Proposed amendment of working hour system in Shenzhen

Background:

Recently, the general offices of the Communist Party of China Central Committee and the State Council issued the Implementation Plan for the Pilot Comprehensive Reform of Building a Pilot Demonstration Zone of Socialism with Chinese Characteristics in Shenzhen (“Pilot Reforms Plan”), which consists of a detailed plan for comprehensive pilot reforms to be implemented in Shenzhen and coincides with the 40^th anniversary of Shenzhen’s establishment as a special economic zone.

The release of the plan will increase market access for foreign investors, introduce legal and finance reform measures and implement a set of business-friendly policies. The driving objectives are to improve the market-oriented allocation system, create a market-oriented legalised business environment, improve the technological innovation system, establish a highly open economy, improve the supply system of people’s livelihood services, and improve the environmental protection and urban space governance system.

As provided under the Pilot Reforms Plan, the list of the first batch of comprehensive authorised pilot reforms has also been released. It contains 40 items including the review of laws and regulations to promote harmonious labour relations, implementation of special working hours management system and the extension of the scope of industries and positions to which the special working hours system applies, with the aim of meeting the development needs of new technologies, new formats, new industries, and new models.

Shenzhen has also previously attempted to amend the laws and regulations on labour relations, its government was recently encouraged to make full use of its legislative power as the special economic zone to issue its special interpretations and implemental rules to the national labour law and labour contract law.

Although no further details for the review of the relevant laws are available, the special legislation on working hours system in Shenzhen seems to be necessary, as it is related to the interpretation of “overtime” and the calculation of “overtime pay” under the law, which may have significant impact on the labour cost. The management team of the company is strongly recommended to pay close attention to this legislation development.

The Human Resources team of the company is also suggested to read through the status quo and legislative development of the relevant laws, which will be briefly described in following paragraphs.

Current working hours system

Similar to the practice at the national level, Shenzhen currently implements three kinds of working hours systems, of which the “Standard Working Hours System” is commonly adopted and implemented under the law by default.

Under the “Standard Working Hours System”, employers shall be aware of the following specific rules:

• Typical work schedule for an employee is 8 hours per day and 40 hours in total per week;
• An employee is entitled to at least one rest day per week;
• Overtime shall not exceed 3 hours per day and 36 hours in total per month;
• Overtime incurred on a working day shall be compensated at least 150% of the employee’s regular salary;
• Overtime incurred over weekends (without the arrangement of days in lieu) shall be compensated at least 200% of the employee’s regular salary;
• Overtime incurred on statutory holidays in China shall be compensated at least 300% of the employee’s regular salary;

Depending on individual case, any violation of the rules under “Standard Working Hours System” may result in unilateral terminations initiated by employee together with the statutory severance claims, administrative fines and the administrative sanctions such as being ordered to rectify the previous practice.

Apart from the “Standard Working Hours System”, the company could apply to the local labour bureau for approval of the implementation of other special working hours systems (e.g. “Comprehensive Working Hours System” and “Flexible Working Hours System”) under certain conditions. For example, the “Comprehensive Working Hours System” is more suitable to employees who are required for continuous operations due to the special natures of their jobs, such as work related to transportation, aviation, railway, shipping, fishing, postal and telecommunications service industries; as well as those subject to natural constraints, such as in the mining, construction, salt production, sugar production, and tourism industries. While the “Flexible Working Hours System” usually accommodates employees whose working hours are impractical to be measured, such as senior management, salespeople, and employees in the transport, warehousing, and railway sectors, etc. The determination of “overtime” and the calculation of “overtime pay” under special working hours systems are usually different from those under “Standard Working Hours System”, for example, normally no overtime cost is associated with “Flexible Working Hours System”.

However, it is particularly challenging for employers to apply for the special working hours system, which is generally subject to the special examination and continuous supervision from local labour bureau and relevant government departments. According to the local regulations in Shenzhen, several special rules have been set under “Flexible Working Hours System” as follows:

• “Senior Management Staff” prescribed under the “Company Law” (i.e. the manager, deputy manager, personnel in charge of finance, Board Secretary of Listed Company, and other personnel prescribed in the articles of association) are exempted from the examination; and
• The Employee under an annual salary system or whose salary specified in his/her labour contract is at least three times the average monthly salary of employees in Shenzhen City in the previous year and who can arrange his/her work and rest time at his/her own discretion is also eligible under this system.

The Legislative Trend

The described inflexible statutory restrictions under the law in China are not business friendly, in particular for fast moving businesses like the manufacturing and internet sectors in Shenzhen. In order to balance the right of employee and the economic development, the reform plan on this aspect may extend and further specify the scope of applicable sectors under special working hours systems, and may adjust the standard of examination for such application. It is still unclear whether such reform will be extended to other cities in Mainland. Deacons will continue to monitor and release the latest development of relevant policies and laws.