Resolving Labor Conflicts: New Regulations on Wage Payment Methods in Shanghai

By Dezan Shira & Associates
Editors: Mia Yiqiao Jing and Allan Xu

According to the Shanghai Municipal Human Resource and Social Security Bureau, a new regulation on wage payment methods for Shanghai-based organizations has been released and brought into effect on August 1, 2016. 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. The new regulation is expected to minimize law disputes regarding wage issues with more specified guidance and solutions.

Highlights of Changes

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 carry 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, overtime stipends, etc. The provision stipulates that wage calculation for overtime and vacation payment as 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, they should be calculated as seventy percent of the employee’s total monthly payment. Following previous regulation on wages for workers during probation periods which are to be no less than the minimum wage level, the Shanghai government explicitly specifies that wages are to be no less than eighty percent 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 check, for sentenced employees or for ones 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.

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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, as well as mediation periods.

Impacts on Shanghai-based Organizations

Even though the standardization of defining and calculating wages may have restrained an organization’s freedom when managing financial conditions, it on the other hand 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 contract 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 with 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 till workers return company-owned property to pay off wages if agreed by workers. We thus suggest organizations are specific with employment terms, and include all relevant wage levels in labor contracts to avoid confusion and conflicts. For a complete guide of payroll in China, please consult one of our HR specialists at dezshira.com.

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