The rules on severance pay in detail

In China, an employee is entitled to statutory severance pay for termination of employment, except where the employment is terminated as a result of voluntary resignation or gross misconduct. The formula for calculating an employee’s statutory severance pay is - monthly salary x the number of years’ service, subject to the following rules:

  • Any period of service of between six months and one year will count as one year (corresponding to one month’s salary in severance pay), while any period of less than six months will count as a half year (corresponding to half a month’s salary in severance pay).
  • The ‘monthly salary’ means the employee’s average monthly income, including all monetary income received by him or her (such as base salary, bonuses, commission, allowances and subsidies) over the 12 months prior to termination.
  • If the monthly salary of an employee is more than three times the local average monthly salary, the rate of severance paid to him or her will be capped at three times the local average, and the total amount of severance paid to the employee will be capped at twelve months’ salary.

If an employee started working for the employer before 1 January 2008, his or her severance for the period before 2008 will be calculated in accordance with local rules in effect at the time.

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Author: Fangda Partners

Date: December 2019