By China Briefing

According to the Shanghai Municipal Human Resource and Social Security Bureau, a new regulation on wage payment methods for Shanghai-based organizations went into effect August 1. The new regulation, issued to replace the 2003 version, expands the scope and makes several clarifications and improvements on wage calculation and standards. The new regulation is expected to minimize law disputes regarding wage issues with more specific guidance and solutions.

Expansion of the Scope

Compared to the 2003 version of wage payment methods for Shanghai-based enterprises, the 2016 version expands the scope of the regulation to more types of organizations including individual business entities, private non-enterprise units and legally-established accounting firms, law firms, foundations, and any others that carry labor relations during business operations.

Standardization of Wage Levels

The new provision defines wage as consisting of hourly wages, piece rates, bonuses, allowances, subsidies, and overtime stipends. The provision stipulates that wage calculation for overtime and vacation payment should be based on an employees’ regular salary, which doesn’t include annual bonus, subsidies, allowances, or other amounts distributed under special circumstances. If there is no indication of overtime and vacation pay in the contract, it should be calculated as seventy percent of the employee’s total monthly payment. Following previous regulation on wages for workers during probation periods, the Shanghai government explicitly specifies that wages must be no less than eighty percent of the industry average.

Special wages, such as the overtime piece rates, are now also dependent on whether employees have fulfilled tasks according to the production quotas set by the organization. Wages granted under special occasions, including wages for employees undergoing a public health check, for sentenced employees, or for those who violated the labor contract law are also regulated. For example, laborers who have been ruled a public disease threat must be restored to their former positions and receive regular wages missed during the quarantine period.

Solutions for Labor Disputes

The Shanghai Human Resource and Social Security Bureau imposed heightened control over employer misconduct in response to recent inflammatory labor disputes. In cases where an organization’s decision to illicitly terminate a contract is revoked by the People’s court, employees may legally pursue wages owed during the litigation, arbitration, and mediation periods.

Impacts on Shanghai-based Organizations

While the new regulation restrains organizational freedom to manage financial conditions, it serves as a benchmark for labor contract terms, providing a solid basis in labor dispute cases. The new regulation also gives organizations leeway to prepare and adjust business operations based on the required minimum labor costs. Furthermore, it protects organizations when employees violate labor laws or contract by giving employers the right to directly lower wages without penalty. 

The new provision gives organizations the independence to manage employees, but also requires them to ensure the legitimacy, effectiveness, and feasibility of company rules. It highlights the critical role the labor contract plays in determining whether an organization must pay off wages at once when employees leave their position. Unless specified in the contract, an organization could negotiate and wait till workers return company-owned property to pay off wages. Organizations should be specific with employment terms, and include all relevant wage levels in labor contracts to avoid confusion and conflicts.


About the Author

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.

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Posted by China Briefing