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Paid Annual Leave Under Chinese Employment Law
March 2009 | China Practice | Regional | Regional Reports

Josephine KOH

To foreign investors, Chinese employment legislation can be, at best, intriguing and, at worst, incomprehensible. However, such legislation is better understood when viewed in the context of the country’s socialist structure. The importance placed on social stability over economic considerations helps explain why such laws tend to be biased towards the employee.

Employers may wish to bear this in mind when considering recent legislation governing paid annual leave in China, and how best to avoid or mitigate labour disputes on this issue. Effective since September of 2008, the relevant employment laws state that:-

(1) An employee who has worked continuously for more than 12 months shall enjoy paid annual leave.

This means the employee has no leave entitlement if the employee has not completed 12 months of continuous employment. While extending leave entitlement to employees from their first year of service is not against the laws, employers may wish to inform such employees that their employment terms are better than the statutory requirements.
(2) After 12 months of continuous employment, the number of paid leave days is prescribed by statute:-

Number of cumulative years of employment Number of leave days
Completed one year but less than 10 years 5
Completed 10 years but less than 20 years 10
Completed 20 years and above 15

The cumulative years of employment (“CYE”) refers to the employee’s cumulative years of employment with all past and current employers, and not just with the current employer. If a new employee is entitled to leave in the first calendar year of service because of the employee’s CYE with previous employers, the number of prescribed leave days is pro-rated according to the number of days of service with the new employer.

Thus, employees in their first year of service with an organisation are entitled to paid annual leave if the employee has records of past employment, for a continuous period of at least 12 months, registered at the relevant labour bureau in China. If not registered with the labour bureau, an employee’s past employment is not effective for the purpose of calculating leave days.
(3) The employee does not enjoy paid annual leave if:-

(a) the employee already enjoys leave days for summer and winter which exceeds the number of annual leave days;
(b) the employee has taken unpaid leave for more than 20 days without any pay deduction; or
(c) the employee obtained sick leave in excess of the maximum period prescribed based on that employee’s CYE (two months sick leave for CYE of between one to 10 years; three months for CYE of between 10 to 20 years, and four months for CYE of more than 20 years).

If any of the above circumstances occurs after the employee has already enjoyed the applicable paid annual leave, then the employee shall not be entitled to paid leave days in the following calendar year.

The tendency to protect the employee is apparent from the lengthy periods of sick leave prescribed before paid annual leave can be dispensed with. The inclination to protect older employees is also evident – the higher the CYE, the longer the sick leave prescribed. This is consistent with the Chinese culture of being respectful to the elderly, possibly regardless of performance.
(4) The use of paid annual leave can be centrally planned by the employer but in consultation with the employee. The general rule is that such leave shall not be waived or carried over to the next calendar year, even if necessitated by demands of work, unless the employee consents. If the employee agrees to carry over annual leave, such leave shall be carried over to the next calendar year only.

If annual leave is not used due to work commitments, even with the employee’s consent, the employer shall pay the employee remuneration calculated based on 300% of the daily wage for each unconsumed leave day. Employers would therefore be well advised to ensure that employees either clear their annual leave in each calendar year or carry over unused leave days to the following calendar year.

In cases where employees do not take leave for their own reasons or at their request, a prudent employer should procure written confirmation of such fact from the employee. This would safeguard the employer against subsequent claims that such leave was not taken because of work commitments and for remuneration calculated on 300% of daily wage for each unconsumed leave day.