centers
# 06
.37
Reference checks
# 07
.26
Job experience (years)
# 08
.18
Years of education
# 09
.10
Interests
# 10
.10
Hiring
in China
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2.1 LABOR CONTRACT REVIEW &
MANAGEMENT
Traditionally, Chinese laws and regulations regarding
employment are very employee-friendly. For instance,
non- or late conclusion of employment contracts may
lead to high expenses for employers as the laws
provide detailed remedies for the employee.
Chinese labor laws are particularly focused on the
protection of employees. This is specifically reflected in
a number of obligations imposed on employers.
To avoid significant disadvantages for employers,
while remaining compliant with Chinese laws and
regulations, the conclusion of an employment contract
with every employee is an absolute must.
Legal Environment
The main provisions of Chinese laws concerning the
rights and obligations of employers and employees
are derived from the Labor Law and the Labor
Contract Law. In addition, there are further regulations
regarding labor disputes or paid annual leave as well
as employment promotion. For full-time employees,
irrespective of the duration of the employment contract,
i.e., fixed-term, open-ended, and project-based
employment contracts, the Labor Contract Law outlines
a large number of detailed provisions. In contrast,
there are hardly any provisions for part-time
employment contracts.
Issues in Practice
Before Signing a New Employment Contract
According to the Labor Contract Law, if an employer
hires an employee that is still employed with another
employer it may be held liable for the losses incurred
to the other employer due to the double employment.
Therefore, an employer should conduct an employee
due diligence and should ask the future employee to
provide proof of termination of all former employments
and confirmation of completion of all hand-over or
other termination procedures, as well as the non-
existence of contractual obligations that prevent the
employee to enter into the new employment contract,
i.e., a non-competition agreement. Such confirmations
and guarantees should be included in the employment
contract.
Employers should require future
employees' proof of termination
of former employment, to avoid
being held liable for losses
incurred to other employers due
to double employment.
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Written Employment Contracts With All
Employees
According to Chinese labor laws, a written
employment contract must be concluded with all full-
time employees. This applies regardless of the duration
of the employment contract, i.e., fixed-term, open-
ended and project-based employment contracts.
However, such a requirement does not exist for part-
time employment contracts. Nevertheless, it is strongly
recommended also to have a written employment
contract with all part-time employees at least for the
reason to have evidence of the contractual stipulations
that rule such employment. All employment contracts
should be bilingual, as Chinese authorities will only
accept contracts in Chinese language.
Non- or Late Conclusion of Employment Contracts
The time of signing an employment contract is of the
essence. An employer is obliged to execute the
employment contract with an employee within one
month after the commencement of employment. Failure
of the employer to do so for a period of more than
one month and less than one year, the employer will
be required to pay a double monthly salary to the
employee for every month of employment. Further, if
even after one year no written employment contract
has been concluded, the employment of the employee
will be deemed open-ended. If an employee fails to
sign the employment contract, such penalty should not
apply to the employer as such circumstance is not
attributable to the employer. However, in such an
event, the employer should demand the employee to
sign the employment contract within the first month or
otherwise the employment contract will be terminated.
Such notification should be in writing, and receipt by
the employee should be recorded.
Term of Initial Employment
Due to the limited possibilities to terminate an
employment contract and/or the possible high
amounts of severance pay, it might be advisable to
conclude fixed-term employment contracts instead of
open-ended employment contracts, at least for the
initial hiring. However, since the possible length of the
probation period depends on the term of the contract
and due to the mandatory stipulation in the Labor
Contract Law that a fixed-term employment contract
will be deemed open-ended in case of its third
An employer is obliged to
execute the employment
contract with an employee
within one month after the
commencement of employment.
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renewal, the initial employment term may be difficult to
determine as an employer wishes to have sufficient
time to evaluate the employee but also to reduce the
risks to a minimum. In general, a three years initial
employment term may be the best solution to balance
both interests. Setting a fixed term of three years allows
an employer to use the longest probation period of six
months. In the case of an initial employment term of
two years, the probation period may not exceed two
months. Furthermore, a two-fold renewal of a short-term
employment contract will automatically lead to open-
ended employment in case that the employer wants to
employ the employee further. However, a longer initial
employment term of, for instance, four or five years,
would increase the risk of more significant problems to
terminate the employment and a higher amount of
severance payment.
Renewal of Fixed-term Employment Contracts
Employers should carefully watch all fixed-term
employment contracts. In the event of a soon-to-expiry
of such contract, an employer should promptly - before
the expiration decide whether to keep the employee
and renew the employment contract, or to terminate
the contract. In the latter case, the employer, in
general, must pay severance pay and, together with
the employee, go through termination procedure.
However, in the event that the employee refuses to
renew the employment as far as the offered conditions
of the second employment are the same or better
conditions like those of the preceding employment no
severance must be paid. Under no circumstances
should the employer have the employee work after the
expiration of the employment contract because the
employee would then work without a written
employment contract.
Use of Contract Templates Issued by Labor
Authorities
Labor authorities of certain localities provide templates
of employment contracts for use by employers.
However, the use of such templates should be
avoided. Often, such contract templates are
incomplete, not reflecting the latest changes in laws
and regulations, favor the employees and do not
protect the employer. Furthermore, as these contract
templates are standard templates, they will not take
into consideration the specific situation and needs of
the employer.
A two-fold renewal of a short-
term employment contract, in
case that the employer wants to
employ the employee further,
will automatically lead to an
open-ended employment
contract.
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Mandatory Content of Employment Contracts
The Labor Contract Law requires the inclusion of
certain mandatory provisions in an employment
contract. These mandatory provisions include basic
information on the employer and the employee, term
of employment, job description and workplace,
working hours, rest and vacation, remuneration, social
insurance, labor protection, working conditions, and
protection against occupational hazards (See Figure
2.1.1). In the event that one or more of the mandatory
provisions in the employment contract are missing, the
labor authority will order rectification. If the absence of
such provisions results in damage to the employee, the
employer must pay indemnification.
Part-time Employment Contracts
Even if there are only very few stipulations regarding
part-time employment contracts, violation of these
regulations may result in heavy payment obligations of
the employer. Therefore, firstly, even if part-time
employment contracts can be concluded orally, there
should always be a written employment contract.
Secondly, the part-time employment contract should
specify the daily working hours no more than four -
and the weekly working hours no more than twenty-
four hours. The attendance time of a part-time
employee should be monitored and recorded in order
to provide an evidence. Thirdly, no probation period
should be agreed upon. Fourthly, the part-time
employment contract must be terminable by both
parties at any time, and the employer should not
promise to pay any severance in case of termination.
Fifthly, there should be a 15-day payment cycle for the
salary of the part-time employee. Sixthly, before
entering into a part-time employment contract, it should
be clarified if social contributions must be paid. Any
deviation, e.g., promise to pay severance, or payment
of social contributions although not required at the
locality, may result in the consideration that the
employment is not deemed part-time but full-time
employment, with the consequence that all stipulations
governing full-time employment apply to the
employment.
Social Insurance: the contract must contain a reference to
employee’s social benefits, which will be contributed by both
parties according to the relevant laws and regulations
Remuneration: monthly base salary; commissions, bonuses
and allowances; how overtime shall be paid if incurred upon
Source: Rödl & Partner
Figure 2.1.1
MANDATORY CONTENT LABOR CONTRACTS
IN CHINA
Employer and Employee Information: name, address and ID
number of the employee; business name, address, name of
the legal representative of the employer
Term of Employment: definition of the employment period
and whether it is a fixed-term, open-ended or project-based
contract
Job Description: responsibilities, duties and obligations of
the job. A general description suffices
Work Schedule and Leaves: working hours system, rest
times, and all the entitled leaves (national holidays,
annual, sick, personal,…)
Other Specifications: confidentiality agreements, conflicts of
interest, working discipline and regulations, or any other
company policies which may require to be included in the
contract
Labor Protection: working conditions, occupational safety,
environment and occupational hazard prevention
¥
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2.2 EMPLOYMENT HANDBOOK
The Chinese Labor Contract Law only provides for the
signing of an employment contract and sets forth a
minimum of particulars which the employment contract
must contain. However, in addition to an employment
contract, similar to the standard in many Western
countries a company should also have an employment
handbook.
An employment handbook provides a uniform set of
internal rules and guidelines with regards to various
matters and issues that may arise at a workplace, such
as work time, employee dress codes, vacation
policies, IT and data protection policies, procedures,
and grounds regarding discipline and termination of
employees.
A well-drafted employment handbook can serve as a
protection for an employer against unfounded claims
of its employees or, for example, as a tool for an
employer wishing to terminate a troublesome
employee.
Legal Environment
The Chinese labor laws or other laws neither require
nor prevent an employer from the stipulation and
implementation of additional internal rules and
regulations which govern the employment relationship
with the employee, such as an employment handbook.
However, employers should pay attention that the
employment handbook has effect in the relation with
the employee.
Issues in Practice
Reasons for Implementing an Employment
Handbook
The Chinese labor laws, in particular the Labor
Contract Law, contain only the very essential and
basic provisions on the content of an employment
contract. Many provisions are vague and use
indeterminate legal terms whose interpretation
regularly causes problems in practice. Therefore,
especially in areas where employment issues can
easily arise and may be highly possible, including but
not limited to overtime work and compensation,
disciplinary actions, internal dispute settlement but also
employee benefits, training, health and safety, a well-
drafted employment handbook may set out the
A well-drafted employment
handbook can serve as a
protection for an employer
against unfounded claims of its
employees.
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internal rules and policies in order to prevent lengthy
and costly employment disputes. Furthermore, an
employer may explicitly stipulate rules regarding labor
discipline and the consequences of violation or
misconduct of these rules (e.g., harassment, theft, fraud,
bribery) up to and including termination of the
employment in appropriate circumstances. The
violation of such rules by an employee can make it
easier for an employer to justify the employee’s
termination.
Size of Employer
Many countries provide for relaxation of labor law
requirements for smaller enterprises (e.g., facilitation of
dismissals of employees if the number of employees
does not exceed a certain number). However, this
does not apply to China. Chinese labor laws and
regulations make no differentiation between large and
small enterprises. Therefore, even enterprises with only
a few employees should have an employment
handbook. This is all the more true as smaller
enterprises often do not have large financial resources.
Claims for compensation by employees, for example
for unlawful dismissal, can therefore quickly become a
major problem for the employer, especially if several
employees are involved.
Timing of Implementation
Ideally, the employment handbook should already be
available before a (newly established) company in
China hires employees. The subsequent
implementation of an employment handbook is
possible but entails a greater effort for the employer
since doing so could result in employees wanting to
assert their right to have a say and make requests for
changes, especially concerning employee rights. In
addition, there is a risk that individual employees may
not be willing to sign the subsequently introduced
employment handbook. In this case, the employer has
no right to terminate the employees concerned.
Employee Handbook Implementation
For the legally effective implementation of an
employment handbook, a reference to its existence
and a provision in the employment contract that the
employment handbook applies to the employee is not
sufficient. Rather, the employment handbook should be
handed to the employee, and the employee should
have sufficient time to read the employment handbook,
An effective implementation of
the employment handbook
should allow the employees
enough time to read it and put
forward questions. After this, the
employees should sign an
acknowledgement.
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to understand its content, and to ask questions. After
this, the employee should sign an acknowledgment
and acceptance sheet which should be added to the
employee’s file.
Language and Exhaustiveness
The language of the employment handbook should be
simple, clear, and cumbersome legal wording should
be avoided.
Furthermore, the employment handbook should be as
detailed as possible. For example, a dismissal for
threatening may be unlawful because the employer's
employment handbook does not mention threats; thus,
there is no basis for the dismissal.
Finally, as a matter of course, the employment
handbook should also be in Chinese language.
Recommended Minimum Content
As already mentioned in Reasons for Implementing an
Employment Handbook, it should cover especially
sensitive areas of employment where disputes may
easily arise.
Such areas may include, but not be limited, to
employer’s employment policies, employee’s
registration and probation period, office disciplines,
handling of business trips, remuneration and
performance appraisal, employee benefits, training
and development, safety and health, compliance
regulations, general and labor discipline, termination of
the employment contract, and confidentiality (See
Figure 2.2.1). The detailed content also depends on
the business activities of the employer, i.e., the
employment handbook of a Sales WFOE may partly
have a different focus than the employment handbook
of a Production WFOE and vice versa, and depends
as well on the locality of the employer. As a matter of
course, the stipulations of the employment handbook
itself should not in any way violate the Chinese laws
and regulations at national and local levels. Any action
by an employer based on such unlawful stipulation is
itself against the law, and the employee may
challenge the action.
Employment
Handbook
Compliance
Regulations
Safety &
Health
Regulations
Office
Norms
Employment
Policies
General
& Labor
Discipline
Registration &
Probation Period
Confidentiality
Training &
Development
Figure 2.2.1
EMPLOYMENT HANDBOOK CONTENT
Source: Rödl & Partner. Note that this is not an exhaustive list of
contents
Remuneration &
Performance
Appraisals
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2.3 PROBATION PERIOD IN CHINA
China’s labor and employment laws and regulations,
in particular the Labor Contract Law of the People’s
Republic of China (PRC), allow the conclusion of
probation periods in employment contracts. However,
the concept of employee’s probation periods differs
from such concepts in other countries like Germany. In
particular, the Labor Contract Law does not make a
termination during the probation period easier but
merely exempts the employer from paying severance.
Legal Environment
The Labor Contract Law provides different maximum
terms of probation periods depending on the term of
the employment. In detail, the Labor Contract Law
stipulates the following terms as in Figure 2.3.1.
Irrespective of the term of the probation period, any
probation period is regarded as part of the term of the
employment. If an employment contract provides only
for a probation period, or provides for a probation
period without a specific term, then there is no
probation period. In the first case, the term of the
probation period shall be deemed as the term of
employment.
An employer may only once conclude a probation
period with a specific employee. According to the
wording of the Labor Contract Law, this also applies to
cases in which an employee shall be re-hired after a
period the employee was hired at another employer,
or if the employee is assigned to a new position which
requires a new employment contract.
During the probation period, an employee may
terminate the employment contract by giving three
days’ notice, while an employer may terminate an
employee during the probation period only if there is a
statutory reason to do so.
During the probation period, the employer and the
employee can agree on a lower monthly salary.
However, the monthly salary during the probation
period may not be lower than the lowest wage for the
same position at the same employer, and may not be
less than 80% of the salary agreed on in the
employment contract, whichever is lower. As a matter
of course, the salary during a probation period may
not be below the minimum wage rate at the place
where the employment unit is located.
Figure 2.3.1
CHINA PROBATION PERIODS
Term of Employment Probation Period
Up to 3 months.
Contracts for a limited
purpose
No probation period
Source: Rödl & Partner
More than 3 months and
less than 1 year
1 Month
More than 1 year and less
than 3 years
2 Months
More than 3 years
6 Months
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Issues in Practice
Conclusion of Probation Periods
Regulations on probation periods are not legally
required content of an employment contract. If an
employer wishes to impose a probation period, such
probation period must be clearly stated in the
employment contract, and the employee must agree
by signing the employment contract. Therefore, the
stipulation of probation periods in other internal rules
and regulations of the employer, such as an
employment handbook, will not be sufficient since such
regulations are unilaterally imposed by the employer
and not the result of negotiations between the
employer and the employee. Furthermore, as stated
above, during the probation period the salary can be
lower than the contractually agreed salary to be paid
upon completion of the probation period. However,
this reduction of the monthly salary during the
probation period must also be explicitly stated in the
employment contract.
Termination of an Employee During Probation
Period
As mentioned above, the conclusion of a probation
period does not make it easier for an employer to
unilaterally terminate an employment contract with an
employee. According to the Labor Contract Law, and
the most common reason an employer may unilaterally
terminate the employment during the probation period,
is if the employee demonstrably does not meet the
recruitment requirements during the probation period.
What does it mean in practice? The employer must be
able to prove that the prerequisites to terminate the
employee are fulfilled. Employers should, therefore,
provide every new employee with a detailed written
employment contract, a job description, and other
internal rules and regulations. The employer should
ensure that the employee signs all such documents to
be able to prove that the employee was well informed
about his/her tasks and obligations.
In case an employee fails to perform, the employer
should record every instance of such non-performance.
In case of termination during the probation period, the
employer must state the reasons for the termination.
The keeping of the contractual documents and the
written documentation of non-performance or
misconduct, therefore, does not serve only for the
defense in a possible legal dispute but also for a duly
The probation period, and any
reduction of the monthly salary
during such period, must be
stated in the employment
contract.
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substantiation of the termination. However, such
detailed substantiated notice of termination, if not
convincing, may give the employee reason to
challenge the termination.
Training During Probation Period
Since an employee can terminate his/her employment
contract by giving three days’ notice without giving
cause during the probation period, employers may
consider to postpone a cost-intensive training until the
expiry of the probation period if the employer is not
sure whether the employee will fit the job requirements,
or to implement a separate agreement on a fixed term
of employment in the employment contract in return for
providing the training. Such agreement on a fixed term
of employment may also include a regulation that the
employee shall pay damages up to the amount of the
training costs in case of his/her breach of the
agreement on a fixed term of employment.
Conclusion of Longer Probation Periods
Any probation period in an employment contract
exceeding the statutory maximum term of probation
periods will be deemed void. That means an employer
cannot terminate an employee referring to the above-
described reason for termination if the statutory
maximum probation period has expired, irrespective of
the employment contract providing for a longer
probation period. This further has the consequence that
even if there is a statutory reason for termination and
the termination can be duly justified, the employer must
nevertheless pay severance to the employee. Such an
unlawful contractual provision may also attract the
attention of the competent authorities.
