Ending an employment relationship in China is a carefully regulated process. Unlike many Western jurisdictions, China doesn’t allow at-will termination; every dismissal must rest on a legally recognised ground, follow prescribed procedures, and in most cases trigger a severance payment. Getting any of these steps wrong exposes the company to reinstatement orders or double-severance liability. This guide walks through what employers need to know before they act.
Legal framework
China’s primary employment statute is the Employment Contract Law of the People’s Republic of China, which came into force in 2008 and was amended in 2012. It sets out the permitted grounds for termination, the notice and severance obligations attached to each ground, and the consequences of non-compliance. All employment relationships in China, whether on fixed-term or open-ended contracts, fall within its scope, and local courts interpret its provisions strictly in favour of employees.
Probation periods
Probation terms in China are tied directly to the length of the employment contract, and an employer can only set a probation period once per employment relationship.
- Contracts under 3 months: no probation is permitted.
- Contracts of 3 months to 1 year: maximum 1 month.
- Contracts of 1 to 3 years: maximum 2 months.
- Contracts of 3 years or more, and open-ended contracts: maximum 6 months.
During probation, either party can terminate with 3 days’ notice. To dismiss a probationary employee, the employer must be able to demonstrate that the employee failed to meet the hiring criteria, based on a documented performance standard against which the employee was assessed from day one.
Notice periods
China’s notice rules differ depending on who is terminating and when.
An employee who resigns after probation must give 30 days’ written notice (3 days during probation). An employer terminating on a lawful ground must also give 30 days’ written notice or make a payment in lieu of that notice period. The payment-in-lieu option is widely used in practice and is straightforward to calculate: one month’s salary at the employee’s current rate.
Where the employer is terminating for gross misconduct under Article 39 of the Employment Contract Law, no notice is required and no notice payment is owed. The specific Article 39 grounds are covered in their own section below.
Statutory severance
China’s severance framework is formulaic, but there are a few moving parts that employers need to account for before they make an offer.
The calculation
Severance is calculated at one month’s average salary for each full year of service, based on the employee’s average monthly salary over the prior 12 months. Service of between 6 months and 1 year counts as a full year for this purpose. Service of less than 6 months entitles the employee to half a month’s salary. The calculation covers continuous service with the same employer, and partial years are rounded in the employee’s favour at the 6-month mark.
The salary cap
If an employee’s average monthly salary exceeds three times the local average monthly wage, severance is calculated using that three-times figure rather than the actual salary. Once the cap applies, the maximum number of years that can be counted is 12. This means the highest possible capped payout is 12 months at three times the local average wage.
The cap varies by city and is updated mid-year. Based on 2024–2025 data, indicative monthly cap figures are: Beijing RMB 47,000+; Shanghai RMB 36,000+; Shenzhen RMB 43,000+; Guangzhou RMB 39,000+. The 2026 figures will be published by local authorities mid-year. Employers should confirm the current local average wage before calculating severance for high-earning employees.
Unlawful termination
If an employer can’t establish a lawful ground for dismissal, the employee has two options: demand reinstatement to their former role, or elect to receive compensation instead of severance. That compensation is set at twice the statutory severance amount, commonly referred to as “2N.” In practice, 2N claims are the most common outcome of wrongful termination disputes in China, and they’re calculated on the same base salary figure as ordinary severance, so the financial exposure scales quickly for long-tenured or well-paid employees.
Grounds for termination without severance
Article 39 of the Employment Contract Law permits immediate termination without notice or severance in the following situations:
- The employee fails to meet the conditions of hiring during their probation period.
- The employee commits a serious violation of the company’s internal rules and regulations.
- The employee causes a major loss to the employer through serious negligence or fraudulent conduct.
- The employee takes on concurrent employment that causes material harm to the primary employer, and refuses to correct it.
- The employee is found to bear criminal liability under Chinese law.
Each of these grounds requires the employer to hold supporting evidence before acting. A documented HR policy framework, clear written rules communicated to employees, and a contemporaneous record of the misconduct are all essential. Courts won’t accept a post-hoc reconstruction.
Collective redundancy
When a company needs to let go of 20 or more employees, or a number that represents 10% or more of its total workforce, the process attracts additional obligations. The employer must notify the local labour authority at least 30 days in advance and must consult with the employee representative body or trade union before any notices are issued. Collective redundancy procedures apply regardless of whether the positions are being replaced or permanently eliminated.
Fixed-term contracts
Fixed-term contracts in China carry two severance triggers that employers sometimes overlook. First, if the employer chooses not to renew a fixed-term contract when it expires, the employee is entitled to statutory severance calculated on their full tenure, using the same formula as a dismissal mid-contract. Second, if an employee has worked for the same employer under two consecutive fixed-term contracts, they’re entitled to request an open-ended contract for the third engagement. Refusing that request and ending the relationship instead would be treated as a dismissal requiring severance.
Managing terminations in china through an Employer of Record
Running a termination process correctly in China requires local expertise: the right documentation, the right sequencing, and an accurate severance calculation that accounts for the current local wage data. For companies without a registered entity in China, an Employer of Record (EOR) handles all of this directly. The EOR is the legal employer of record, which means it holds the employment contracts, manages the statutory process, and carries the compliance liability.
For companies that already have an entity but want dedicated support, understanding what an Employer of Record (EOR) does can clarify where the model adds value beyond entity-based hiring. When evaluating providers, it’s worth comparing EOR services across coverage, local HR expertise, and the ability to handle complex exits cleanly.
Book a demo to see how RemotePass handles compliant terminations in China.
Frequently asked questions
Do you always have to pay severance when terminating an employee in china?
No. Severance isn’t owed in every case. If the termination falls under Article 39 (covering probation failure, serious misconduct, serious negligence or fraud, harmful concurrent employment, or criminal liability), the employer owes neither notice nor severance. In all other lawful termination scenarios, statutory severance applies.
What happens if an employee refuses to accept a termination?
If the employer has a lawful ground and has followed the correct procedure, the employee’s refusal doesn’t block the termination. However, if the employee disputes the legality of the dismissal and prevails at arbitration or court, they can elect reinstatement or receive double severance (2N). This is why having clear documentation before acting is critical.
Can a fixed-term contract just expire without triggering severance?
Only if both parties agree not to renew and the employee initiates the non-renewal. If the employer chooses not to renew a contract that the employee is willing to continue, severance is owed. Employers shouldn’t assume that contract expiry is a clean exit; the intent of both parties at the point of expiry matters.
How is average monthly salary calculated for severance purposes?
The calculation uses the employee’s average monthly salary over the 12 months immediately before the termination date. This includes base salary and any regular fixed allowances or payments that form part of the contractual remuneration. Variable components like discretionary bonuses are treated differently depending on how they were structured in the contract, so it’s worth reviewing the contract terms before finalising the severance figure.
