China: Shanghai Regulations on Salary Payments

Effective from August 1, 2016, all foreign and domestic enterprises in Shanghai have to obey special rules on salary payments according to the “Method on the Salary Payment by Enterprises” (沪人社综发 [2016] 29号, “New Rules”). At the same time the previous administrative rules (effective since April 1, 2013) have been abolished.

The calculation and amount of salary payments individually agreed in employment contracts between the employer and the employee or stated in internal rules of the company, e.g. employee handbook, must be in compliance with the New Rules. The employer may now expect more legal certainty in this regard since the previous rules on salary payments in Shanghai (effective April 1, 2003) lacked important definitions and clear rules.

The New Rules still apply to the payment of overtime and leave but include explicitly sick leave. They clarify now that the base pay during the sick leave (or overtime and other forms of leave such as vacations) of the employees is the full monthly salary regularly paid to the employee (under actual attendance) excluding any year-end bonus, housing subsidy, commuting allowance, meal allowance, night-shift or high temperature allowance and overtime pay. However, if the base pay is lower than the minimum monthly salary set by Shanghai municipality (which is 2,190 RMB since April 1, 2016) the latter shall be the applicable base pay.

Therefore the previous practice of employers in Shanghai of applying, for example, a position-based pay as base pay for continuing wages during sick leave which were lower than the actual full monthly salary as defined in the New Rules is now a clear violation of prevailing legal norms since August 1, 2016, and the employer in Shanghai must adjust their payrolls accordingly.

The Announcement on the Calculation of Sick Leave Salary issued by the Shanghai Labor Protection Center (effective since November 1, 2004) finally determines the calculation method regarding the sick leave payment subject to the duration of illness (in general):

Despite any statutory grounds for termination, the employer may reduce the above sick leave payments and pay a so-called “sickness relief fund (“疾病救济费”) instead if the illness of the employee continues more than six months: 

The New Rules not only cover the above standard on sick-leave payments but also rule on the salary standard during a trial period, payment of an hourly wage for part-time employees and others and will serve as an important guidance for enterprises which are based in the Shanghai municipality.

Dr Oliver Maaz, Attorney at Law
Bi De, Legal Counsel
Shanghai