Short-time Employment Instead of Probation
Period
An employer may conclude a short-time employment
contract with an employee in order to prove during its
term if the employee is fit and meets the recruitment
requirements. If so, both the employer and employee
may re-new the employment contract; if not, the
employee, after expiration of the employment contract,
will leave the employer. With this set up an employer
avoids the potential challenges related to terminating
an employee during a probation period. Such a
strategy would not violate the Labor Contract Law.
However, it may not be suitable in practice since all
legal formalities must also be followed for the short-
time employment contract. In case of non-renewal of
the employment contract, severance must be paid.
Furthermore, in case of a third time renewal of an
employment contract, the term of such contract will be
deemed open-ended.
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2.4 CONFIDENTIALITY AND NON-
COMPETITION AGREEMENTS
The Chinese labor laws and regulations allow an
agreement on confidentiality as well as on non-
competition (“non-compete”). However, the agreement
on a non-compete obligation is only possible under
certain conditions. Confidentiality and non-compete
may be concluded in a separate agreement or in the
employment contract.
Legal Environment
Confidentiality Agreements
According to the Chinese Labor Law, the parties of an
employment contract may agree on matters
concerning keeping the business secrets of employers
confidential. The Chinese Labor Contract Law extends
the scope of a confidentiality agreement to industrial
property rights (“IP Rights”). Both laws do not contain
any restrictions in such a way that such agreements
can only be concluded with senior managers.
Therefore, confidentiality agreements can and should
consequently be concluded with all employees (See
Figure 2.4.1).
Non-compete Agreements
According to the Labor Contract Law, it is also
possible to agree on non-compete clauses if the
respective employee is subject to a confidentiality
obligation. Such non-compete must include the
payment of compensation to an employee during the
non-compete period after termination of the
employment. In case of breach of a non-compete, the
agreement may stipulate the payment of contractual
damages.
It should be noted that post-contractual non-compete
obligations may only be concluded with senior
management, senior technicians, and other employees
who are subject to a confidentiality obligation. The
general scope, geographical scope, as well as the
duration of the non-compete, must be clearly stipulated
in the non-compete agreement.
In principle, a non-compete period must not exceed
two years.
Non-Compete Agreements: limited to senior management,
senior technicians, and other employees who are subject to a
confidentiality obligation. Non-compete agreements require
the employees not to work with (former) employer
competitors or to start a competitive business themselves
Confidentiality Agreements: can be applied to all employees
and involve an obligation not to disclose sensitive business
information, such as industrial property rights
Source: Rödl & Partner
Figure 2.4.1
CONFIDENTIALITY AND NON-COMPETE
AGREEMENTS
General Staff
Senior Management
and Senior Technicians
Confidentiality Agreements
Non-Compete Agreements
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Issues in Practice
Limitation of Non-compete Agreements
As stipulated in the Labor Contract Law, non-compete
agreements may be concluded with senior
management, senior technicians and all employees
who are subject to a confidentiality obligation. Hence,
it is advisable to include confidentiality obligations in
every employment contract.
In determining whether a non-compete obligation can
be agreed, several factors have to be taken into
account such as whether and to what extent an
employee has access to confidential information, the
employee's salary, job title and position, tasks and
responsibilities, his/her ability to use confidential
information, etc. In this respect, there are no specific
requirements as to whether an employee qualifies for
a non-compete under the categories specified in the
Labor Contract Law. This will have to be assessed and
determined on a case-by-case basis.
Therefore, an employer may not include a non-
compete clause into every employment contract with
any employee, in particular if an employment contract
is to be concluded with an ordinary employee
performing simple tasks. Furthermore, not unusual are
also non-compete clauses in which the employer
reserves the right to decide whether or not they should
take effect upon termination of the employment. The
validity of such a clause remains unclear and may
depend on the locality. Thus, in order to avoid
undesirable legal consequences, before terminating an
employment contract containing such a clause, an
employer should clarify and decide whether or not the
non-compete clause shall apply.
General and Geographical Scope
The general and geographical scope of a non-
compete should be specified in the employment
contract.
The general scope usually includes to work for a
competing employer that produces or deals in the
same type of products, or is engaged in the same type
of business as the original employer of the employee,
or to establish an own business to produce or deal in
the same type of products or engage in the same type
of business as the original employer.
The general and geographical
scope of a non-compete should
be specified in the employment
contract.
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The geographical scope should be stipulated as
broad as possible. However, it should be within the
borders of reasonableness and the laws and
regulations. When it comes to reasonableness, factors
to consider are the business scope of the employer, its
business area, and its size. Also, the position of the
employee should be taken into account. The
conclusion of a too broad geographical scope does
not automatically lead to the invalidity of the non-
compete. Rather, in such cases, the court usually will
adequately reduce the scope, while a subsequent
extension of the scope is generally not possible.
Amount of Compensation During the Post-
contractual Non-compete
During the post-contractual non-compete, as
compensation, an employer is obliged to pay a
certain monthly amount to the (former) employee. The
amount of this economic compensation is not stipulated
in the laws and regulations, and thus, can be freely
agreed and such agreement would prevail.
If the amount is not specified in the non-compete
clause, depending on the locality, such non-compete
clause would not be deemed invalid, and the
employer must pay 30 percent of the employee’s
average monthly salary in the twelve months before
the termination of the employment. If this amount is
lower than the local minimum wage, the employer must
pay the local minimum wage. Payment of the
compensation and the enforceability of the non-
compete are closely connected: in the event of non-
payment, the employee is not bound by the non-
compete and can work freely with a competitor. If a
non-compete clause does not provide the payment of
compensation at all, such non-compete would be not
enforceable in court.
Violation of Non-competes
A non-compete clause may contain the (former)
employees obligation to pay damages to the
employer in the event of violation of the non-compete
by the (former) employee. However, there is no
general rule on the amount of such damages. The
amount of the damages should be an approximate
estimation of the damage that the employer might
suffer as a result of an infringement of the non-
compete, but such amount should also be
proportionate to the amount received by the (former)
employee as compensation for the non-compete
In a non-compete clause, if not
specified, compensation is at
30 percent of the employee’s
average monthly salary in the
twelve months before the
employment termination.
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obligation. The agreement of a too high penalty could
lead to a reduction of the same by a court. It is also
possible that in such a case a court may decide that
no damages at all are payable. The payment of
damages to the employer by the (former) employee
does not release the (former) employee from its non-
compete obligation. Rather, the employer may
demand the continuation of the non-compete
obligation.
Period and Termination of Non-competes
The period of a non-compete may not exceed two
years from the termination or end of the employment.
The conclusion of a longer period will be likely
deemed void and unenforceable.
An employer may unilaterally terminate a non-compete
agreement after the non-compete period has begun.
However, in this event the employer must pay a
penalty in the amount of three months compensation
or, depending on the locality, even more. If the non-
compete provides for the employer’s unilateral right to
terminate the non-compete without payment of
compensation, such agreement will unlikely be
perceived as valid by a court. There are no specific
rules or interpretations regarding the unilateral
termination of a non-compete before the non-compete
period has begun. The general possibility of such
termination and the amount of potential compensation
would be decided on a case-by-case basis.
Furthermore, if the employer fails to pay compensation
for at least three months, the (former) employee is
entitled to unilaterally terminate the non-compete
agreement and claim for compensation provided the
(former) employee complied with the non-compete
and did not otherwise cause the non-payment of the
compensation.
If the non-compete provides the
employer unilateral rights to
terminate the agreement
without compensation to the
employee, such contract will
most likely be deemed invalid if
challenged in court.
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2.5 EMPLOYMENT OF FOREIGNERS IN
CHINA
Many companies ask themselves what opportunities
there are for the deployment of foreign employees in
China. Foreign nationals sent out on work assignments
in China do not want to be treated less favorably in
legal and tax terms than in their home country, and
also want to be socially covered. An examination of
the individual situation is, therefore, advisable before
the assignment abroad begins.
Legal Environment
The employment of foreigners in China is mainly
governed by the Rules for Administration of
Employment of Foreigners in China. Once a foreigner
has obtained the work permit and residence permit,
his/her employment will be governed by the Chinese
labor laws and regulations as well as the laws and
regulations regarding social insurance and individual
income tax. If the foreigner still has a registered
residence in the home country or receives income in
another country, the foreigner may continue to be
subject to the relevant labor, social security and tax
laws and regulations of such country.
Issues in Practice
Employment Contract or Dispatch Contract
In order to take up employment in China, an employee
can be dispatched to the Chinese subsidiary or
employed locally by it. However, a local employment
contract should be considered for a more extended
stay of the foreigner, as dispatch contracts are
generally only suitable for shorter stays. In the case of
a dispatch contract, the employment relationship
between the foreign parent company and the
employee will continue and no local employment
relationship between the foreigner and the Chinese
subsidiary will be established even though the
employee will actually work for the subsidiary. In
practice, however, when deploying a foreign
employee to China on a dispatch contract, he/she will
be very likely to face difficulties in many Chinese cities.
Such challenges include, in particular, problems in the
course of application for the Chinese work permit.
Many Chinese labor authorities request the submission
of an additional local employment contract to grant a
work permit, and thus, consequently, a signed local
employment contract between the foreigner and the
Because of the difficulties in the
application for a Chinese work
permit, it is advisable to go for
a local employment contract
rather than a dispatch contract.
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Chinese subsidiary must be provided to the labor
authority. In summary, it can be said that in most cases
the conclusion of a local employment contract is
preferable to avoid complications.
Risks of Dual Employment
In case of deploying the foreigner on a dispatch
contract, the local employment contract can usually be
drafted relatively simple. It should be consistent with
most terms of the dispatch contract. However, the
existence of two employment contracts may cause
risks. Such risks include, for example, income tax
implications and, in case of termination of the foreign
employee, the proper and aligned termination of both
contracts.
Avoidance of a De Facto Employment Contract
In the event that the local Chinese labor authority
accepts a dispatch contract (i.e., is not requiring the
submission of a local employment contract), attention
should be paid that the Chinese subsidiary does not
issue any document to the dispatched employee that
can directly or indirectly prove an employment
relationship between the subsidiary and the
dispatched employee, e.g. a reference letter. The
reason for this is that in the event of a dispute, the
dispatched employee could prove the existence of an
employment relationship with such documents. This
could have significant consequences for the subsidiary.
Since Chinese labor laws and regulations require the
existence of a written employment contract, when no
such contract has been concluded the employee could
claim double compensation.
Advantages of Local Employment
In order to avoid the difficulties associated with a
dispatch contract, foreign employees should be
employed locally. Thus, the challenges in applying for
the work permit would be avoided and other risks
minimized. If a local employment contract is to be
concluded, the provisions of the Labor Contract Law,
to which the employment contract is fully subject, must
be observed.
Prerequisites for the Applicant
The work permit regulation was updated in 2017,
implementing a point system for the application of a
foreigner’s work permit in China. The applicant can
If the local Chinese labor
authority accepts a dispatch
contract, the Chinese subsidiary
must take the precaution of not
issuing any document that
could prove an employment
relationship with the dispatched
employee.
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obtain the work permit successfully when he/she gets
over 60 points according to the scoring criteria
published by the competent authority of issuing the
work permit. Foreign employees may not exceed a
certain age limit: 60 years for men, 55 years for
women. Applicants must have a certain qualification
level (at least a bachelor’s degree), and a minimum of
two years of work experience are required. In
addition, proof is required that no equally suitable
local employee is available.
Obtaining a Work Permit in China
A work permit is usually required to take up
employment in China. The application procedure
consists of three steps (See Figure 2.5.1): the employer
must obtain a pre-approval (notification of the work
permit) from the relevant labor authority; application
for, in most cases, a Z visa (visa to take up work) in the
employee's home country; and application for the
(final) work permit and residence permit in China. The
documents to be attached to the application also
include a certificate of no criminal record. It should
also be noted that if an employee does not have a
bachelor’s or master's degree, a certificate must be
provided stating that the degree (diploma, state
examination) is comparable to a bachelor's or
master's degree.
Tax Assessment Implications
Generally, income generated in China is subject to
individual income tax. Income includes all wages and
salaries, bonuses, and awards paid directly to the
expatriate by the Chinese subsidiary. Remuneration
paid, for example, by the parent company to the
employee may also be subject to individual income
tax, provided that this remuneration is debited to the
Chinese subsidiary. The tax liability in China for non-
Chinese income also depends on how many days the
employee actually works in China. Expatriates who
have been living in China for more than six years are
subject to unlimited tax liability regarding their world
income in China.
The monthly individual income tax results from the gross
salary less a standard basic deduction of RMB 5,000
per month. In addition, so-called specific deductions
can be applied. Those include the employee
contribution to the Chinese social insurance system (if
applicable) and other deductions such as reasonable
accommodation costs, home travel, relocation
Figure 2.5.1
OBTAINING A WORK PERMIT IN CHINA
Source: Rödl & Partner
3
2
1
Application from the
employer for an
Employment License
at the State
Administration of
Foreign Experts
Affairs (SAFAE)
A work visa
application (Z visa
in most cases) at
a Chinese embassy
at the employee’s
home country
Application for the
final work and
employment permits
once the foreign
employee is in China,
having entered the
country with a work
visa
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expenses, school fees, language courses, and meals
and laundry. The Chinese employer withholds the tax
payable and pays it directly to the tax authorities on a
monthly basis.
For further details on individual income tax, see 3.2.
Individual Income Tax (IIT) Law in the next chapter.
Disclosure Obligation in Case of Dual Employment
In practice, it also occurs that in the case of dual
employment (e.g., as a senior manager in the parent
company as well as in the Chinese subsidiary), the
employee is also paid two salaries. In this case, the
respective salaries should be determined and paid
according to the actual work carried out in both
companies. For the purposes of income taxation, the
employee is then obliged to disclose both incomes to
the tax authorities. In such a case, the Chinese tax
authority will assess the days of the employee's actual
presence in China and compare them with the taxes
paid. In the case of irregularities, an additional tax
payment may be imposed.
Social Insurance Payments for Foreigners
According to the Social Insurance Law of the PRC,
foreigners working in China and their local employers
are required to contribute to China’s social security
system. This obligation, though, has not been
implemented in all cities and regions yet. As social
insurance is administered locally, contribution ratios
differ from city to city and region to region.
A more in-depth discussion of social insurance in
general, and its implications for foreign nationals, is
available in the next chapter.
According to the Social
Insurance Law of the People’s
Republic of China, foreigners
working in China and their
local employers are required to
contribute to China’s social
security system.
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2.6 WORKING TIME, OVERTIME
COMPENSATION
Chinese Labor Law and Regulations provide different
working time systems as well as detailed rules
regarding the compensation of overtime work.
Legal Environment
According to the Chinese Labor Law, employees shall
work for not more than eight hours a day and not
more than 44 hours a week on average. However,
this stipulation has been modified by various provisions
adopted in connection with the Labor Law, and the
standard working time is eight hours per day and 40
hours per week (the so-called “Standard Working
Hours System”). As a consequence, any work
exceeding eight hours per day or 40 hours per week
is regarded as overtime work, and an employee must
be compensated for any overtime worked.
Against the background that the Standard Working
Hours System is very inflexible and very often does not
meet the requirements of enterprises especially in the
management sector, there is also the possibility of
implementing two further working time systems: the
Flexible Working Hours System and the
Comprehensive Working Hours System.
The Flexible Working Hours System provides no limits
regarding an employee’s working hours. However, the
application of the Flexible Working Hour System is
only permitted for senior management and sales and
marketing personnel of enterprises. In addition, the
implementation of the Flexible Working Hour System in
most cities requires prior approval of the competent
labor authority.
The Comprehensive Working Hour System allows to
calculate an employee’s working hours on certain
periods (weeks, months, quarters of a year) whereby
the weekly average working hours shall be essentially
consistent with the Standard Working Hour System.
Furthermore, the Comprehensive Working Hour
System is only applicable to certain industries such as
railways, aviation, shipping, fisheries, construction or
tourism. The implementation of the Comprehensive
Working Hours System also requires prior approval of
the competent labor authority.
Under both the Standard and the Comprehensive
Any work exceeding eight
hours per day or 40 hours per
week is regarded as overtime
work, and an employee must
be compensated for any
overtime worked.
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Figure 2.6.1
COMPENSATION FOR OVERTIME WORK
Working Hour Systems, an employer is obligated to
compensate an employee’s overtime work according
to the standards presented in Figure 2.6.1.
Overtime work shall not exceed three hours per day
and 36 hours per month.
Issues in Practice
Arrangement of Overtime Work
The performance of overtime work should in principle
be regulated in the employment contract and the
employment handbook. Furthermore, it should be
ensured that overtime is generally instructed as well as
documented by superiors or management personnel in
order to avoid "voluntary" performance of overtime
work by employees and the associated costs or
troubles after termination of the employment. This also
applies to management personnel unless such
personnel has been approved to work under the
Flexible Working Hours System. An employer and
management personnel should agree on the Flexible
Working Hours System in the employment contract.
However, prior written approval of the competent
labor authority must be obtained (indispensable
condition). Courts have stated in their decisions that the
prior approval of the Flexible Working Hours System is
mandatory, and thus, the contractual agreement of the
Flexible Working Hours System and the compensation
of all overtime hours by payment of the salary is invalid
without approval, and overtime worked as well as
penalties had to be paid.
