How to Calculate Unlawful Dismissal Compensation in China?
In order to unilaterally terminate employment in China, an employer shall have lawful grounds as stipulated the Employment Contract Law of the PRC. Otherwise, the termination will be deemed unlawful. If deemed as unlawful dismissal or termination of employment contract, compensation or reinstatement may be mandated.
The calculation of unlawful dismal compensation are as follows:
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Wage
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Condition
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Calculation Formula
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The average monthly wage of the employee for the previous 12 months does not exceed 3 times of last year’s local average monthly wage of employees.
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The average month wage of the employee for the previous 12 months is less than the local minimum wage.
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local minimum wage ?severance pay period ?2
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The average month wage of the employee for the previous 12 months is more than the local minimum wage.
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average month wage of the employee for the previous 12 months ?severance pay period ?2
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The average monthly wage of the employee for the previous 12 months is more than 3 times of last year’s local average monthly wage of employees.
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years of service ˂ 12 years
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3 times of last year’s local average monthly wage of employees ×severance pay period ?2
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years of service ≥ 12 years
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3 times of last year’s local average monthly wage of employees ?12 ?2
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【Legal Basis】
- Article 47 of the Employment Contract Law of the PRC:
The economic compensation (severance pay) shall be paid to an employee based on the number of years of service of the employee and the standard of one month’s wage for each completed year of service. Where the period of service is more than six months but less than a year, it shall be deemed as a completed year of service; where the period of service is less than six months, the employer shall pay half a month’s wage to the worker as economic compensation (severance pay).
Where the monthly wage of an employee is more than three times of the local average monthly wage of employees of the preceding year announced by the Municipal People’s Government of the centrally-administered municipality or the municipality divided into districts where the employer is located, the economic compensation (severance pay) to be paid to the employee shall be based on three times of the average monthly wage and the years of service for which economic compensation (severance pay) are paid for shall not exceed 12 years.
The monthly wage referred to in this article shall mean the average wage of an employee over 12 months before the employment contract is dissolved or terminated.
- Article 87 of the Employment Contract Law of the PRC:
An employer shall pay compensation to the employee at two times of the economic compensation (severance pay) stipulated in Article 47 provided that the employment contract is dissolved or terminated against the provisions of this Law.
- Article 27 of the Regulation on the Implementation of the Employment Contract Law of the PRC:
According to article 47 of the Employment Contract Law, the monthly wage for calculating the economic compensation (severance pay) to be paid to an employee shall be the monthly wage of the employee which include the hourly wage or piecework wage and other monetary incomes such as bonuses, allowances and subsidies. If the average wage of the employee over 12 months before the employment contract is dissolved or terminated is less than the local minimum wage, the economic compensation (severance pay) shall be calculated based on the local minimum wage. If the working time of the employee is less than 12 months, the average wage shall be calculated based on the actual working time.
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