Recruiting in China

The new labor contract law does not increase any labor costs for lawful enterprises, says an article on the website of People's Daily. The following is an excerpt:

When facing the same labor contract law, enterprises have different views about its impact upon labor costs. As a textile factory owner in Fujian province said, the law tilts in favor of employees, pushing up labor costs and thus squeezing the room for development; while the boss of Anta, a sports shoes producer in Fujian, believed that it does not affect their normal operation and will contribute to merger and restructuring, boosting their development.

On Oct 7, Sun Chunlan, vice-chairwoman of All-China Federation of Trade Unions, told the press that the recent bankruptcy of small- and medium-sized enterprises has nothing to do with the implementation of the labor contract law.

The plight faced by SMEs is mainly because of the worsened international economic situation such as the fluctuation of exchange rates, weak foreign demands and domestic policies about taxation and finance. And the labor contract law in fact does not increase the labor costs of enterprises. The reasons are as follows:

First, the labor contract law does add some labor costs for enterprises that had seldom obeyed the labor law in the past. The previous labor laws and regulations in China already clarified what the employers should pay for employees including salaries, social security, welfare, housing fund and overtime compensation.

The newly enforced labor contract law only adds the requirement that employers should compensate for the termination of labor contracts with employees. So, if employers renew the contracts with employees or employees volunteer to quit their work, employers do not need to pay this compensation.

Second, some employers reduced their labor costs by adopting abnormal practices such as not paying social security for employees before the enactment of the labor contract law.

As a survey conducted in Guangdong province showed, the payment of social security for employees accounts for 2 percent of the total costs of an enterprise. The new labor contract law demands unlawful employers to make the payment of social security, leaving them with the feeling that labor costs have been raised by this new law. But we should note that social security payment is what employers should have offered and thus it does not increase labor costs for employers who have already paid this money to employees.

Therefore, in practice, it is those employers who had adopted illegal practices and seldom obeyed labor laws in the past who believe the labor contract law would increase their burdens.

The growth of an enterprise cannot be achieved at the expense of the legal rights of employees. It is not correct to regard the expenditures that should have been paid by enterprises as their increased labor costs.

The new labor contract law has just stripped unlawful enterprises of their inappropriate profits. It is a protection for lawful enterprises. Instead of weakening their competitive edge, it can bring new growth opportunities for them.