Definition of “Senior Management”
As mentioned above, the Flexible Working Hours
System is only permitted for senior management and
sales and marketing personnel of enterprises. So which
positions and functions fall under the term “Senior
Management”? As seen often, the Chinese laws and
regulation use vague legal terms, and the
interpretation of the terms is therefore carried out by
the authorities (which also explains local differences in
the interpretation). However, the Legal Representative
and the General Manager should be regarded as
senior management. Other management personnel
may qualify as senior management if designated as
such in internal rules and regulations of the enterprise,
in particular the articles of association. It may therefore
be advisable to already provide for such senior
management positions in the articles of association,
Source: Rödl & Partner
On a Working
Day
150% of the
hourly wages
for all hours
outside the
normal
working daily
hours
On a Weekend
or Rest Day
200% of the
daily wages or
the hourly
wages, in case
there is no
arrangement
for rest at a
later time
Statutory
Holiday
300% of the
daily wages or
the hourly
wages
Timing of
Overtime Work
Compensation
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e.g. chief financial officer, chief technical officer, chief
sales officer, etc. However, the final decision as to
whether a manager is classified as senior
management personnel remains with the competent
regulatory authority. This also means that an employee
can be classified as a senior manager even if the
position is not designated as senior management in the
articles of association.
Refusal of Overtime Work
An employer may not simply order an employee to
work overtime, even if it is within the permitted range of
the law. The Labor Contract Law explicitly prohibits
employers from forcing employees to work overtime
(with the exception in case of an emergency as further
defined in the laws and regulations). Therefore, it is
necessary that the employee has previously agreed to
work overtime. This is why overtime should be
stipulated in the employment contract as well as other
internal rules such as an employment handbook. It
follows: if overtime work is not agreed in the
employment contract or other internal rules to be
signed by the employee, refusal to work overtime has
no consequences for the employee. Disciplinary
measures would be null and void as they have no
legal basis. If overtime work has been agreed,
disciplinary action may be taken in the event of refusal.
Documentation of Overtime Work
It is not uncommon for overtime work to be ordered
orally. It is furthermore not unusual for an employee not
to demand payment for overtime work at first.
However, it cannot be argued from this that the
employee is waiving the respective overtime payment.
Rather, an employee can claim payment of
outstanding wages for up to one year after termination
of the employment. As the labor arbitration
commissions are very employee-friendly, simple
evidence such as entries in presence lists signed by a
supervisor or witness evidence is sufficient for the
assertion of such claims, and thus, shifting the burden of
proof to the contrary to the employer. Therefore,
proper documentation of all overtime work done by an
employee should be a matter of course.
Shifting of Working Time
An employer may rearrange the working time of an
employee in a way that the employee works on one
or two working days more than eight hours, and, as
compensation, less than eight hours on other working
days of the same week, not exceeding 40 working
hours at all. However, even in such case the employer
must pay for overtime. As mentioned above, the
standard working time is eight hours per day and 40
hours per week. The laws and regulations do not
allow for much flexibility, and the standard working
time for a working day is limited to eight hours.
SEBASTIAN
WIENDIECK
Rechsanwalt
Attorney-at-Law
Partner
+86 (21) 6163 5329
FOR MORE INFORMATION
Rödl & Partner
Social Security &
Individual Income
Tax in China
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3.1 SOCIAL SECURITY IN CHINA
When hiring an employee in China, not only the salary
should be taken into consideration but also the key
payroll items, i.e., social insurance contributions and
individual income tax, which may impact the costs for
the employer significantly.
Social Security: Social Insurance and Housing
Funds
The social insurance system in China is mainly based
on the Social Insurance Law and its implementing
provisions. There are five required forms of social
insurance in China:
Pension or retirement fund
Medical insurance fund
Unemployment fund
Work injury fund
Maternity fund
All five social insurances are mandatory for Chinese
employers. To those social insurance funds, it should
be added a Housing Fund (also known as the
Housing Provident Fund), which was officially
established in 1999. As opposed to the social
insurance funds, the housing fund has no social pool:
the entire amount goes directly to the employees’
housing fund accounts. The goal for the housing fund is
to ensure that workers save to purchase a house. It
can be used for the down payment on a house or to
subsequently pay back the mortgage loan. In some
cities, it can also be used for renting an apartment. In
any case, the housing fund can only be used by
employees for house-related expenses and, if unused,
is returned once they retire or stop working.
For clarification purposes, we will refer to social
security contributions when referring to the combined
contributions to the housing fund and the mandatory
social benefits (social insurance) See Figure 3.1.1
Social security in China is a complex issue, since it is
organized on a regional level. The social insurance
(pension, medical, unemployment, work-related injury,
and maternity) is regulated by the Ministry of Human
Resources and Social Security (MOHRSS). Each local
bureau of the MOHRSS establishes the percentages
the employee and the employer should contribute to
each of the five social insurance funds.
Figure 3.1.1
COMPONENTS OF SOCIAL SECURITY IN CHINA
Social Security in China
Social Insurance Funds:
Housing Provident Fund
Pension/retirement Fund
Medical Insurance Fund
Unemployment Fund
Work Injury Fund
Maternity Fund
Source: Rödl & Partner
Contributed by the
Employer
Contributed by the
Employee
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In turn, the guidelines on the housing fund are
established at the national level by the Regulations on
Management of Housing Provident Fund. It is
administered by the Ministry of Housing and Urban-
Rural Development, and local Housing Fund Bureaus.
Regional governments set the contribution rates to the
housing fund, resulting in percentages differing among
cities and provinces.
The housing, pension, medical insurance, and
unemployment funds are contributed both by the
employer and the employee. The work injury and
maternity funds are contributed only by the employer,
though in some instances there is no established
maternity fund (i.e., as of 2020 in Hefei, Huizhou,
Fuzhou, Tangshan, Zhuzhou, Changchun, Kunming,
and Yuxi there is not any required contribution to the
maternity fund).
To illustrate such complexity let’s take, for instance,
Suzhou and Taicang. The latter is a county-level city
under the jurisdiction of Suzhou, but they have different
contribution rates both for the housing fund and the
social insurance fund. Even within Suzhou and Taicang
different rates may apply too (See Figure 3.1.2).
An employer has to contribute 8 percent of the
employee gross base salary to the medical insurance
fund in Taicang, whereas in Suzhou that is 7.5 percent;
In Taicang, the contribution to the work injury fund can
go from 0.3 to 1.5 percent of the gross base salary,
whereas in Suzhou, contribution rates can range from
0.15 to 1.5 percent.
It should be noted that employers in China must
withhold the contributions to the social insurances and
the housing fund from the salary of the employee and
remit them to the local bureaus.
Lower/Upper limits of social insurance calculation
base: there are minimum and maximum social
insurance payments for both employees and
employers. According to China’s Social Insurance
Law, the lower and upper limits are 60 and 300
percent of the previous year’s monthly average salary
of the labor force.
Regional differences arise again, with regions using
different percentages to establish those limits. For
instance, in Beijing the lower limit is at 40 percent and
not 60 percent, although the upper limit remains at
Figure 3.1.2
CONTRIBUTION TO SOCIAL SECURITY FUNDS IN
SUZHOU & TAICANG, 2020
Data in percent
300 percent.
As of May 2020, the lower limit in Taicang was at
RMB 3,030, whereas in Suzhou, the lower limit was
RMB 3,020. If employees’ salaries in those regions
are below the respective lower limits, the employee
and the employer must make social insurance
contributions based on the lower limits, as if those
figures were the actual salary.
Lower/Upper limits of housing fund calculation base:
similar to the five social insurances, there are also
minimum and maximum housing fund payments for
both employers and employees. The limits are
established again at the regional or city level. Most
cities have limited the maximum base to 300 percent
of the local average salary. The lower limit is
established based either on the local minimum wage
or a percentage of the average wage.
Suzhou
1
Taicang
Employer Employee Employer Employee
Housing Fund
2
8/10/12 8/10/12
8/10/12
8/10/12
Pension Fund
16 8 16 8
Medical Insurance Fund
7.5 2 8 2
Unemployment Fund
0.5 0.5 0.5 0.5
Work Injury Fund
3
0.15 to 1.5 - 0.3 to 1.5 -
Maternity Fund
0.8 - 0.8 -
Source: Rödl & Partner. 1.- Within Suzhou, different rates apply
(i.e., Suzhou city, Suzhou Industrial Park). 2.- The company
chooses which rate to use from the three available options. Once
a contribution rate is determined, it also applies to the employee.
3.- Contribution rates to the work injury fund vary within Suzhou
and Taicang
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Issues in Practice
Employees Urge for Non- or Reduced Payment of
Social Security Contributions
In practice, it is quite common for local employees to
request either no contributions or only reduced
contributions be paid to the various social security
insurances. This is often due to the fact that social
security systems are established at the local level.
Many employees who come from other provinces fear
that the contributions are not passed on to their "home
insurances", meaning that they do not acquire any
rights against the insurance at their place of residence.
For these employees, social security contributions are
lost income.
An employer should never get involved in such
arrangements. The payment of the contributions is
required by law. Therefore, on the one hand, there
would be a violation of the law. On the other hand,
there is also a risk that an employee may change
his/her mind and demand payment of contributions
from the employer. Finally, social security authorities
can take action. Such actions may include seizure of
the employer's assets in the amount of the outstanding
social security contributions.
Payment of Contributions on the Basis of the
Minimum Wage
Another phenomenon that is still common in practice is
that employers register properly with the social security
authorities but pay contributions only on the basis of
the minimum wage. Such conduct also violates the
relevant laws. The basis for calculating monthly social
security contributions is generally 1/12 of the
employees' previous year’s total income and the
actual salary for newly hired employees. Henceforth,
in view of the implementation of the social credit
system, data from various authorities will be brought
together and synchronized. Potentially the salary data
reported to the tax authority will become known to the
social security authority, and any discrepancies will be
brought to light. The inadequate payment of
contributions will cause legal as well as financial
consequences for the employer.
Payment of Social Insurance Contributions in Cash
Some local employees tend to ask their employers to
The basis for calculating
monthly social security
contributions is generally one
twelfth of the employees'
previous year’s total income, or
of the actual salary for newly
hired employees.
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pay them the social insurance contributions in cash.
This is especially the case for employees who work in
different cities than the registered address of the
employer. In such case, paying contributions to an
employee at a location where the company is not
registered (i.e. does not have an own subsidiary or
branch), so far in practice the social insurance
contributions can be paid under the name of a
designated HR agency. Therefore, to avoid any
difficulties as mentioned above, an employer should
not accept such employees' requests and withhold
and pay all taxes and contributions according to the
law.
Social Insurance Contributions for Part-time
Employees
Part-time employees are generally exempted from
contributions to the social insurances. They may
participate on a voluntary basis and pay the
contributions on their own. However, according to the
wording of the Social Insurance Law, this refers only to
pension insurance and basic health insurance. For
work-related injury insurance and unemployment
insurance, the law generally speaks of “workers”.
Against this background, it should be clarified with the
local social security authority which insurance
contributions are mandatory to be paid before hiring a
part-time employee.
Payment of Social Insurance Contributions During
Leaves
Employers sometimes are of the opinion that no social
security contributions have to be paid during the
employee's statutorily permitted absence from work,
e.g., sick leave. This applies in particular to employers
who originate from countries that do not have a
nationally organized social security system. However,
the obligation to pay social security contributions is, in
principle, tied to the effective existence of an
employment contract. Since an employee's
employment contract is still valid in any case of
permitted absence, the employer is under the
obligation to pay the corresponding social security
contributions. Nevertheless, in the case of a permitted
absence, an employee's salary may be reduced so
that social security contributions may be decreased
accordingly.
Although part-time employees
are generally exempt from
contributing to the social
insurance funds, the employer
should clarify with the local
social security bureau which
insurance contributions are
mandatory in the case of a
part-time hire.
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Social Security for Foreigners
According to the Social Insurance Law of the PRC,
foreigners working in China and their local employers
are required to contribute to China’s social security
system.
As a general rule, the employer of a foreign national in
China should pay the five forms of social insurance
(pension or retirement fund, medical insurance fund,
unemployment fund, work injury fund, and maternity
fund). And the foreign employee should generally
contribute to the pension, medical, and unemployment
funds.
In practice, since social security is managed at the
regional level in China, employers and foreign
employees face different scenarios across the country.
In most regions, it is indeed mandatory to contribute to
the five social insurance funds. However, there are
some regions which do not require it: in Shanghai it is
not mandatory for employers to contribute social
insurance for their foreign employees, though foreign
employees may participate in the social insurance
system; in Dalian, only pension and medical insurance
funds are to be contributed by the employers.
If an employer operates in several regions, it should
check within each of the respective local bureaus of
the MOHRSS, whether foreign employees should
contribute to social security. The comprehensive
national framework under the Social Insurance Law
serves as a guideline. To be fully compliant, employers
have to ensure they follow the local regulations.
To add further complexity, China has signed bilateral
social insurance exemption agreements for foreign
citizens of some countries: France, Luxembourg,
Serbia, Finland, Denmark, Germany, Switzerland,
Netherlands, Spain, Japan, Canada, and South
Korea. Through such agreements, foreign employees
from those countries can be exempted from certain
social insurance contributions. These bilateral
agreements differ per country. Each agreement defines
the range of exemptions (which insurance funds are
exempt) and the type of personnel that can benefit
from the exemptions.
Social Insurance Accounts When Leaving China
If a foreigner leaves China before reaching the
required pension age, the individual social insurance
account is kept. It will be renewed on a cumulative
basis if the foreigner returns to China for employment.
When leaving for good, foreigners can claim the
balance in their social insurance individual accounts
after applying, via a written application, to the local
Human Resources and Social Security Bureau before
leaving China.
Again, some differences arise at the regional level. In
Shanghai, for instance, foreigners who had chosen to
participate in the social insurance system can withdraw
their savings from their individual social insurance
accounts in one lump sum after the end of the labor
relationship, regardless of whether they are leaving
China or when having reached the statutory pension
age are unable to receive the monthly pension.
Housing Fund
With regard to the mandatory housing fund, neither the
employers nor the foreign employees are required to
contribute to it. However, many cities allow foreigners
to make housing fund contributions on a voluntary
basis in an attempt to attract foreign talents: they are
exempt from Individual Income Tax, as long as those
contributions don't exceed the compulsory contribution
rates for Chinese nationals.
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3.2 INDIVIDUAL INCOME TAX (IIT) LAW
The new Individual Income Tax (IIT) Law in China
came into effect on January 1, 2019. It is the seventh
major revision since the original IIT Law was passed in
1980, and it is probably the one that has introduced
some of the most comprehensive reforms.
In this section, we attempt to cover the most relevant
aspects of the new law, paying also attention to those
that impact foreigners. However, one important aspect
that has not changed is that the employers remain
responsible for calculating and withholding IIT.
Tax Residency Rules
One of the key amendments to the new IIT Law is the
change to the tax residency. An individual with a
Chinese passport or a Chinese household registration
(hukou) is generally regarded as having a domicile in
China. In general, a foreign national is treated as a
non-domicile individual in China, and he/she will be
taxed in accordance with the length of his/her stay in
China.
Chinese tax residency is determined based on having
a domicile in China, and the number of days spent in
China. A natural person who is either domiciled or not
domiciled in China, but who remains in China for 183
days or more in a tax year, is considered a Chinese
tax resident. Other persons are defined as non-tax
residents (See Figure 3.2.1).
The day on which a foreigner stays in China for less
than 24 hours is excluded when calculating the 183-
day threshold. Therefore, the entry and exit dates are
not counted.
If a foreign individual is tax resident in China for over
six years, they will be taxed on their worldwide
income. However, foreigners who are tax residents in
China can be exempted from taxation of their
worldwide income: when foreigners leave China for
more than 30 consecutive days in any year in which
they reside in China for 183 days or more, the
computation of the six years will restart.
Under the new IIT Law, the tax residency status of a
non-domiciled employee has to be determined in
advance for monthly IIT declarations. However, by the
end of the tax year, the number of days in China and,
therefore, the current tax status may turn out different
Figure 3.2.1
TAX RESIDENCY STATUS IN CHINA
After the new Individual Income Tax Law, since January 2019
Source: Rödl & Partner. *China sourced income: remuneration of
an employment exercised in China, regardless of where it is paid
Individuals with no
domicile in China,
and in China for
less than 183 days
in a tax year
(January 1 to
December 31)
Individuals with no
domicile in China,
and in China for
less than 90 days in
a tax year (January
1 to December 31)
...their China
sourced income
borne by PRC
entities or borne by
overseas entities
... China sourced
income borne by
PRC entities
Non-Tax
Residency
Individuals have
their domicile in
China (on account
of domiciliary
registration, family
ties or economic
interests) or;
Do not have a
domicile in China,
but with presence
in China over 183
days or more with
a consecutive six-
year record or;
Do not have a
domicile in China,
but with presence
over 183 days for
less than six years
…their worldwide
income (income
sourced in and
outside China)
... their China
sourced income*
and non-China
sourced income
borne by a PRC
entity
Tax
Residency
Criteria
Taxable for…
from the initial estimation.
If the tax residency status is updated as a
consequence of the above disparity, the actual tax
liability may differ as well, as:
a) for non-residents, the monthly IIT declarations are
made on a single month basis, underlying monthly
income tax brackets, and
b) for residents, the monthly IIT is declared on a
cumulative basis, underlying annual income
brackets.
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Figure 3.2.2 COMPARING INCOME TAX BRACKETS & STANDARD DEDUCTIONS
On comprehensive income for tax-residents, before and after January 2019
Level
Annual Taxable
Income (RMB)
IIT Standard
Deduction
Tax
Rate
(%)
Annual Taxable
Income (RMB
IIT Standard
Deduction
1
0 18,000 0
3
0 36,000 0
2
18,000 54,000 1,260
10
36,000 144,000 2,520
3
54,000 108,000 6,660
20
144,000 300,000 16,920
4
108,000 420,000 12,000
25
300,000 420,000 31,920
5
420,000 660,000 33,060
30
420,000 660,000 52,920
6
660,000 920,000 66,060
35
660,000 920,000 85,920
7
Over 960,000 162,060
45
Over 960,000 181,920
Before After
The reform has not modified the tax
rates. They remain in 7 progressive
levels, from 3 to 45 percent
The lower tax brackets (levels 1 to 3)
have been widened, while the middle
tax bracket (level 4) has been
narrowed. The reform did not impact
the higher tax brackets (levels 5 to 7)
The reform has increased the so-
called Standard Deductions at all
levels (except that of level 1)
Source: Rödl & Partner
Consolidation of IIT Calculation
The new IIT Law defines two new categories of
income: comprehensive income and income from
operations.
