This article was written by King & Wood Mallesons' Labor Law group.
We have split the explanation of Beijing’s Answers to Questions Concerning the Application of Law in Adjudication of Employment Disputes (the “Answers”) published on the 24th of April 2017 into three parts, so that the main provisions can be easily understood. This is the third in our series and starts from point 8 of the Answers.
The statute of limitations for payment of annual leave is to be calculated from December 31 of the following year
The Answers state that the limitation period for the employee to claim statutory compensation for unused annual leave (200% additional amount) from the employer is one year. Annual leave can be used as it falls, consecutively or can be carried over to the following year. The limitation period for annual leave should be calculated from December 31 of the following year.
There is no doubt that annual leave reflects an employee’s right to rest. However, adjudication practice differs between regions. If annual leave compensation is defined as “remuneration for work", a special limitation period applies - one year after termination of employment. Otherwise the general limitation period applies – which is one year after an employee knows (or should have known) that his/her rights have been infringed.
The Answers clearly state that annual leave compensation is not “remuneration for work" and therefore the general limitation period for arbitration should apply. The Answers state that the limitation period should be one year from December 31st of the following year. But please note that in practice, an employer’s remuneration policy should take into account regional rules which may differ.
How to decide the amount of an employee’s salary
The Answers provide that the following principles should be observed in deciding the amount of an employee’s salary:
- The employee’s salary should be agreed upon by the employee and the employer. The agreed salary should include social insurance contributions, tax, etc.
- A salary should be paid as set out in an employment contract. If not stipulated in a contract, the terms of a collective contract should be followed. However, if there is no stipulation in either an employment or a collective contract, then an employee’s salary should be that paid to the employee when they are normally performing their duties.
- The calculation of “double salary”, should comprise consecutive and stable payments such as basic salary, position salary, duty salary or salary based on service years or level. Variable remuneration such as commissions and bonuses should not be included.
- When calculating the 12 month average salary before termination of an employment contract, the pay received for working normal hours (including but not limited to hourly wages, piecework, bonus, allowance and subsidy) and overtime payments should be included in the calculation. An employee’s annual bonus entitlement or year-end double pay should be split equally into 12 months.
The same principle is used in the Answers as in the Measures of Payment of Salary of Beijing City. There are two noteworthy points. Firstly, “double salary” should be calculated based on payments that are consecutive and stable and exclude variable payments like commissions or bonuses. Secondly, an employee’s annual bonus or year-end double pay should be split equally into 12 months.
Clarification of the calculation of overtime pay
The calculation of overtime pay is to be determined by the remuneration to employees for their regular work during statutory working hours. Overtime payments in one month are not to be included in calculating overtime pay for the next month. The specific rules are as follows:
- Where the calculation of overtime payments is agreed in an employment contract, it then it will apply. Where the parties also agree that overtime shall be paid in an amount less than the salary agreed in an employment contract, then the employee may claim the salary agreed in the employment contract.
- When an employee is doing regular work, and the actual salary paid is higher than the salary in the contract, then the employment contract is regarded as varied. In this case, the salary actually paid is to be used to calculate overtime pay. When the salary actually paid is lower than the contracted salary, and it can be shown that the parties have varied the contract, then the salary paid is to be used to calculate overtime pay.
- Where no amount is agreed upon in a contract or the amount is unclear, the salary paid is used when calculating overtime pay. The monthly payments made by an employer to an employee, e.g. salary, bonus, allowance, subsidy, etc. should be considered as part of the actual salary payment. Such payments constitute the “gross salary” in the Interpretations of Specific Scope in the ‘Regulations on the Composition of Gross Salary issued by the National Bureau of Statistics.
- Where a monthly bonus has the nature of “salary for employees’ regular work during statutory working hours”, then it should be regarded as a part of salary. When the date of a monthly salary payment is different from that of the monthly bonus, then the salary and bonus should be combined when calculating overtime pay. Depending on the circumstances, unpaid monthly or quarterly bonuses may not be taken into consideration when determining overtime pay.
In contrast with Shanghai, Shenzhen and other cities, official guidance for overtime calculations has been missing in Beijing for a long time. This has resulted in inconsistent adjudication decisions. The Answers, in addition to setting out rules for salary calculations, have remedied this. In general, fixed monthly payments should be used to calculate overtime pay, while overtime pay and non-monthly and non-quarterly bonuses should not be used. If an overtime pay calculation has been agreed by employer and employee in an employment contract, then this should apply. However, this should not be less than the minimum salary and a contracted salary amount.