China’s Regulation on Paid Annual Leave for Employees (《职工带薪年休假条例》) entitles employees who have worked continuously for one year to paid annual leave. China employees are entitled to the following statutory vacation periods, based on length of employment
- More than 1 and less than 10 years service: 1 week (5 days) vacation
- More than 10 and less than 20 years service: 2 weeks (10 days) vacation
- More than 20 years service: 3 weeks (15 days) vacation
The statutory limits set forth above are for an employee’s total years of employment with anyone. In other words, the years of service are based on the date your employee started in the workforce, regardless of employer. This means even your employees on probation are entitled to take annual leave if they have worked continuously for one year. During your employees’ annual leave, you as the employer must pay each of your employees the wages you would have paid each of them during the normal working period.
If you wish to provide more vacation time than the required time set forth above, you will need to specify that additional vacation time in writing, typically in your company’s rules and regulations. Once you specify in writing that you will be providing additional vacation time, you will be required to provide the more generous vacation time exactly as specified.
Employers are required to make arrangements for employees to take vacation time each year. Though it is permissible for your employees to carryover their annual leave for one year, this can be done only with the employee’s consent. Unused vacation time in one year can be carried over only to the next year; any carryover beyond that year is prohibited. It is generally not a good idea to allow your employees to carry over their annual leave because doing so can make tracking difficult and can increase your exposure to penalties if the employee later sues, claiming never to have agreed to carry over his or her vacation time.
An employer that fails to allow an employee to take annual leave must pay that employee 300% of the employee’s daily wages for each unused vacation day. The daily wage is calculated by dividing the employee’s monthly wage by 21.75, with the monthly wage usually defined as the employee’s average monthly wage (excluding overtime pay) over the 12 months prior to the date on which the employer pays the compensation for unused vacation time. If the employee has worked for the employer for less than 12 months, the average monthly wage will be based on the actual number of months of employee service.
If an employer arranges for the employee to take vacation days and the employee submits a written request expressly stating that he or she will not take those days, the employer is obligated only to pay the employee his or her normal daily wage for the unused vacation days.
When it comes to your employees’ vacation time, you should keep the following China employment law precepts in mind:
1. China’s employment laws and legal system favor employees over employers. The employer is presumed to be the more powerful party, so the law provides employees with many protections. This means that in most disputes, the employer (not the employee) will bear the burden of proving what actually happened, and if the employer cannot prove it (usually with written documentation in Chinese) the employee will prevail.
2. China’s employment laws cannot usually be modified by contract.
3. China employment law is very local. What you can or cannot do in Shenzhen could be different from what you can or cannot do in Beijing. Before making any important employment move, you should check the rules for China, the rules for your province, the rules for your city and, in most cases, you should also discuss the rules and your proposed employment action with your local labor and employment authorities as well. Failing to do this is what causes foreign employers problems.
The second rule above is often relevant to China employee vacation days, and an often-litigated China employment law issue.
Let’s consider a hypothetical based on a question our China employment lawyers are often asked. A China employer’s Rules and Regulations provide that its employees are entitled to the statutory minimum number of vacation days and no carry-over of vacation time is allowed. Let’s further assume that the Rules and Regulations state that the employees are tasked with making sure they take all their vacation days within the relevant calendar year and keep track of their vacation days. Lastly, the Rules and Regulations provide that if the employee fails to take all or part of their vacation time, the employee will be deemed to have given up all unused vacation days and cannot claim any compensation for such days. A disgruntled employee then sues the employer for 300% pay for all of her unused vacation days. The employer’s response is to refer to its Rules and Regulations and the employee’s signed acknowledgment of receipt form acknowledging receipt of these Rules and Regulations and claim that the employee knowingly and voluntarily forfeited all unused vacation days.
The employer then asks one of our China lawyers what it should do. When I or another of our China employment lawyers gets this type of question, the first thing we do is gather up more facts. What city is it? What does the employment contract actually say? Is it in Chinese — which makes it more difficult for the employee to deny knowing what they signed and a lot easier for the court to know what it says. What do the Rules and Regulations actually say and is that in Chinese as well? Most importantly, what is actually going on with this employee and this employee’s anger with her employer and what actually happened regarding vacation time. Many times the best way to resolve a loaded employee-employer dispute like this is to get both parties to step away, calm down, and compromise, because full-on expensive litigation is not in anyone’s best interest.
For purposes of the discussion here, however, I am going to assume a number of things, like the following:
- The employer Rules and Regulations were implemented in compliance with all applicable national, state and local laws. This means the employees had prior notice of the Rules and Regulations and an opportunity to comment on them.
- The employer never made any arrangements for the employee to take her vacation time, or if it did, it does not have contemporaneous written proof of this.
- The employer never obtained a written request from the employee expressly stating that the employee would not take those days for personal reasons (i.e., reasons not related to the employer).
So, what has the employer in my hypothetical above done wrong?
First, the employer’s vacation policy in its Rules and Regulations is probably illegal because it shifts the employer’s obligation to the employee. I say “probably” because the law on this, like so many other China employment laws is localized. The law says the employer must ensure all employees take their legally entitled vacation time and if that is not possible, the employer must pay the employee in lieu of the vacation days. Many jurisdictions in China strictly interpret this law. The Western mindset that if you don’t exercise your legal rights, you waive or lose them does not comport with the China’s legal reality. It does not matter that the employee signed off on receipt of the employer’s Rules and Regulations. The employee did not waive their rights to vacation time.
Even if the employer’s policy on vacation time had beenlegal (which is not going to be the case just about everywhere in China), the employer (not the employee) should stay on top of tracking employee vacation time. The employer’s failure to keep track of this particular employee’s vacation time, standing alone, would probably be enough for the employee to prevail in any litigated or arbitrated dispute. A laid-back management style does not work for China.
Second, the employer never obtained the employee’s written request expressly stating the employee would not take those vacation days for personal reasons. Of course, very few employees would go along with a voluntary forfeiture of their mandatory vacation days. If an employer is going to argue that one of its employees voluntarily relinquished vacation days, the employer must be able to produce relevant evidence of this because the employer bears the burden of proving this. And without something in writing from the employee showing that the employee requested to give up vacation time, the employer is going to lose, and the employer’s Rules and Regulations and the employee’s signed acknowledgment of receipt form are not going to change this result.
Finally, suppose the employment relationship in the above hypothetical has been formally terminated and the employee has sued. The employer really should have dealt with this vacation issue before it got sued. China employees are serious about enforcing their legal rights under Chinese labor laws and this makes it essential that employers seek to resolve all outstanding issues between them and their employees before termination. Otherwise, there is a good chance the employee will bring a claim for whatever issues are outstanding, including unused vacation time. A well-crafted termination/separation agreement will ensure that the employee will not and cannot come back seeking payment for unused vacation time (or whatever) and that if they do, the court will rule against the employee because the parties have a legally binding and enforceable agreement covering the issue.
Employers too often believe they have China-centric and legally binding Rules and Regulations when they don’t. They also think they have great evidence against their employee(s) when they don’t. Employers often blame their employees for not doing everything the employers are supposed to do under China employment laws and this will mean the employer will almost certainly lose in any dispute regarding the contested issue.
Bottom line: Chinese labor laws mandate employers arrange for their employees to take paid annual leave and you should think long and hard before you take any of this vacation time away, either by unilateral action or even by agreement.