The new category ‘comprehensive income’ groups
four types of income from the previous IIT Law: income
from salary and wages, income from the provision of
independent professional services, income from
author’s remuneration, and income derived from
royalties. The last three types of income were
previously taxed at a flat rate of 20 percent, whereas
now under the comprehensive income umbrella
they are taxed across seven levels of progressive
rates, from 3 to 45 percent.
The new category ‘income from operations’ comprises
two types of income from the previous IIT Law:
a) income from sole proprietors and merchant’s
production and business operations, and
b) income from contracting or leasing services
provided to enterprises and institutions.
For this new category, there is no change in the tax
rating that applied to the former two types of income:
five levels, from 5 to 35 percent.
Other categories of income under the previous IIT Law
remain the same: income from interest, stock dividends;
income from the lease or transfer of property; and
contingent and other forms of income. In the new IIT
Law, they remain taxed at a flat 20 percent rate.
Tax Brackets
The new IIT Law has adjusted the tax brackets
applying to the comprehensive income and income
from operations. The indicated progressive tax rate
levels in Figure 3.2.2 are applied to a tax resident's
annual consolidated income, which includes wages
and salaries, personal service compensation, author's
compensation, and royalties.
The IIT rates apply equally to tax-resident payers as
well as to non-tax resident payers. However, as
mentioned earlier, IIT declarations for tax residents are
made on a cumulative basis, thus underlying annual
taxable income; whereas for non-tax residents, IIT
declarations are on a monthly basis underlying monthly
income tax brackets.
The reform has not modified the tax rates but has
widened the lower tax brackets, while narrowed the
middle one. Higher tax brackets remained unchanged.
In addition, the reform has also increased the standard
deductions at all levels, except the lowest one.
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Standard Basic Deductions, Specific Deductions,
New Special Additional Deductions, and Other
Deductions
The new IIT Law unifies standard deductions of tax-
residents and non-tax residents to RMB 60,000
annually (RMB 5,000 / month for tax withholding
purpose). In the previous Law, the standard deduction
was RMB 3,500 / month for Chinese nationals, and
RMB 4,800 / month for foreign nationals.
Contributions made to the social security system, in
accordance with the Social Security Law, as well as
contributions made to the housing fund are deductible
for IIT purposes. In the case of foreign employees,
these specific deductions apply only to those who had
chosen to contribute voluntarily to the housing fund and
to the employee contributions made to the pension,
medical, and unemployment funds.
In addition to the standard and specific deductions, the
new IIT Law introduced a series of special additional
deductions for certain expenditures that apply to both
tax-residents and non-tax residents (See Figure 3.2.3):
Continuing education expenses: between RMB
400 / month, over a maximum of 48 months for
education expenses at the degree level; or RMB
3,600 / year, for advance vocational training
(only deductible in the year of obtaining the
certificate).
Expenses for supporting elderly care (older than
60 years): up to RMB 2,000 / month.
Housing mortgage interest for first-time buyers: up
to RMB 1,000 / month.
Rental expenses: RMB 800 or RMB 1,100 or
RMB 1,500 per month, depending on the location.
Medical treatment for serious illnesses: deduction
based on actual amount for expenses over RMB
15,000 that are incurred by the taxpayer, with an
upper limit of RMB 80,000 per year.
Children’s education: RMB 1,000 / month for
each child.
To benefit from these deductions, the relevant
information (contracts, invoices, etc.) must be provided
to the tax bureau and keep that information filed for
five years.
Foreigners who want to apply for these deductions
also need to provide their tax ID, which can be
obtained through the tax bureau.
Figure 3.2.3
NEW IIT SPECIAL ADDITIONAL DEDUCTIONS
Source: Rödl & Partner
School and higher
education for
children
RMB 12,000 per year for
each child (RMB 1,000 per
month)
Continuing education
with degree
RMB 4,800 per year (RMB
400 per month)
Advance vocational
training
RMB 3,600 per year (only
deductible in the year of
obtaining the certificate)
Medical treatment of
critical illnesses
Deduction based on the
actual amount for expenses
over RMB 15,000 that are
borne by the taxpayer.
Upper limit is RMB 80,000
per year
Interest expenses of housing
loan for first time buyers
RMB 12,000 per year (RMB
1,000 per month)
Rental expenses
RMB 9,600 to RMB 18,000
per year (varying among
cities)
Caring for parents
(older than 60 years)
RMB 24,00 per year (RMB
2,000 per month)
New special
additional deductions
Deductible
amounts
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It is important to note that, under the previous IIT Law,
foreigners working in China who qualified as tax
residents, were already entitled to certain tax-exempt
allowances, provided that the amounts were
reasonable and substantiated by invoices: housing
expenses, meals and laundry expenses, relocation
expenses upon start or end of an assignment in China,
Chinese language training, children’s education
expenses incurred in China, business travel expenses,
and personal trips to their home countries (two flights
per year).
Foreigners who fulfill the tax-residency requirements
can still apply for tax-exemptions on these allowances
for another three years, between January 1, 2019,
and December 31, 2021, according to the ‘Notice
on Transitional Matters concerning Preferential Policies
after the Amendment of IIT Law’ (Circular 164)
released jointly by the Ministry of Finance and the
State Administration of Taxation of the PRC. However,
they need to choose between the old tax-exempt
allowances or the new six special additional
deductions. Once decided, the choice cannot be
changed within a tax year.
For foreigners who qualify as tax-residents, the
allowances deductible under the previous IIT Law
remain more attractive than the six new special
additional deductions for those foreigners with higher
wages, or who travel often abroad, or get their
income from companies overseas, since such expenses
usually represent between 20 to 30 percent of their
salary. The new special additional deductions, on the
other hand, are likely to be a better choice for foreign
employees (non-tax residents) with lower wages, as
the deductions are based on total amounts paid.
Nevertheless, from January 1, 2022, foreigners will no
longer be able to claim the old tax-exempt
allowances, only the special additional deductions.
Finally, prior to the revision of the IIT Law, for tax-
resident foreigners there were certain deductible items
such as employee contributions to corporate annuities,
commercial pension insurance premiums eligible for IIT
deferral treatment, or commercial health insurance
premiums eligible for IIT incentives. Such deductible
items remain in the new IIT Law, but no provisions
regarding the limitations, applicable time period, or
applicable areas of relevant expense deductions are
stipulated.
Commercial health insurance has been a common
Foreigners who are tax-
residents can still apply with
conditions - for tax-exempt
allowances from the previous
IIT Law, for a transition period
that extends until December 31,
2021.
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benefit enjoyed by foreign employees, thus paid
premiums on those insurances could represent
additional deductions if eligible. It is difficult to assess
how accessible the tax-deferred commercial pension
insurance might be for foreign employees: the overall
implementation of commercial pension insurances is
still being piloted, following the Notice on the Pilot of
Deferred Commercial Retirement Insurance for
Individual Tax on April 2018, by the Ministry of
Finance.
IIT on Annual Bonus
Under the previous IIT Law, annual bonuses enjoyed a
preferential tax treatment and were taxed as a
separate source of income different from the annual
salary. The annual bonus had to be divided by 12 to
determine the applicable tax rate and deductible
factor. To the resulting amount it corresponded a
specific tax rate and deduction, within the existing tax
brackets.
With the new IIT Law, annual bonuses are taxed on a
combined basis with other comprehensive income of
the year. According to Circular 164, a three-year
transition period applies (from January 1, 2019, to
December 31, 2021) to resident taxpayers, where the
former preferential tax treatment can still be applied.
However, Circular 164 does not mention such options
are available to non-resident taxpayers. Thus, for
foreign individuals, taxation on annual bonuses differs
based on whether they qualify or not as tax-residents in
China.
Tax Obligations for Employees and Employers
Among others, according to the new IIT Law and
resolutions, an annual filing is mandatory for tax
residents under the following circumstances:
taxable income from two or more sources
amounting to RMB 60,000 or above (after
standard and special deductions),
taxes withheld based on monthly filings are below
the taxes payable calculated at year end, or
a tax refund is required.
As mentioned earlier, an obligation that has not
changed is that of any natural or legal person who
makes payments of personal income to a tax resident
to be responsible for IIT payments as a withholding
With the new IIT Law annual
bonuses are taxed on a
combined basis with other
comprehensive income of the
year, instead of being
considered as a separate
source of income.
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agent.
Tax-withholding agents shall calculate the IIT of the
payroll payments to taxpayers underlying the total
taxable income year-to-date. But in practice, the
continuous IIT declaration can be interrupted, for
example, due to a job change of the taxpayer during
the year. Ultimately, the annual IIT declaration must be
based on the comprehensive income of the taxpayer.
If the employee changes jobs within a tax year, the
new employer will have no access to the previous IIT
declaration data (i.e., income, taxes paid), and the
interruption of the cumulative basis will likely result in
wrong IIT declarations/ payments. However,
employers need to ensure to fulfill the IIT withholding
obligation. The interruption of the cumulative basis
could be resolved during the annual IIT filing. In
practice, this approach may cause misunderstandings
as, in general, the annual filing of comprehensive
income is the taxpayers primary responsibility, but
taxpayers can engage withholding agents to handle
the filing. But as the withholding agent may not be
aware of all income sources of the employee, the
taxpayer remains responsible for the authenticity and
completeness of the supported information. Therefore,
it is important to clarify the responsibilities of each party
at an early stage.
3.3 FINAL CONSIDERATIONS
The new IIT Law will allow low- and mid-income
earners greater tax savings. All taxpayers, regardless
of income, will benefit from a wider range of
deductions.
Employers should ensure that all their employees
whether local or foreign - are informed in a timely
manner about the implications of the new IIT Law
reforms, as well as on how such changes may impact
their salary structure.
Given the wide range of the reforms implemented,
with more regulations and guidelines expected from
the State Council in due course, the advantages of
outsourcing are obvious. By outsourcing secondary
functions, companies can concentrate on their core
business. Another important point is cost saving. There
is a qualitative advantage choosing a specialized
service provider, especially in the area of HR and
payroll, with its fast-changing regulatory requirements,
outsourcing will ensure to comply with the latest
regulations and allow access to up-to-date knowledge.
Under the new IIT Law, low-
and mid-income earners will
generally enjoy greater tax
savings. All taxpayers,
regardless of income, will
benefit from a wider range of
deductions.
QING
CHENG
Head of Business
Process Outsourcing
Partner
+86 (21) 6163 5266
FOR MORE INFORMATION
Rödl & Partner
Deconstructing
Labor Costs in
China
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53
4.1 INTRODUCTION
The purpose of this chapter is to offer HR,
Compensation & Benefits professionals in China an
initial mapping of the different funds that go on top of
the gross salary to employees. Having already
reviewed social security and individual income tax in
China in the previous chapter, here we will look at
how the contributions to those funds are calculated;
and what is ultimately the total cost for an employer
when given a gross salary.
Because it is highly intertwined with the above, this
section will also cover the necessary calculations to
derive from the gross salary the actual net salary the
employee will take home. This is also highly relevant to
the employer since, in China, it is the employer’s
responsibility to calculate and withhold the payments
on the employee side for the employee’s individual
income tax, as well as the employee’s social security
monthly payments.
Definitions
Prior to addressing the mathematics and calculations
implicit in the purpose stated in the above introduction,
it is necessary to establish some definitions.
The following are concepts that we will be referring to
later on, and it is important to clarify them beforehand.
The social security and individual income tax law in
China have been extensively discussed in the previous
sections of this chapter.
Monthly BASE salary: The fixed amount the employer
guarantees the employee on a monthly basis. The
base salary has to be stated in the labor contract.
Monthly GROSS salary: Adding to the base salary, an
employer might offer an employee fringe benefits such
as bonuses, allowances, or even stock. Employers
should be wary though about including such payments
in the labor contract, as this will make them legally
bound to pay them. In the labor contract provisions
can be stated that benefits will be paid if performance
is above a certain level of expectations and if the
business performs well.
Individual Income Tax (IIT): A progressive tax system
with tax rates ranging from 3 to 45 percent. An
employer is responsible for deducting IIT on salary
In China, it is the employer’s
responsibility to calculate and
withhold the payments on the
employee side for the
employee’s individual income
tax and social security monthly
payments.
income before paying a net amount to its employees.
Payments of IIT from other sources of income are the
responsibility of the individuals. For more on IIT, refer to
3.2 Individual Income Tax (IIT) Law in the previous
chapter.
Monthly NET salary: The monthly net salary is the
actual amount the employee will receive in his/her
pocket every month, after adding to the base salary
whichever allowances may apply, overtime pay, and
bonuses; and deducting the employee’s individual
income tax (IIT) and the portion of the mandatory
social benefits payable by the employee.
This is, first and foremost, an employee-relevant
definition. However, for the reasons already explained
in the introduction, the monthly net salary is also highly
relevant to the employer.
All Chinese employees and employers are required to
contribute to social security on a monthly basis. For
more details on social security contributions from part-
time employees, see page 44.
Monthly TOTAL employer cost: This is an employer-
relevant definition. The addition of the base salary,
allowances, bonuses, non-mandatory benefits (i.e.,
non-mandatory housing fund, non-mandatory pension
plans), and the employer’s portion of the mandatory
social benefits results in the Monthly TOTAL employer
cost.
Mandatory social benefits (social insurance and
housing fund): for a thorough review of the different
funds that constitute the social security in China see 3.1
Social Security in China in the previous chapter.
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4.2 TURNING DEFINITIONS INTO
FORMULAS
Monthly TOTAL Employer Cost
As introduced in the previous section, in addition to the
Monthly Gross Salary an employer has to add the
contributions established for each of the five social
insurance funds and the housing fund. Each of the six
funds has an established rate of contribution
applicable to the employer. The rates vary at the
regional level, and they are applied to the
Social
Security Calculating Base”, which is defined not by the
monthly gross salary paid to an employee but by the
employee’s average income the previous year, from
January to December.
The different components to get to Monthly Total
Employer Cost are summarized in Figure 4.2.1.
An employer has to check whether the Social Security
Calculation Base falls below or above the caps
established for the Housing Fund and the Social
Insurance Fund at the location(s) it operates. If that is
the case, the caps should be used instead as the base
for calculations. For more on the lower and upper limits
of the social insurance and housing funds, see 3.1
Social Security in China in the previous chapter.
Monthly NET Salary
From the monthly gross salary (base salary plus any
additional benefits the employer might offer, i.e.,
allowances, bonuses), the employee has to deduct the
Individual Income Tax (IIT), as well as all the monthly
social security contributions that apply to the employee
(See Figure 4.2.2 in the next page).
In Figure 4.2.2 we break down the calculations for the
Individual Income Tax (IIT) payable by the employee.
The employer will be responsible for calculating the
year-to-date IIT payable with the applicable annual tax
rate (See Figure 4.2.3 in the next page) and deduct
the accumulated IIT paid up to the last month in order
to get the IIT payable of the current month.
As already mentioned, the new IIT Law adopts a
unified deduction (a monthly standard deduction) for
resident and non-resident taxpayers of RMB 5,000. In
addition, the new law introduces “Special Additional
Deductions for specific expenditures such as
children’s education expenses, continuing education
Figure 4.2.1
MONTHLY TOTAL EMPLOYER COST
Monthly Total Employer Cost
Monthly Gross Salary
Monthly Total Funds Paid
by the Employer
+
Social Security Calculation Base
Employee’s Previous
Year’s Total Income
12
÷
Monthly Total Funds Paid by the Employer
Maternity Fund
Employer
Social Security
Calculation Base
Employer Maternity
Fund Rate
×
6
=
Work Injury
Fund Employer
Social Security
Calculation Base
Employer Work
Injury Fund Rate
5
×
=
Unemployment
Fund Employer
Social Security
Calculation Base
Employer
Unemployment
Fund Rate
4
×
=
Medical Fund
Employer
Social Security
Calculation Base
Employer Medical
Fund Rate
3
×
=
Pension Fund
Employer
Social Security
Calculation Base
Employer Pension
Fund Rate
2
×
=
Housing Fund
Employer
Social Security
Calculation Base
Employer Housing
Fund Rate
1
×
=
1 + 2 + 3 + 4 + 5 +
6
Source: Direct HR Group
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expenses, healthcare for serious illnesses, housing
mortgage interests, housing rent, and elderly support.
Thus to obtain the taxable income, from the Monthly
Gross Salary the employer will deduct on behalf of the
employee the standard tax exemption, the total special
additional deductions and the contributions to the
housing fund and the three social insurance funds that
apply to the employee (pension, medical, and
unemployment fund).
