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Asia Briefing

New Shanghai Regulations Should Minimize Labor Conflicts

The new regulations are expected to minimize legal disputes regarding wage issues with more specific guidance and solutions.

A new regulation on wage payment methods for Shanghai-based organizations has been released and brought into effect as of August 1, 2016, according to the Shanghai Municipal Human Resource and Social Security Bureau.

The new regulation, issued to replace the 2003 version, expands the scope of application and makes several clarifications and improvements on wage calculation and standards. It is expected to minimize legal disputes regarding wage issues with more specific guidance and solutions.

Expansion of the Application Scope

Compared to the 2003 version of wage payment methods for Shanghai-based enterprises, the 2016 version extends the application scope 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 manage labor relations during business operations.

Standardization of Wage Levels

The definition of “wage” under the new provision consists of hourly wages, piece rates, bonuses, allowances, subsidies, and overtime stipends, etc. The provision stipulates that overtime and vacation payments should be calculated as an employee’s regular salary, which doesn’t include annual bonuses, subsidies, allowances, or other amounts distributed under special circumstances.

If there is no indication of overtime and vacation pay in the contract, such pay should be calculated as 70% of the employee’s total monthly payment. Following the previous regulation on wages for workers during probation periods that are to be no less than the minimum wage level, the Shanghai government explicitly specifies that wages are to be no less than 80% of the industry average or of the standards for regular employees.

Special wages such as the overtime piece rates, which were decided based on whether working hours had exceeded the statutory standards, are now also dependent on whether employees have fulfilled tasks according to the production quotas as set by organizations within reason. Wages granted under special occasions, including wages for employees undergoing public health checks, sentenced employees, or those who have violated labor contract law, are also regulated. For example, laborers who have been ruled out as a public disease threat are to be restored to their former positions and receive regular wages missed during the quarantine period.

Solutions for Labor Disputes

Considering inflammatory labor disputes of the past, the Shanghai Human Resource and Social Security Bureau has imposed heightened control over employers’ misconduct. 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

The standardization of defining and calculating wages has restrained an organization’s freedom when managing financial conditions. However, it also serves as a benchmark when employers are drafting contract terms and provides solid proof in case of a labor dispute. The new regulation gives leeway for organizations to prepare and adjust business operations based on the required minimum labor costs in various circumstances.

Furthermore, the regulation protects organizations when employees violate labor laws or contracts by giving employers the right to directly lower wages without penalty. In the past, whether organizations could economically punish employees was a controversial issue. The new provision affords organizations the independence to manage employees and requires them to ensure the legitimacy, effectiveness, and feasibility of company rules.

The new regulation highlights the labor contract, as it plays a critical role in determining whether an organization may pay off wages at once when an employee leaves his or her position. Unless specified in the contract, an organization could negotiate and wait until workers return company-owned property to pay off wages if the workers agree. We suggest that organizations be specific with employment terms and include all relevant wage levels in labor contracts to avoid confusion and conflicts.

Original article posted by China Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding American investors 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, including liaison offices in Boston and Waltham specifically established to support our American clients, we are your reliable partner for business expansion in Asia and beyond. For inquiries, email us at [email protected]. For further information about our firm and how we can support American investors in Asia, visit our North American Desk.