Monthly NET Salary
Monthly
Gross Salary
Monthly Total
Funds Paid by the
Employee
-
Individual
Income Tax
(IIT) Employee
-
Taxable Income
Monthly
Gross
Salary
-
Monthly
Tax
Exemption
RMB 5,000
Total
Special
Additional
Deduction
Monthly Total
Funds Paid by
the Employee
Social Security Calculation Base
Employee’s Previous
Year’s Total Income
12
÷
Monthly Total Funds Paid by the Employee
Unemployment
Fund Employee
Social Security
Calculation Base
Employee
Unemployment
Fund Rate
4
×
=
Medical Fund
Employee
Social Security
Calculation Base
Employee Medical
Fund Rate
3
×
=
Pension Fund
Employee
Social Security
Calculation Base
Employee Pension
Fund Rate
2
×
=
Housing Fund
Employee
Social Security
Calculation Base
Employee Housing
Fund Rate
1
×
=
1 + 2 + 3 + 4
Source: Direct HR Group
Level
Annual Taxable
Income (RMB)
Tax
Rate (%)
IIT Standard
Deduction
1
0 36,000
3
0
2
36,000 144,000
10
2,520
3
144,000 300,000
20
16,920
4
300,000 420,000
25
31,920
5
420,000 660,000
30
52,920
6
660,000 920,000
35
85,920
7
Over 960,000
45
181,920
Source: Direct HR Group
Figure 4.2.3
TAX CALCULATION RATES FOR RESIDENT TAXPAYERS
Figure 4.2.2
MONTHLY NET SALARY, TAXABLE INCOME
Individual Income Tax (IIT) Employee
Taxable
Income
IIT Standard
Deduction
Applicable to
the IIT Rate
-
IIT Rate
×
- -
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4.3 TURNING FORMULAS INTO
PRACTICAL EXAMPLES
To better illustrate the calculations with regards to the
actual payments to be made for funds and taxes by
the employer and the employee let’s use a numerical
example. Here are the premises:
The employee is a Chinese national (a resident
taxpayer) employed in Taicang.
The employee’s base salary is RMB
20,500/month. In addition, he/she receives
another RMB 4,500/month in allowances. Which
results in a Monthly Gross Salary of RMB 25,000.
The monthly total special additional deductions
amount to RMB 1,000.
For simplification purposes, we assume that RMB
25,000/month was also the amount he/she was
paid during the previous year on a 12-month basis
(so that the Monthly Social Security Calculation
Base is equal to the Monthly Gross Salary).
Since we are referring to Taicang, we need to look at
the relevant contributions for both the employer and
the employee to the five social insurance benefits and
the housing fund for the city. They were presented in
Figure 3.1.1 in the previous chapter, alongside those
of Suzhou. Find them again in Figure 4.3.1.
Example of Monthly TOTAL Employer Cost
To get to the Monthly TOTAL Employer Cost, we
require two ingredients: the monthly gross salary,
which we already know, and the total funds the
employer has to contribute on a monthly basis to the
social security.
In order to calculate the social security funds which are
payable by the employer, we need to establish first the
Social Security Calculation Base. According to the
premises set for this example, the annual income of this
employee the year prior was RMB 300,000 or RMB
25,000/month. However, that amount is above the
caps established by Taicang’s local labor and housing
fund bureaus (see Figure 4.3.2).
Therefore, in this particular example, the Social
Security Calculation Base won’t be equal to the
Monthly Gross Base Salary. And since the
lower/upper limits for the social insurance and house
funds are different in Taicang, rather than referring to
the Social Security Calculation Base, it is more
Figure 4.3.1
CONTRIBUTION RATES
TO SOCIAL SECURITY IN TAICANG , 2020
Social Security Funds
Employer
(%)
Employee
(%)
Housing Fund
8 /10/12
8/10/12
Pension Fund
16
8
Medical Fund
8
2
Unemployment Fund
0.5
0.5
Work Injury Fund
0.3 to 1.5
-
Maternity Fund
0.8
-
Source: Rödl & Partner
Figure 4.3.2
LOWER & UPPER LIMITS TO HOUSING AND SOCIAL
INSURANCE FUNDS (RMB/MONTH) IN TAICANG, 2020
Lower
Limit
Upper
Limit
Housing Fund
3,030
23,700
Social Insurance Funds
3,030
16,842
Source: Direct HR Group
accurate to refer instead to
housing fund calculation
base
on the one hand, and the
social insurance
calculation base
on the other.
Thus, the calculation base won’t be RMB
25,000/month but, in accordance with the limits
established, the housing fund calculation base will be
RMB 23,700 / month, and the social insurance fund
calculation base will be RMB 16,842 / month.
With these upper limits we can then proceed to the
calculation of the Monthly Total Funds by the
Employer, as they were presented in Figure 4.2.1. We
assume that the employer choses to contribute 8
percent to the housing fund and 1.5 percent is that rate
that applies to work injury:
Monthly Housing Fund (Employer):
RMB 23,700 x 0.08 = RMB 1,896
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Pension Fund (Employer):
RMB 16,842 x 0.16 = RMB 2,694.72
Medical Insurance Fund (Employer):
RMB 16,842 x 0.08 = RMB 1,347.36
Unemployment Fund (Employer):
RMB 16,842 x 0.005 = RMB 84.21
Work Injury Fund (Employer):
RMB 16,842 x 0.015 = RMB 252.63
Maternity Fund (Employer):
RMB 16,842 x 0.008 = RMB 134.74
Adding up the six funds, the
Monthly Total Funds
Payable by the Employer is RMB 6,409.66, and the
Monthly TOTAL Employer Cost is RMB 31,409.66
(Monthly Gross Salary RMB 25,000 + Monthly Total
Funds Payable by the Employer RMB 6,409.66).
Example of Monthly NET Salary
To obtain the Monthly NET Salary, we must deduct
from the Monthly Gross Salary the IIT of the employee
as well as his/her social security contributions, as seen
in Figure 4.2.2. Since we need the social security
contributions to establish the IIT, we start calculating the
Monthly Total Funds Payable by the Employee.
In accordance with the upper limits to the housing and
social insurance funds in Taicang, as well as the
employee’s contribution rates to each of the funds in
the region presented in Figure 4.3.1:
Monthly Housing Fund (Employee):
RMB 23,700 x 0.08 = RMB 1,896
Pension Fund (Employee):
RMB 16,842 x 0.08 = RMB 1,347.36
Medical Insurance Fund (Employee):
RMB 16,842 x 0.02 = RMB 336.84
Unemployment Fund (Employee):
RMB 16,842 x 0.005 = RMB 84.21
Adding up the different funds, the
Monthly Total Funds
Payable by the Employee is RMB 3,664.41. Thus,
following on Figure 4.2.2, the
Taxable Income for the
employee is:
Monthly Gross Salary RMB 25,000 Monthly Tax
Exemption RMB 5,000 Monthly Total Special
Additional Deduction RMB 1,000 - Monthly Total
Funds Employee Pays RMB 3,664,41 = RMB
15,335.59.
According to Figure 4.2.3, a monthly taxable income
of RMB 15,335.59 leaves a resident taxpayer
taxable at an IIT rate of 20 percent and allows
him/her a monthly standard deduction of RMB 1,410
(the annual deduction at his/her level of taxable
income is RMB 16,920).
Therefore, the
Individual Income Tax (IIT) Payable by
the Employee is:
[Taxable Income RMB 15,335.59 X IIT Rate 20
percent] IIT Standard Deduction RMB 1,410 =
RMB 1,657.12.
Finally, the
Monthly NET Salary of our employee in
Taicang will be:
Monthly Gross Salary RMB 25,000 IIT Tax
Employee RMB 1,657.12 Monthly Total Fund the
Employee Pays RMB 3,664.41 = RMB 19,678.47.
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Rödl & Partner
JUANJO CARDONA
Marketing &
Information Solutions
Manager
+86 (21) 6010 5010
QING
CHENG
Head of Business
Process Outsourcing
Partner
+86 (21) 6163 5266
FOR MORE INFORMATION
Direct HR Group
4.4 FINAL CONSIDERATIONS
Although both the employer and the employee are
required to make contributions, it is the responsibility of
the employer to calculate and withhold the payments
for both.
The contribution base to social security is determined
by the average income of an employee in the previous
year, rather than by the payment the employee
receives each month.
There may be situations in which the social security
contribution base exceeds or falls below certain
predefined caps. Because those caps differ for the
housing fund and the social insurance funds, it is more
appropriate to refer to the contribution base as the
housing fund contribution base and to the social
insurance contribution base, respectively.
For employers, it is not enough to be compliant with
the national guidelines. They need to be aware of the
social security contribution rates that apply in the
jurisdiction(s) where they have operations in China.
Because the contribution rates vary by region (city,
province), social security in China becomes a complex
issue:
Housing fund contribution rates are the same for
both the employer and the employee, with few
exceptions (i.e., in Xiamen, the employer
contributes 12 percent, whereas the employee
contributes 8 percent). As of May 2020, housing
fund contribution rates for the employer and the
employee ranged from 5 to 12 percent across
regions.
The social insurance contribution rates are higher
for the employer than for the employee, as
employees are only required to contribute to three
out of the five social insurance funds (pension,
medical, and unemployment). For the employer,
social insurance contribution rates range from the
minimum 15.9 percent (in Dongguan) to a
maximum of 31.2 percent (Baoding), with 25.2
percent being the most common social insurance
contribution rate for employers across regions. In
the case of the employee, the minimum rate is 8.5
percent (Huzhou, Zhoushan), and the maximum 11
percent (Zunyi). The most common social insurance
contribution rate for employees is 10.5 percent.
Due to the divergences across regions in China, to
support HR professionals we have designed a salary
tax calculator (salary.directhr.cn). Visitors to the site can
provide either an intended monthly gross salary, a
monthly net salary, or a monthly total employer cost,
and they will get in return the corresponding values for
the two missing metrics that are consistent with the input
value. In addition, the calculator offers a breakdown of
the different funds and taxes the employer and the
employee will have to contribute.
Currently, the calculator covers over 90 different
regions in China and allows to discriminate between
contributions for local and foreign employees. All tax
calculations are based on the new IIT Law. Visit
salary.directhr.cn for more.
Discipline,
Termination,
Severance Pay
in China
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work or any other work arranged by the employer
on the expiration of the specified period of
medical treatment for illness or for injury incurred
when not at work;
the employee is incompetent for the post and
remains incompetent after receiving training or
being assigned to another post; or
the objective conditions taken as the basis for
conclusion of the contract have greatly changed,
so that the original employment contract cannot be
performed and, after consultation between the
employer and the employee, no agreement is
reached on modification of the contents of the
employment contract.
The Labor Contract Law further stipulates that an
employer, with the exception of a few specific cases,
must pay compensation to the employee in the event
of termination. If the employer gives notice in violation
of the Labor Contract Law, double compensation will
have to be paid.
Issues in Practice
Importance of Internal Regulations on Work
Discipline and Disciplinary Measures
An essential and in practice important reason for
termination is a serious breach by the employee of the
employer's internal rules. This underlines once again
the importance of the existence of such internal rules
such as the employment handbook, code of conduct,
etc. These rules and regulations should be as detailed
as possible and should include without limitation
stipulations regarding punctual attendance, behavior at
the workplace, compliance with fire, environmental
and other protection guidelines of the employer,
stipulations regarding personal behavior towards
superiors and colleagues, obligation to provide truthful
information, obeying of instructions of superiors, etc.
The internal rules should make it immediately clear to
an employee whether his/her behavior is still tolerated
or constitutes a violation of the rules. These rules of
conduct should then be followed by provisions
providing for disciplinary measures in the event of
misconduct. Disciplinary measures should be
proportionate to the offense and may initially include
verbal or written warnings. In the event of further
offenses, disciplinary measures should be extended to
the possibility of termination of the employment
contract if a certain number of disciplinary measures
have been reached. Serious offences such as sexual
One reason for termination is a
serious breach by the
employee of the employer's
internal rules. This underlines
the importance of the existence
of such internal rules, such as
the employment handbook.
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harassment or drug abuse may be defined in the
internal rules as serious violations of the employer's
internal rules under Article 39 of the Labor Contract
Law that justify immediate termination without notice.
However, attention should be paid that the internal
rules and regulations are enforceable in China. An
employer should make sure that all oral or written
warnings and all other disciplinary measures are
recorded and filed.
Mutually Agreed Termination
The Labor Contract Law provides for the conclusion of
a termination agreement as an option to terminate an
employment contract. Such a termination agreement is
often the fastest and legally secure way to terminate
an employment relationship and can help to avoid
lengthy and possibly costly legal disputes. There are
no special rules for termination agreements, and terms
and conditions are freely negotiable. Once such an
agreement is signed and executed, it will provide legal
certainty. However, a major disadvantage of a
termination agreement can be that employees often
require a higher severance payment than required by
law for their willingness to enter into such an
agreement.
Termination During Probation Period
An employee on probation may be terminated if
proved to be unqualified for the recruitment. However,
it should also be observed that the employee's tasks
and duties are described in detail, for example in a
job description, so that it can be objectively
demonstrated that the employee cannot perform them
accordingly and thus proves himself/herself to be
unqualified.
Termination with Notice or Payment in Lieu
Another frequent reason for termination in practice - in
this case termination with 30 days' notice or payment
of an additional monthly salary - is restructuring within
the employer or disappointment in turnover
expectations or change in market conditions and
expectations, which require a reduction in personnel.
Such termination may be justified due to major change
in the objective circumstances relied upon at the time
of signing of the employment if, after consultations,
employer and employee are unable to reach an
agreement on amending the labor contract. However,
the Labor Contract Law does not further specify “major
It is the responsibility of the
employer to pay attention that
its rules and regulations are
enforceable in China.
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change” or “objective circumstances”. An employer,
therefore, should be able to present reasonable and
comprehensible reasons for the necessity to terminate
the employee.
Furthermore, there must be no other position at the
employer for the employee to be terminated.
Furthermore, such termination requires (i) consultation
with the employee concerned, and (ii) notification of
the trade union (no approval required, but the
employer must consider and respond to comments of
the trade union). To summarize, there is a high risk that
the requirements of such termination cannot be fulfilled
and that the employee may challenge the termination
as unlawful dismissal.
Mass Redundancy
Mass redundancy is permitted provided that at least
20 employees or 10 percent of the total staff are
affected, but only if the employer undergoes a
reorganization in accordance with the PRC Enterprise
Bankruptcy Law, or has significant difficulties in its
business operation, or switches production, adjusts its
business model, and after modifying its labor contracts,
still needs to reduce its personnel or has experienced
other significant changes that modified the economic
circumstances which formed the basis for its having
signed the labor contracts, and it is unable to perform
under the contracts. In practice, apart from presenting
evidence of the existence of one of the reasons for
termination, mass redundancy requires to go through a
complex procedure. This includes, among other things,
the presentation of the mass redundancy plan to the
trade union, if any, or all employees; to report the
mass redundancy plan to the competent labor
authority; to conduct a social selection; and to give
certain employees priority to retain (i.e., those who
have a relatively long-term fixed labor contract, or
those who have an open-term labor contract, or those
who are the only employed member in a household
and need to support elderly or minor dependents). As
can be seen, the requirements for mass redundancy
are high, and there is a high risk that these
requirements cannot be fulfilled and employee(s) may
challenge the termination.
Exclusion of Termination
In addition to the difficulties of justifying a termination
with legal certainty, the Labor Contract Law also
provides regulations regarding protection against
Requirements for mass
redundancy are high. There is a
high risk the employer cannot
fulfill those requirements, and
employee(s) may challenge the
termination.
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termination. Under the following circumstances, the
termination of an employment is not permitted if the
employee (i) has engaged in work in which he/she is
exposed to occupational hazards and has not
undergone the relevant health check before
termination or is suspected of having contracted an
occupational illness and is being diagnosed or under
medical observation, (ii) has contracted an
occupational illness or suffered a work-related injury
and is confirmed to have lost fully or partially his/her
labor capacity, (iii) is undergoing the medical
treatment period (a form of statutory sick leave ranging
from 3 to 24 months) for his/her non-work-related
injury or illness, (iv) is currently pregnant, on maternity
leave, or is within the nursing period (the baby’s first
year), or (v) has worked for the employer for 15
consecutive years and will reach statutory retirement
age in less than five years.
Termination Procedure
In general, the termination of an employee requires
certain steps to undertake. Most important for the
employer is to collect sufficient evidence that can
support to justify the termination. There may be a high
risk of relying on only one or two reasons, especially if
each reason is not yet all too serious in itself. If enough
and sufficient evidence has been gathered, the next
step should be to discuss the matter with the employee
concerned and to confront him/her with the facts. After
this initial confrontation, a negotiation process usually
starts, in which a possible different position of the
employee in the company, if conceivable for the
employer, or the modalities of termination are
discussed. However, the termination proceedings are
not finished until a termination agreement has been
signed by both the employer and the employee.
Unilateral dismissal by the employer should only be
considered if the evidence is more than sufficient, as
employees very often challenge unilateral dismissals
and the courts often decide in an employee-friendly
manner.
Termination by Employee
Employees may terminate an employment contract by
submitting a formal resignation letter and giving at least
30 days’ notice. This period is mandatory and cannot
be legally extended. Although a longer notice period
could be agreed in the employment contract, this
would be ineffective in the event of a legal dispute.
The very short notice period can often lead to internal
Unilateral dismissal is only to be
considered if the employer has
enough evidence to support it,
as employees very often
challenge those dismissals and
courts often decide in an
employee-friendly manner.
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problems within the employer, be it to find a successor
of a senior manager, to integrate such successor in the
business organization, or deregister a General
Manager or Legal Representative from the business
registrar of the company. Employers should, therefore,
be particularly careful when recruiting senior managers
and general managers.
Termination of a Part-time Employee
Either of the two parties to a part-time employment
may give notice to the other party at any time to
terminate the employment. In such case, the employer
is not obliged to pay any financial compensation.
Unlawful Termination
After termination, the employee concerned may bring
a claim to the competent labor arbitration commission
or to a court. In case that said commission or the court
deems the termination unlawful, the employee can
demand to be reinstated or double statutory severance
pay.
Remaining Payment Obligations
In case of termination, severance payment is one of
the most important issues for employees. In this respect,
employers should also take into consideration possible
further claims of employees other than the severance
pay: bonuses, compensation for unused leave days,
reimbursement of work-related expenses, or overtime
pay. Employers, therefore, should determine all
outstanding payments and possible claims of the
employee before starting the negotiation of the
termination conditions or before a unilateral
termination.
Severance Payment Calculation
In practice, in all cases of termination, statutory
severance payment must be paid to the employee.
Severance pay amounts to one month's salary per
year of service. An employment period ranging from
six months to one year is to be counted as one year. If
the employee has worked for less than six months,
he/she will be entitled to half a month's salary.
Monthly salary refers to the average monthly
income for the twelve months prior to the
termination. If the monthly wage of the employee
exceeds three times the average monthly wages of
employees in the municipality where the employer is
located, severance pay shall be paid to him/her at the
rate of three times the local average monthly wages
and the number of years involved shall not exceed
twelve years.
SEBASTIAN
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Attorney-at-Law
Partner
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Rödl & Partner
Conducting
Interviews
in China
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6.1 DESIGNING INTERVIEW QUESTIONS
The goal in an interview whether it is a recruitment
interview, a salary negotiation, or a sales negotiation
with a prospect client is to fill in the gaps between
what you know so far and what you would like to
know from your counterpart.
The recruitment interview becomes a process of
bridging, of unveiling critical pieces of information that
will take the interview to its end goal: the gathering of
the necessary evidence to realize an objective
assessment of the candidate.
A recruitment interview is also a negotiation of sorts, for
the candidate is also trying to assess whether the
opportunity is worth his/her while and, therefore,
he/she will try to pick up on any signals that might
support the candidate’s decision-making. In a similar
fashion, the recruiter wants to collect as much
information as possible from the candidate that relates
to the job at hand, so whatever decision that comes
further down the line is based in as much objective
data as possible.
Collecting information in a recruitment interview from a
candidate and making an objective assessment is not
something that one does without preparing. In this
chapter, we will cover how to design interview
questions within the Competency-Based Interviewing
(CBI) framework.
When designing the interview questions recruiters will
first consider the core competencies needed for the
specific role they are looking to recruit. Core
competencies will be derived from a thorough analysis
of the job description and discussions with relevant
stakeholders (hiring managers, subject matter experts,
high-performers who held that job role in the past,).
However, competency-based questions will not be the
only questions in an interview. In Figure 6.1.1 a
summary of the primary type of questions that are
commonly used in recruitment interviews is presented.
There is a particular type of questions that we do not
recommend using: brain-teaser questions. Some of the
questions in Figure 6.1.1 can be replaced by
structured and proven tests such as numerical
reasoning, instead of using brain-teasers, and
emotional intelligence (EQ) tests. Whenever possible,
In any interview the goal is to
bridge the gap between what
you know so far and what you
would like to know from your
counterpart.
Figure 6.1.1
INTERVIEW QUESTIONS. TYPES
Different types of questions that go into an interview,
based on the features they look to assess
Fill in the Gaps &
Verification
Experience
Competence-based
Brain-Teasers
Helps the interviewer to fill up time gaps and discrepancies
in an applicant’s resume, as well as to verify the depth of
knowledge on the credentials specified in the resume
To evaluate certain features of the applicant’s past
professional experiences. By asking to further elaborate
on responsibilities and main lessons learned, the
interviewer gets to subjectively verify the candidate’s
work experience
Questions designed to determine whether applicants possess
core competencies required for the role, based on their
account of past behaviors. The purpose is to identify past
behaviors with specific competencies, and use the former as
predictors for future performance
They can adopt the form of mathematical questions (to
assess calculation skills), silly questions (to assess original
thinking), or case questions (to evaluate problem-solving
abilities). In any of these instances they offer additional
insights to the recruiter about the ability of the interviewee
to think on the spot and display mental agility. It is common to
substitute these questions for more structured tests (i.e. numerical
reasoning)
Source: Direct HR Group from various sources
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it is advisable to use those instead of trying to tackle
them with questions in an interview because of the
following two key reasons:
1) Not all competencies can be measured with
structured interviews. If you remember from Figure
1.1 in the first chapter of this Guide, when we
introduced the different predictive validity measures
of several selection methods, structured interviews
were amongst the ones with the highest predictive
values. However, information gathered using other
tools (i.e., assessment centers) adds to the overall
validity. That is, the validity of different assessment
methods compounds and, as previously discussed,
it is often a question of balancing validity with
budget. Recruiters can leverage on already
existing and field-proven tools that add extra points
of information for competencies that are hard to be
measured in an interview.
2) Whether it is face-to-face, phone, video or via chat,
the number of core competencies that can be
assessed throughout an interview is around four to
six. Nothing is set in stone, and that is only a good
rule of thumb. Note, though, that more than six
competencies usually becomes a challenging task
for the interviewer. Therefore, if there is a
competency or a set of them that can be assessed
through other means, this will free resources to
allow the recruiter to focus only on those that are
better appraised in an interview format.
In the following sections of this chapter we will discuss
how to select the competencies we are going to
assess in the interview; second, we will create
questions accordingly; and finally, we will take a look
at how to set up an evaluation system with the purpose
of removing, to the extent that is possible, subjectivity
and bias.
Not all competencies can be
measured with structured
interviews. Using additional
tools, like assessment centers,
adds information that is
otherwise hard to measure in
an interview.
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Which Competencies?
We mentioned that not all competencies are best
assessed via CBIs. So, which competencies are most
appropriate for such interviews? Figure 6.1.2
introduces a set of competencies we believe are best
assessed via competency-based interviews.
The relevant competencies for a given role are to be
found in: the search brief you as a recruiter should
have been provided with; your notes in the meetings
you had with the hiring manager(s) and other
stakeholders; and in the final job description you put
together to advertise the vacancy. See Figure 6.1.3 in
the next page for an example of specific job
requirements taken from a real assignment.
Figure 6.1.2
COMPETENCIES IN CBI
Key core competencies that can be measured in
competency-based interviews, together with some basic
dimensions each of the competencies can be broken down
Interpersonal
Skills
Verbal communication
Non-Verbal communication
Conflict resolution
Active listening
Teamwork
Organizational
Ability
Planning and budgeting
Time management
Task prioritization
Attention to detail, focus on quality
Problem
Solving
Analytical / logical thinking
Creative / lateral thinking
Judgement
Rational thinking
Ability to consider multiple points of
view / cultural differences
Influential
Leadership
Strategic thinking
Delegation
Flexibility
Negotiation
Motivation / Inspiration
Responsibility
Integrity and ethics
Technical
Skill*
Knowledge
Experience
Source: Direct HR Group from various sources. *Technical skills
vary with every role. Its inclusion here as a competency refers not
to the specific technical skill, but to the ability of applying it with
expertise, knowledge and experience in the role at hand
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We are going to perform the following exercise. Let’s
assume that all has gone according to plan and that,
at this stage, the job description is a truthful
representation of all the requirements needed for a
successful applicant to get the job. That is, it contains
all the relevant information provided by all
stakeholders with interest to close that position. Let’s
then use the job requirements, and proceed to
deconstruct them to see if we can identify some of the
core competencies introduced in Figure 6.1.2
1
Some comments about the deconstruction of the job
description into a set of competencies, as shown in
Figure 6.1.3:
1) Often for what appears to be a single requirement,
more than one competency is involved. For
example, in (E) a successful candidate is required
to be a “Strong communicator with the ability to
influence at all levels”. This entails both strong
interpersonal skills (verbal communication, conflict
Solid technical understanding
and work experience in relevant
fields: technology and digital
solutions. University degree in
business administration, computer
science or engineering.
A
Experience in setting up
international collaborating teams
and proven successful leadership.
Minimum 10 years of management
experience in international
organizations.
B
Profound experience in sales, service
and operations management in the
Chinese consumer electronics industry.
Exposure to Chinese working
environment is a must.
C
Technical
Skills
Influential
Leadership
Knowledge
& Experience
Delegation &
Motivation
Organizational
Ability
Planning and
budgeting,
Task
prioritization
Judgement
Ability
Ability to
consider
multiple
points of
view /
cultural
differences
JOB REQUIREMENTS
Figure 6.1.3
OBTAINING COMPETENCIES FROM THE JOB REQUIREMENTS
Deriving the core competencies and their specific dimensions using job requirement analysis
Source: Direct HR Group. Excerpt from a real-case client assignment, with minor modifications.
Competency
Competency
dimension
resolution) as well as influential leadership
(delegation, motivation).
2) On the other side, the same competency may
come up several times across different
requirements. The competency organizational
ability appears both in requirement (C)
“…experience in sales, service and operations
management”, (D) “Strong business acumen”,
and (E) “Structured working style…”.
As a rule of thumb when doing this exercise, we
advise that you write down all the competencies you
consider every single requirement entails.
Once you are done going through all the
requirements, you will be able to look at all the
competencies and, from a more comprehensive
perspective, see which one(s) appear to be more
common across the set of requirements for that specific
job role.
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When designing the specific questions, you will then
consider which competencies you might want to
double-down on. A warning though: that a certain
competency is derived more often than others from the
job description does not imply it is more important. So,
no competency should be left behind when preparing
the questions using the job description (provided these
competencies can be assessed via an interview, of
course). Later in this chapter we will discuss the
possibility of assigning different weights to
competencies if some are considered to be more
relevant than others.
Strong business acumen
and global mindset, a role
model with clear strategic
impact and direction.
D
Strong communicator with the ability
to influence at all levels. A leadership
communication style that suits the local
setting in China and Asia. Structured
working style, a “can-do” attitude.
E
Chinese or Expatriate with profound
cultural understanding of China. Good
spoken and written English and Chinese
within a business context is a must.
F
Organizational
Ability
Planning and
budgeting.
Time
management
Judgement
Ability
Ability to
consider
multiple points
of view /
cultural
differences
Influential
Leadership
Delegation &
Motivation
Interpersonal
Skills
Verbal
communication.
Conflict
resolution
Problem
Solving
Skills
Organizational
Ability
Time management.
Task prioritization
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Neutrality: the right answers cannot be deduced from
the way questions are formulated.
Follow
up: follow up questions should be ready if
answers do not provide enough clarity with regards to
context, actions and or results.
It is advisable that prior to using the behavioral
interview with actual candidates we share it with other
colleagues to test it. The test will help to fine-tune the
wording and indicate if and what revisions need to be
made.
Creating Interview Questions
Once there’s a clear break down with regards to the
different competencies we want to tackle in an
interview, it is time to write down the specific questions.
Because the interviewer (you) and the interviewee do
not share a common frame of reference , the questions
should provide a
context, a given scenario, to start
with.
1
Given that context, you are looking to assess if
the interviewee is able to describe which
actions
he/she took and what the
results were of those
actions. This combination of context actions results
has been dubbed the
CAR interview method (See
Figure 6.1.4). A slight variation of CAR is known as the
STAR approach, with the acronym standing for
situation, tasks, action and results .
Because the response of the interviewee might be
vague, incomplete or solely based on an opinion you
should also have prepared some clarification
questions with the purpose to obtain a better
understanding of the taken actions and realized results.
These type of questions are often referred as follow-up
or probing questions.
To help you write these behavioral interview questions
you should rely on subject matter experts high-
performing employees, supervisors and managers
that possess the knowledge for the job at the level of
the position that has to be filled.
For a given competency it is advisable to prepare two
or three questions to support collecting examples of
behaviors from previous (recent) work experiences
during the interview that relate to that competency
(See Figure 6.1.5 in the next page).
Here we share some criteria for writing questions:
Simplicity
: always ask one question at a time. Do not
include questions within a question. That is don’t try to
aim at more than one competency at a time (or at
more than one specific dimension of a competency at
a time).
Open questions: answers cannot be “yes”/“no”.
Questions should give room to the interviewee to
elaborate. Open questions usually start with: “Tell us
about”, “Describe a time where”, or “Share”.
Figure 6.1.4
THE CAR APPROACH TO INTERVIEWS
Context. As interviewer your questions should give room for
the candidate to expose the situation or the challenge that
was faced. If the interviewee does not provide a clear
context you will need to ask him/her for a clarification
C
Context
Action
Results
Actions. You want to gather evidence to understand which
actions were taken to address the situation or face the
challenge
A
Results. Understanding the outcome resulting from the
actions taken. Gather facts and figures, statistics or any
quantitative evidence the interviewee is able to provide
R
Source: Bluesteps.com
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Figure 6.1.5
DESIGN CBI QUESTIONS. TURNING COMPETENCIES INTO QUESTIONS
Examples
Influential
Leadership:
Strategic Thinking
Could you tell us
about one of the
most difficult
technical challenges
you have come across
and how did you
address it?
Tell us about a time
when you provided
advice on [specific
field of knowledge].
Could you tell us
about a time when
you had to plan and
implement a program
in [specific field of
knowledge].
Could you tell us of a
project where you
successfully
delegated some of its
components? How did
you determine what
to delegate and to
whom?
What is your approach
to delegating work to
co-workers?
When you delegate
tasks, how do you
follow up to check on
progress?
Give us an example
where you were able
to steer your co-
workers in a common
direction in order to
achieve a certain
goal.
Think about a time
you mentored one of
your co-workers. What
is it that they were
doing initially and in
which sense did they
grow?
In the past, when you
thought a co-worker
was underperforming
how did you tell the
co-worker?
Tell us of an ethical
dilemma you faced at
a previous job and
explain how you
resolved the issue.
Tell us about a time
you considered it was
necessary to make an
exception to the rules
to get something
done.
Give us an example of
a time when you felt
you led by example.
What did you do?
What are the key
factors you take into
consideration when
putting together an
action plan to
achieve a strategic
goal (e.g., sales)?
Give us details about
a situation where you
conducted a SWOT
analysis.
Describe a situation
where you altered an
operational procedure
for strategic reasons.
How do you ensure
that the tasks you
have delegated are
completed on time
and correctly? Give
us a specific
example to
illustrate this.
Describe a time when
you felt overwhelmed
or stressed with a
project. How did you
manage it?
How did you establish
what amount of time
was reasonable for a
project?
Describe a situation in
in which you had to
address a problem
whose cause was not
clear to the
organization.
How did you handle a
member of your team
who was falling behind
the work schedule and
time for delivery of the
project was getting
close?
Give an example of a
time when you had to
take a decision
relatively quick to
tackle an unexpected
issue.
Think of a time when a
co-worker raised an
objection to a decision
previously made by the
team. How did you
address it? If you did
not, what was the train
of thought that led you
to decide not to do so?
Could you tell us about
a time you had to work
with a client or
customer that was very
confrontational?
Tell us about a time you
had to handle a conflict
among your co-workers.
What was your method
to solve that conflict?
Tell me about a time
when you had to use
your spoken
communication skills
in order to get a
point across that was
important to you.
Describe a situation
where you needed to
persuade someone or
convince them to
change something.
Describe a decision
you made based on
information you
collected by asking
questions.
Give us an example of
a time when you had to
analyse another person
carefully or a situation
in order to be effective
in guiding your action
or decision.
Describe a specific
situation in which you
worked with a diverse
group of people over a
period of time. What
did you learn from this
experience?
Tell us about a time
that you adapted your
style to work effectively
with others who had
different cultural
backgrounds.
Technical
Skills:
Knowledge &
Experience
Influential
Leadership:
Delegation
Influential
Leadership:
Motivation
Influential
Leadership: Integrity
and Ethics
Judgement: Ability
to consider multiple
points of view /
cultural differences
Organizational
Ability: Planning and
Budgeting, Task
Prioritization
Problem
Solving Skills
Interpersonal
Skills: Conflict
Resolution
Interpersonal Skills:
Verbal
Communication
Source: Direct HR Group
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From the competencies laid out in Figure 6.1.5 let’s
take, for example, problem solving. We will take two
of the proposed questions to assess it, and then we
will prepare follow-up, probing questions (PBQs) to
clarify context, actions and results (See Figure 6.1.6).
Figure 6.1.6
DESIGN PROBING QUESTIONS
Describe a situation in which you had to address a
problem where its cause was not clear to the
organization.
Q1
How did you handle a member of your team who was
falling behind the work schedule and the time for
project delivery was getting close?
Q2
When was that?
What was the reason for the co-worker’s delay?
How did you notice it was that specific team member?
C
What actions did you take?
Who did you talk with?
What happened with the project?
How were your actions perceived by the team member?
How were your actions perceived by the rest of the
team?
In hindsight, would you act differently today in that
given situation?
A
R
What was the problem exactly?
What consequences was the problem having?
When was that?
C
What did you do to understand the causes?
How did you do it?
What was your role?
What happened?
What did you find out?
What was the outcome?
A
R
Source: Direct HR Group
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Creating a Scoring Key
As previously mentioned, CBI requires that interviewers
have a set of scoring keys, or rating scale, to be able
to evaluate every candidate’s competency as
objective as possible.
It is crucial that
all interviewers share the same scale.
The first step here is to establish one proficiency level
scale for all competencies (i.e., a range from 0 to 4, or
a range from 0 to 6; where 0 indicates no proficiency
at all and 4 or 6 the highest). Following that first step,
tag and define each of the proficiency levels.
For instance, here we present a
5-scale evaluation:
excellent, good, average, poor, and no evidence.
Excellent
(Score 4): the interviewee presented a
relevant situation (pertinent to the question) that
showed a strong demonstration of the competency
through clear evidence of relevant behaviors.
Good
(Score 3): the interviewee provided solid
evidence, via a wide range of relevant behaviors,
demonstrating he/she possesses the competency.
Average
(Score 2): the interviewee provided pertinent
evidence of having demonstrated the competency, via
several relevant behaviors.
Poor
(Score 1): the interviewee provided little positive
evidence of having demonstrated the competency,
with limited relevant behaviors.
No
evidence (Score 0): the interviewee was not
capable of providing any evidence of having
demonstrated the competency.
Other potential scales could look like:
A. Far exceeds requirements (Score 4), Exceeds
requirements (3), Meets requirements (2), Less than
requirements (1), Misses requirements (0).
B. Expert (Score 5), Advanced (4), Intermediate (3),
Basic (2), Awareness (1), Not Aware (0).
Rather than the specific range and labels that we want
to assign to the scales, which is more or less a question
of personal preferences, what is more relevant is that
all competencies are measured using the same scale
Figure 6.1.7
RATING SCALES
Example
0
1
2
3
4
No evidence. The interviewee was not capable of
providing any evidence of having demonstrated the
competency
Poor. The interviewee provided little positive evidence
of having demonstrated the competency, with limited
relevant behaviors
Average. The interviewee provided pertinent evidence
of having demonstrated the competency, via several
relevant behaviors
0
1
2
3
4
Good. The interviewee provided solid positive evidence
of having demonstrated the competency, via a wide
range of relevant behaviors
Excellent. The interviewee presented a relevant
situation (pertinent to the question) that showed a
strong demonstration of the competency through clear
evidence of relevant behaviors
Source: Adapted from
Competency-based Interviewing. Assessing
Candidates Based on Their Past Performance.
UNESCO (2016)
What is relevant is that all
competencies are measured
using the same scale and that
all interviewers apply the same
criteria, rather than the actual
values of the scale itself.
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and that all interviewers apply the same criteria.
Additionally, before the interview, we might want to
determine which sort of answers, for each question,
would score positive points and which would count as
negative scores.
Let’s take the competency ‘proving solving skills’ and
its formulation “Describe a situation in which you had
to address a problem whose cause was not clear to
the organization.
The positive and negative points could be:
Positive: recognizes his/her limitations, uses effective
strategies, demonstrates a constructive approach
towards the issue, takes ownership.
Negative: tries unsuccessfully to fix the situation by
himself/herself, uses inappropriate strategies, does not
reframe the problem as a challenge, does not take
ownership.
The positive/negative points might help us better
assess interviewees. Imagine for instance the case
where two candidates are given the same score for a
specific question: the observation of positive/negative
points can help to decide which candidate fared best.
Since we now have the specific questions for each
competency, the follow-up questions, the scoring key,
and the positive and negative points we are in the
position to put together a question-assessment template
(See Figure 6.1.8).
Finally, if we consider that one competency, or a set of
competencies, is more relevant than others, then
competencies might also be assigned a specific
weight. For example, given the particular role we are
selecting for, we might conclude that judgment is more
relevant than the others because the position requires
a great deal of experience in a cross-cultural
environment. We could, therefore, determine that this
competency is 50 percent more relevant than the
others in the interview.
Figure 6.1.9 in the next page represents an example
of an Interview Assessment, with a summary of all the
scores from an interviewee, the different weights to
each competency (optional), and the overall score for
the interview.
Figure 6.1.8
QUESTION ASSESSMENT TEMPLATE
Positive points Negative points
Q1. Describe a situation in which you had to address a
problem where its cause was not clear to the organization
Context Follow-up
a) What was the problem exactly?
b) What consequences was the problem having?
c) When was that?
Action Follow-up
a) What did you do to understand the causes?
b) How did you do it?
c) What was your role?
Results Follow-up
a) What happened?
b) What did you find out?
c) What was the outcome?
Recognizes limitations
Uses effective strategies
Shows a constructive approach
to the issue
Takes ownership
Tries to fix the situation alone
unsuccessfully
Uses ineffective strategies
Does not reframe the problem as
a challenge
Does not take ownership
Interviewer’s Notes from Question 1:
Final Score Question
0 1
2 3
4
No Evidence
Poor
Average
Good
Excellent
Source: Adapted from
Competency-based Interviewing. Assessing
Candidates Based on Their Past Performance.
UNESCO (2016)
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Figure 6.1.9
INTERVIEW ASSESSMENT TEMPLATE
Position
Candidate
Date
Interviewer
Question COMPETENCY Weight* Weighted ScoreScore
#1
Problem Solving Skills
1
#2
Influential Leadership: Delegation
1
#3
Influential Leadership: Motivation
1
#4
Organizational Ability: Planning and budgeting,
Task prioritization
1
#...
……
#n
Judgement: Ability to consider multiple points of
view/cultural differences
1.5
Overall Score
Comments
Write here the level of engagement of the candidate, the quality of his/her communication or any other relevant
comment related to the position.
Source: Direct HR Group, adapted from marsdd.com. *For this position we have considered the competency Judgement more important than
the others. In particular, about 50 percent more important. The score of the interviewee for that competence will be multiplied by 1.5. The
overall score will result from the addition of all the weighted scores
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6.2. CREATE AN INTERVIEWER’S GUIDE
Once the questions and rating scales have been
defined, we can proceed to put it all together in an
interviewer’s guide.
The purpose of such a guide is twofold: in the first
place, to sum everything up in the document to train
interviewers; second, a go-to resource they can come
back to anytime during the selection process.
The interviewer’s guide content is usually structured in
two distinct blocks: a dynamic one, unique to the
specific role the interview process is aiming to recruit
for; and a more static block with general advice on
conducting an interview, regardless of the position.
Let’s start with the contents of the dynamic block. As
you might have guessed, this section should contain
the elements we have been developing so far:
1. A definition of each of the competencies relevant
for the specific role.
2. The required competency levels of each
competency.
3. The interview questions that we have already
designed: the main questions, and the follow-up
questions.
4. The scoring key.
The second block, the one we are going to develop in
further detail in this section, will provide general
instructions about the interview process: how to
prepare for the interview, recommendations about
taking notes during the interview, rating mistakes and
common biases, and other pitfalls to avoid.
Prepare for the Interview
Prior to the interview itself, you should:
a) Ensure the candidate meets the minimum
requirements for the position. That means a
thorough read of the resumé, application form,
cover letter or other relevant materials. Is all the
relevant information provided by the candidate in
these materials? Are there any gaps in the dates
provided for past job experiences/academic
years? If so, make sure you address them in the
interview. Do previous work experiences appear
to be relevant? Have management positions been
held (if required for the current role)?
The interviewer’s guide usually
contains two blocks: one that
refers to the specific role, and
another block with general
advice on conducting the
interview.
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b) Check the interview questions and materials
necessary for the interview. You already have a
clear understanding of the questions you will ask,
based on the required competencies; you also
have a list of follow-up or probing questions, as
well as a list of positive/negative points to check
for during the interview. Finally, you have the
information or gathered the materials that will be
presented to the candidate during the interview:
information about the project or department
he/she is being considered for, organizational
charts, information about the company, conditions
of employment and benefits, etc. It is highly
advisable that all those materials are available in
both Chinese and English.
Recommendations on Taking Notes
Taking detailed and regular notes of observable
behaviors and verbal responses during the interview is
crucial. Documenting your learnings about the
candidate during the interview will support you later to
make your evaluation as objective as possible. See
Figure 6.2.1 with a few tips on how to go about taking
notes.
Taking notes during the interview will reduce the
cognitive effort and memory loss that would entail
retrieving those observations once the interview is
concluded, when you are most likely to miss/not recall
important information or remember it in a distorted
way. Attribution or stereotyping biases may influence
the subsequent retrieval of information (more about
biases later in this chapter).
Taking notes is also helpful to avoid primacy and
recency effects: the tendency to better remember
information provided at the beginning and the ending
of the interview, at the expense of potentially valuable
information supplied during the lengthier middle. In
addition, notes will help produce and justify a
candidate’s rating and, overall, reduce variance
(disagreement) across evaluations of several
candidates.
Notes should be taken in the vicinity of the interview
question(s) where verbal cues or behaviors took place.
That is, using a standardized form as seen in Figure
6.1.8 in the previous section.
Focus solely on what is verbally said or observed
behaviors (non-verbal cues). The challenge here is to
Figure 6.2.1
THE ART OF TAKING NOTES IN AN INTERVIEW
Source: Direct HR Group from various sources
Balance active listening with note-taking
Although taking notes is important, you want to be listening.
Keeping eye contact and engaging in the conversation will
keep the candidate engaged and help you elicit relevant
information
To the point
Limit your notes to relevant keywords and short phrases. In
order to speed up your note-taking and keep it short,
develop a mix of abbreviations and acronyms and do not
use prepositions or articles
Divide note-taking in two sections
First section elaborating on the candidate's responses, to
give further insights on the context, action and results. The
second section should be devoted to the observation of
behaviors (non-verbal cues)
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avoid taking notes based on subjective impressions or
opinions.
Do not write down impressions that are not backed-up
by job-related facts or use subjective language. You
can take a moment after the interview to elaborate on
your notes and to make sure they are as fact-based as
possible. An example of a subjective note is “the
candidate is very unstructured in his/her answers”.
One way to put it objectively could be to pair the
observed behavior with required competencies: “The
role requires organization and prioritizing skills. The
candidate did not display the ability to present
arguments in a structured and concise manner”.
Common Biases and Rating Mistakes
As previously mentioned, the main purpose of structure-
based interviews is to ensure standard, consistent
evaluations across candidates.
In the interview process, interviewers incur in biases
consciously or unconsciously that result in unequal
opportunities for candidates.
Biases undermine the consistency and fairness
intended with structured interviews. Orchestras in the
U.S. were mostly composed of men in the 70s, with
the top five orchestras having fewer than 5% of female
musicians.
2
To address such a gender imbalance,
orchestra conductors started holding blinded auditions
where musicians would play hidden behind a curtain.
Consequently, gender, race, personal connections, or
reputation stopped accounting for anything in auditions
and the only thing that mattered was the music that
came from behind the curtain. The proportion of
women playing in the larger orchestras has grown by
a factor of five since blinded auditions became the
norm a great leap, though they still make up for only
one-quarter of the musicians.
Some rating errors include, for instance, giving all
candidates only high ratings or only low ratings.
In Figure 6.2.2 in the next page, there is a brief
overview of the most common rating errors and biases
to be taken into consideration.
Explicit as well as implicit biases
– the ones we don’t realize we
have will result in misleading
hiring decisions if not
accounted for.
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Figure 6.2.2
MOST COMMON BIASES AND RATING MISTAKES DURING AN INTERVIEW
Source: Direct HR Group, adapted from various sources
How to Minimize Biases?
Whether it is an attribution (“Similar to me”) or halo
effect bias, the best course of action is to avoid
jumping to conclusions too fast. When evaluating,
interviewers should concentrate on the responses given
by the candidate rather than on the outward
characteristics or personality of the candidate; hold
back from considering any non-performance related
factors. A re-examination of the scores of the
candidate based on the hand notes interviewers wrote
during the interview might also help to reduce biases.
Another way to tackle biases is to conduct interviews
using a panel of interviewers, rather than being led by
just one interviewer. This is a way to even out
individual judgments. Yes, there might be individual
errors, but since all panelists share a common basis
when all judgments are averaged, the average usually
is accurate. However, a panel might not work if all
panelists share the same bias and/or if panelists
evaluations influence one another that is, if
assessments from different panelists are correlated.
How to Minimize Rating Errors?
By understanding the competencies assessed and
comparing the behaviors observed in the interview
with the behaviors used to establish the proficiency-
level ratings for each competency.
When there are doubts on whether to award a high or
a low score, interviewers need to understand a high
score does not indicate a perfect performance and a
low score does not indicate a complete lack of
performance. It means, in the high score cases, that the
interviewee demonstrated more of the competency
than is generally common, and in low score cases, it
means the interviewee did not show much of the
competency in his/her responses.
Attribution
Categorizing people helps individuals navigating our social world more efficiently.
To prevent from brain overload, we make sense of a large number of stimuli by
sorting those stimuli into buckets, into categories. This categorizing frees up
mental resources for other tasks. For example, our stereotype for the elderly is
what causes us to speak loudly in their company, even if a particular individual
does not suffer from deafness.
In the context of an interview the risks for an interviewer is to end-up paying
more attention to actions that are more consistent with the stereotype, than to
actions that contradict it, resulting in less accurate evaluations (which increases
the risk of getting false positives).
Similar to me” / Confirmation bias
We have a natural tendency to like others who are similar to us in various
ways, whether it is because they studied at the same institutions we did,
support the same basketball team, or have similar interests.
In the context of an interview the risk is to bestow higher ratings than they
actually deserve to candidates who appear to be similar to the interviewer.
Strictness
A tendency to give low ratings to all candidates.
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Do's and Don'ts: Tips for Conducting the
Interview
Do’s
Leave enough time for the interview, so you don’t
have to rush it to an abrupt end. Take into
consideration questions from the candidate when
scheduling the meeting. Usually, 60 to 75 minutes
is a good rule of thumb.
You are representing your organization. Therefore,
you want to be on time and dress according to the
explicit or implicit codes that are part of your
organization’s culture. It is also a way to convey
an accurate image of your organization, so the job
applicant gets a better understanding of the
company.
Be attentive and supportive. This will help you
create a more considerate atmosphere, allowing
the candidate to talk more openly.
Introduce yourself briefly, in less than one minute:
what do you do in the company, how long have
you been there, and your background if you
consider that is relevant.
3
Provide a brief overview of what your organization
does, why it does it, and some of the most recent
milestones. Then introduce the role, the
responsibilities it entails, and what a typical
working day looks like.
Present the opportunities for growth, development
and career possibilities for the role.
4
Although it
looks obvious, often this is not appropriately
addressed. Bear in mind that the candidate will
ultimately have to decide whether the position
represents a good career move.
Focus on the person.
5
You already have the
resume. Your goal here is to find out whether the
candidate has the necessary proficiency-level for
the relevant competencies.
Halo effect
The tendency to like or dislike everything about a person, based only on very
limited information. Taking just a very limited piece of information we build
unfounded associations, including things that we have not observed. Because
someone shows he/she is such a great speaker, we may incorrectly assume such
an individual might be also be a very creative person or an excellent problem
solver.
In the context of an interview, the halo effect increases the weight of first
impressions, causing the interviewer to build associations that are not founded on
observations. It might induce higher ratings for Problem Solving just because the
candidate has a high score in verbal communication (Interpersonal Skills),
irrespective of the candidate’s performance on Problem Solving. It also increases
the likelihood to dismiss information that might contradict the first impression.
Leniency
The reverse of strictness: a tendency to give high ratings to all
candidates.
Central Tendency
As opposed to leniency and strictness - which are about extreme ratings -
interviewers might present a tendency to rate all competencies at the middle of
the scoring scale.
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Keep an open-mind: listen actively and engage in
the conversation making proper use of follow-up
questions when necessary. Find out what is
important to the candidate, to see if that is a good
match for the role and the company.
Related with the above, keep eye-contact with the
candidate. Be mindful of your body language:
lean in when he/she speaks, sit up straight, smile.
Keep it professional. You can be friendly but within
reason.
Be open and transparent if the candidate enquires
about the challenges the organization faces or
those of the specific role. You do not want the
candidate to leave with a sweetened version of
what the current reality is.
Inform the candidate about the next steps. Confirm
when he/she will be hearing back from you as
well as other time frames: how long the whole
process might take, whether there is a holiday
coming soon that might have an impact on the
hiring schedule or any foreseeable eventuality that
could cause delays on feedback to avoid
unnecessary anxiety on the candidate’s side. Offer
the candidate to reach out to you if there are
further questions.
Don'ts
Perhaps the biggest pitfall for the interviewer when
conducting the interview is to believe that the
heavy lifting is only on the candidate’s side. Do not
be complacent. When introducing the
does
we
provided a set of recommendations that, if
followed, will help you to stay sharp. Remember
this is a two-way communication and you must be
engaged.
The interview is about the candidate. Avoid talking
too much about you, or your organization.
Although it is necessary to strike the right tone as a
desirable employer, this is not a sales pitch. If the
candidate asks you a very specific question keep it
to the point and get back to the conversation. If
you realize, once the interview is over, that you
have talked more than the interviewee then you
did not do it right.
Avoid sounding like a robot when introducing
Be open and transparent. You
do not want the candidate to
leave with a sweetened version
of what the current reality is.
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yourself, the role or your organization. You will
strike the candidate as someone that is not
interested in him/her. This will most likely
discourage the candidate and jeopardize the
interview.
Do not show, verbally or non-verbally, whether you
agree or disagree with the candidate’s answers.
Avoid other non-verbal clues that show you are not
interested: fidgeting, checking your phone, not
keeping eye-contact, not smiling. As with your
phone, it is even better that you don’t even have it
visible: research shows that the mere presence of a
smartphone lowers the quality of in-person
conversations.
6
Do not inquire about marital status, spouse’s
occupation, actual or planned children. In China,
candidates are less reluctant to facilitate details on
marital status or their spouse’s job, but they would
not appreciate further enquiring about their children
or parents’ situation.
Avoid discussions on topics such as social,
religious, political, or moral values.
Avoid using questions that require a yes or no for
an answer.
Avoid using brain-teasers (i.e., how many golf balls
could fit in an airplane?). They lack validity: the
ability to solve brain teasers does not correlate
with job performance.
7
Google popularized these
type of questions in recruitment interviews, but they
were later on discontinued.
8
Keep the jokes for another occasion. You sure are
funny, but this is not the time.
Avoid identifying with the candidate. Again, keep it
always professional.
Refrain from being condescending or patronizing.
Refrain from the urge to steer the candidate
towards an answer by following up your question
with examples. This is a natural tendency.
However, let silence do the work: ask your
question and stop. Silence gives room for the
candidate to think.
The biggest pitfall for the
interviewer is to be too relaxed
when it is time to start the
interview. Do not be
complacent. Remember this is a
two-way communication and
you must be engaged.
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6.3 CONDUCTING THE INTERVIEW
Stage 1. Opening. Welcome
Present yourself by name and function. Put the
candidate at ease (see Do's and Don'ts in the
previous section of this chapter). Make sure the
candidate is comfortable. Offer the candidate coffee,
tea or water.
The goal here is to eliminate barriers that prevent the
candidate from presenting himself/herself as truthful as
possible. This warming up process should take
somewhere around five to eight minutes, since in China
the welcoming is perceived as of higher importance
due to Chinese culture specific behavior.
Brief the candidate. Explain how the interview is going
to look like, how long it might take. Tell the candidate
to focus on critical facts when answering. Let the
candidate also know that you will be taking notes.
9
Stage 2. Introductory questions: Review
Resume & Assess Motivation
Go through any gaps in the CV that you had
previously spotted when preparing for the interview.
Learn about the candidate’s motivation for the role.
“What are you looking for in this job?” It is an
excellent opportunity to understand if the candidate is
looking for growth, or if he/she is an achiever and
feels his/her current job is not serving that goal
anymore. It allows you to understand if the candidate
is running away from a job that is bad or if he/she is
looking for something better.
Whatever the intrinsic motivation of the candidate, this
is a question better addressed at the beginning of the
interview. If asked at the end, you would most likely
obtain an answer conditioned by the information
elicited by the candidate during the interview. That is,
an answer modulated to fit into the job requirements
rather than the underlying factors that fuel motivation in
the job applicant.
Stage 3. Main Body of the Interview
Focus on what is relevant, by not losing sight of the
competencies that are relevant for the position and
follow the questions you had designed, always giving
Figure 6.3.1
STAGES OF AN EMPLOYMENT INTERVIEW
Source: Direct HR Group
Introduction
Main body
Gather data to assess
competencies &
proficiency level. Use the
CAR approach
Welcome. Put the
candidate at ease
Opening
Assess motivation.
Fill in the gaps on
the resume
Closing
Questions from the
candidate. Modulate
expectations
Follow up
Keep in touch. Candidate
as a referral source
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priority to open-ended questions.
You may pose questions on salary level, but
interviewees have the right to not disclose such
information. We do not recommend asking questions
that are irrelevant to the requirements of the job at
hand.
Since February 2019, the ‘Circular about Further
Regulating Recruitment and Promoting Women’s
Employment’ - a joint notice issued by nine government
bodies, including the Ministry of Human Resources
and Social Security (MOHRSS) and the Ministry of
Education - banned from asking women about their
marital and childbearing status or to take a pregnancy
test in their medical examination, as part of a series of
measures to address gender-based discriminatory
practices when hiring female candidates. If the
relevant government authorities receive a complaint
from an individual, the government authority will
investigate and provide a warning and/or give a
penalty and/or expose the violation in the media.
If Required, Guide the Candidate
Do not accept answers that are not relevant,
superficial or too short. Get facts and specific details
about the candidate’s accomplishments.
When necessary, you will have to guide the candidate
to stay on course but be mindful of doing it in a neutral
way. Avoid using follow-up questions that already
suggest a response, whether positive or negative.
Whenever the candidate is elaborating on a situation
that appears to be insignificant, going into examples
that are too far away in time, failing to conclude on
what was the outcome, or it is unclear what role the
candidate played, you will have to intervene:
Request another example, something that is more
spot-on with regards to the initial question (do so
politely).
Request an example from the candidate’s most
recent job.
Ask directly about the result.
Ask what the candidate did in that situation: “What
was exactly your role?”
Do not accept answers that are
not relevant, superficial or
straight to the point. Get facts
and specific details about the
candidate’s accomplishments.
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Major Accomplishments/Challenges and CAR
Sequencing
The interview should contain a balance between
questions that look for evidence about the candidate’s
past achievements (i.e., inspirational leadership) and
questions that look for evidence on how the candidate
fared when confronted with challenges (i.e., integrity
and ethics).
Additionally, the questions should be staged in such a
way that allows the candidate to give evidence of
context, action, and results (CAR).
Finally, remember to use in case you had elaborated
them previously when working on the scoring key (See
6.1 in this chapter), the positive/negative points (i.e.,
positive: uses effective strategies; negative: tries
unsuccessfully to fix the situation by himself/herself).
Stage 4. Closing
Besides the fact that you should have been keeping
track of time, you can close the interview effectively
once you have gathered the information you had
previously established as necessary. Did you tell the
candidate about the role and its growth opportunities?
Are the gaps in the candidate’s CV accounted for?
Have you been through all the questions with regards
to the competencies? It is ok to backtrack a bit if you
realize that you missed something.
10
If you have it all covered it is now the time to allow the
candidate to ask questions. These questions are a
helpful complement to the information you gathered at
the beginning regarding the candidate’s motivation.
The type of questions the candidate asks will indicate
interest. If the questions revolve around the number of
days of paid leave, compensation or overtime, then it
sends a different signal than if they are about the
company’s mission, the team background or the
projected growth of the business.
Many Chinese candidates are observed to have high
expectations, as many see their peers quickly move up
the corporate ladder and expect that the same should
happen to them. Despite current signs of an economic
slowdown in China, Chinese employees salary
growth expectations rank among the highest in the
world. The biggest concerns of candidates are salary,
benefits and career development. Now is a good
Figure 6.3.2
CLOSING THE INTERVIEW
Gaps
Have the gaps in the
CV been covered?
Competencies
Have you been through all
the questions with regards
the competencies?
Opportunity
Did you inform the
candidate about the role
and its growth opportunities
Candidate Questions
Be mindful of the time to
allow the candidate to
pose questions
Source: Direct HR Group
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opportunity to manage candidate expectations.
It is advisable that you inquire about the availability of
the candidate. When can the candidate start? Or ask
if the candidate sees this role as the next step in
his/her career. Both questions invite for answers that
will show to what extent the candidate is interested.
Another (potential) benefit from taking questions from
the candidates is that it might uncover concerns or
highlight positives with regards to the job that were not
considered when designing the job communication
materials, thus giving very valuable insights on how to
remodel those.
Finally, inform the candidate what happens next: when
will the candidate hear back from you, and if there are
going to be other interviews. Give the candidate your
business card, to reach out to you if needed. Finish the
interview on a positive note but be mindful not to raise
any expectations.
Stage 5. Follow Up
Both the candidate and you have invested a sizable
amount of time in the process. Whether the candidate
receives an offer for the job or not - and especially if
the candidate does not - you want to leave a good
impression of yourself and your company.
First, think about the long-term impact on your
employer branding if you handle rejections properly: a
rejected candidate sure will appreciate a proper
follow-up, and you will be lowering the risk of the
candidate criticizing you or your organization
something relatively easy to do with the vast array of
media platforms currently available. If your company
does not have a well-established employer brand, not
following up stacks up against the path to building
one. And even if your organization is a well-
established player, not handling carefully the
candidate’s experience in a systematic way might
tarnish the company's reputation.
11
Second, no matter if you are an in-house or an
external recruiter, the candidate is a potential referral
source, and he/she might be the right profile for a
future opening. It is recommended to give all rejected
candidates a phone call to clarify why he/she did not
get the job: be as truthful and honest as possible. In
this respect, beware of comments that could be
discriminatory (i.e., “we have decided to only consider
When can the candidate start?
Does the candidate see the
role as the next career step?
Answers to such questions will
show to what extent the
candidate is interested.
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male candidates for this job role”). You might want to
check with HR and Legal, so you don’t leave yourself
exposed. Avoid mentioning the experience and
qualifications of other applicants.
It is also recommended to send an email to every
candidate, informing the candidate formally of the
rejection. Keep the email short - don’t elaborate too
much - and stick to the same provisions we mentioned
for the phone call. Most applicant tracking systems
(ATS) have rejection templates, so this will not take too
much time to set up, but make sure you adapt them for
each candidate, so the email feels personal (here you
can make good use of your interview notes).
Finally, to nurture the relationship for future job
openings or other opportunities keep in regular contact
with the candidate (once every six months should
suffice).
9. “Competency-based Interviewing. Assessing Candidates Based on
Their Past Performance” UNESCO (2016). Page 29.
https://unesdoc.unesco.org/ark:/48223/pf0000246608
10. Dumitrascu, Sorin (2017).
Essentials of Interviewing and Hiring: A
Practical Guide
. Kindle version. Page 124.
11. Tegze, Jan (2017).
Full Stack Recruiter. The Modern Recruiter’s
Guide
. Kindle version. Page 410.
MIRIAM WICKERTSHEIM
General
Manager
+86 (21) 6010 5081
TINA
HUANG
Regional
Account
Manager
+86 (574) 8836 5191
FOR MORE INFORMATION
Direct HR Group
1. Campion. M.A., Palmer, D.K., & Champion, J.E. (1997),
A review of
structure in the selection interview
. Personnel Psychology, 50, Pp. 665-
702.
2. “How blind auditions help orchestras to eliminate gender bias” The
Guardian. October 14, 2013. Full article:
https://www.theguardian.com/women-in-
leadership/2013/oct/14/blind-auditions-orchestras-gender-bias
3. Olson, Katie M. (2014) “30 Interviewer Do’s and Don’ts for Finding the
Right Candidate”. LinkedIn Pulse. November 12, 2014. Full article:
https://www.linkedin.com/pulse/20141112185430-50134963-30-
interviewer-do-s-and-don-ts-for-finding-the-right-candidate/
4. Adler, Lou (2013)
The Essential Guide for Hiring & Getting Hired.
Kindle version. Page 208.
5. Ibid. 3.
6. Misra, Shalini. Cheng, Lulu. Genevie, Jamie. Yuan, Miao(2016). “The
iPhone Effect. The Quality of In-Person Social Interactions in the
Presence of Mobile Devices.” Environment and Behavior Journal.
February, 2016. Volume 48. Issue 2. Pp 275-298.
7. Highhouse, S. , Nye, C. D. and Zhang, D. C. (2018).
Dark Motives
and Elective Use of Brainteaser Interview Questions.
Applied
Psychology. September 7, 2018.
https://doi.org/10.1111/apps.12163
8. “In Head-Hunting, Big Data May Not Be Such a Big Deal” The New
York Times. June 19, 2013. Full article:
https://www.nytimes.com/2013/06/20/business/in-head-hunting-
big-data-may-not-be-such-a-big-deal.html
Background
Checks
in China
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7.1 INTRODUCTION
As competition for jobs in China gets tougher along
the lines of slower growth in the economy, there is an
incentive for job applicants to beautify or magnify
some of their past credentials and professional
achievements in their resumes. It is therefore
recommended to put an emphasis on confirming a
candidate’s credentials and other relevant information.
You can do that with background checks. In this last
chapter we review the elements you should be
checking for, while remaining compliant with China’s
regulations around personal data.
7.2 IN THE LIGHT OF WHAT WE KNOW
It is advisable to perform background screenings
before making an actual employment offer. An
employer should do its best to verify candidates’ basic
information: level of education, past work experience,
and criminal record.
You should request the certificates and diplomas to
verify the qualifications stated by the candidate in
his/her resume. Since there is not a central public
database system to check for the authenticity of those
documents the employer, or a third party acting on its
behalf, should connect with the specific academic
institutions. And even checking directly with those
institutions might not be enough. Andrew Houlbrook,
former intelligence analyst at London Metropolitan
police and now business intelligence and
investigations at PSU and based in Beijing, told us via
a phone interview about “diploma mills”
1
: educational
institutions that do not provide any education
whatsoever, but issue diplomas and certificates in
exchange for a fee.
Checks on previous professional endeavors are
relatively straightforward. With the candidates
provided references and consent, you can contact
previous employers. In addition to that it is useful to
look a little further: “past terms of employment and
employers is fine but look also at what is not in the CV,
like undeclared company involvements, Mr.
Houlbrook advices. And adds: “candidates may have
business ties with companies that weren’t declared in
their CV. Sometimes these other business involvements
can be easily explained, since there is no conflict of
Figure 7.1
BACKGROUND CHECKS IN CHINA
What to look for
Criminal
records
Level of
education
Preliminary
employment
experiences
Source: Direct HR Group
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interest with the employer’s business operations. Other
times, clients are interested in knowing about why the
candidate left: they see an early exit and want to
know why is that”.
2
And finally, it remains checking for any criminal record.
Certain jobs in China require to have a clean criminal
record. These jobs are called
CNNC jobs
, with the
acronym standing for Certificate of No Criminal
Conviction. To check for a Chinese national criminal
record, an employer can ask the candidate to present
a CNNC though the law is not clear on whether a
CNNC can be provided if the candidate is not
applying for a CNNC job (the applicants must
present, among other application documents, an
introduction letter from the employer). The CNNC is
produced by local security bureaus, at the request of
the candidate. Because there is no standard format for
the CNNC it is relatively simple to forge them. An
employer cannot request directly the CNNC by itself.
In theory, it is possible for the employer to walk in
together with the candidate into a local security
bureau or police station to request for the CNNC.
However, there are many instances in which this might
not work either: what if the staff is not familiar with the
certificate, or refuses to release it, what if the file is not
properly stored and cannot be retrieved. As Mr.
Houlbrook points out: “there is not enough consistency
or clarity around these procedures.
3
There are agencies that provide CNNC’s on request.
They claim to have access to criminal record
databases of the Ministry of Public Security. However,
how exactly they obtain this data is often not
transparent. Mr. Houlbrook recommends “when
outsourcing background checks in any capacity you
must really understand your third parties and who you
are working with. Understand their business model.
Criminal law will come into effect if you are sourcing
information using incorrect channels”.
4
The only way to get an effective glimpse on any kind
of risk or record of any involvement in legal matters
from a candidate is via desktop-based online research.
That is also the best way to remain compliant with
local regulations. “Finding information on criminal
records is hard, but not impossible. It takes skills, some
time and some patience. Knowing which sites to
search, understanding the peculiarities of these sites,
and how to research for keywords is something you
learn. For example, we source information directly from
When outsourcing
background checks in any
capacity you must really
understand your third parties
and who you are working with.
Understand their business
model.”
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criminal offence. It also applies for individuals
acquiring such information (by stealing or by any other
means). If those individuals act on behalf of a
company or any other type of organization, the entity
is subject to a fine and the individuals responsible or
directly involved could face imprisonment of up to
three years, criminal detention and fines.
9
The Cybersecurity Law of the PRC (CSL), effective from
June 1, 2017, is perhaps the most relevant piece of
regulation for the purposes of this chapter. The CSL
provides a series of data protection provisions in the
form of a national level legislation. It is considered a
milestone towards the implementation of a national
protection law. It defines personal data as information
that identifies a natural person either by itself or in
combination with other information. That includes a
person’s name, address, telephone number, date of
birth, identity (ID) card number, medical records,
genetic and biometric information, bank account
information and transaction records, e-commerce sites
account information and transaction records, and
personal consumption habits.
10
A detailed national (non-binding) standard known as
the Personal Information Security Specification (PISS)
came into effect on May 1, 2018. The PISS separates
between general personal data and sensitive personal
data. The latter may include, among others, personal
ID card numbers, health and biometric data, bank
account numbers, personal communications, and credit
records. To collect sensitive personal data from an
individual requires his/her express consent (in writing
or via other affirmative action) only after the individual
has been informed of the purpose and intent of
collecting such data; for general or non-sensitive
personal data, tacit consent is enough (i.e., the
individual did not oppose to it).
11
China’s Cybersecurity Law is
considered a milestone in data
privacy regulations at the
national level.
MAY 2020
Human Resources in China
The Technical Guide
99
7.4 A FINAL WORD ON BACKGROUND
CHECKS IN CHINA
Based on all we have exposed, background checks in
China can give the impression of requiring too much
time. They may even come across as intimidating,
given the legal precautions one must bear in mind.
These two factors combined might deter you from
performing background checks.
It is a commonplace conclusion, but one needs to
balance the costs against the potential risks of not
conducting background checks. It is worthwhile to
perform these screenings, even for some of the most
basic things stated on a CV. As mentioned in the
introduction, in the current economy and labor market
conditions in China, the incentives to misrepresent facts
and credentials are high.
Remember that the screening of academic credentials
and past employment are relatively straightforward
and can be produced without necessarily having to
involve a third party.
Screening for evidence of criminal conduct is more
complex, though you might not need to execute it for
all hires but only for positions deemed as critical within
your organization. Criminal background screening can
also be performed in house. As Mr. Houlbrook points
out “it is not something you do in a couple of hours, but
with some training and a clear workflow specially
with regards to online checks - it is feasible to have in
two or three days a quite good background screening
and risk indicator from openly available information”.
12
1. Andrew Houlbrook, phone interview with Direct HR Group for
ChinaHRnews.com. November 15, 2018. See also:
http://www.chinahrnews.com/article/just-like-that-no-background-
check/
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Dong, Marissa (Xiao). (2018)
The Privacy, Data Protection and
Cibersecurity Law Review (5th Edition).
The Law Reviews. Editor: Alan
Charles Raul. October 2018. Page 126. Access full book here:
https://thelawreviews.co.uk//digital_assets/b5f160ac-fb67-48da-
be84-a085ee98b2f2/The-Privacy-Data-Protection-and-Cybersecurity-
Edition-5.pdf
8. Ibid. Page 128
9. Ibid. Page 127
10.Ibid. Page 135
11. “Where are we now with data protection law in China?” Freshfields
Bruckhaus Deringer. September 13, 2018. Full article:
http://knowledge.freshfields.com/m/Global/r/3824/where_are_we
_now_with_data_protection_law_in_china
12. Ibid. 1
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CARDONA
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Information Solutions
Manager
+86 (21) 6010 5010
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