Labor Disputes: Don’t Be the next Yue Yuen

A recent labor strike caused by disputes over welfare payments for employees at Yue Yuen Industrial, a shoe manufacturer in Dongguan, has again put a spotlight on labor disputes in China. The dispute is believed to be over the level of payment for pensions, medical insurance, housing allowances and work related injury compensation. It is important for companies, especially foreign invested companies, to ensure that the employer portion of social insurance contributions are correct and up-to-date with the government required minimums.

Below are some key considerations for social insurance and labor related issues that companies should be aware of in Dongguan.

Social Insurance in Dongguan

There are numerous welfare payments required by both employers and employees in China, these payments are calculated based on a base figure for calculating the minimum and maximum contribution amounts for individuals whose salaries fall below or above certain thresholds. Below are the types of welfare payments required in Dongguan:

• Pension
• Maternity
• Unemployment
• Work Related Injury
• Medical
• Housing Fund

It is important for employers to ensure that they are correctly paying social insurance to employees and matching the government required minimums for contributions.

Proposed changes could open the right to strike in Guangdong

Employees may soon be legally allowed to strike in certain circumstances, if new draft Collective Bargaining and Collective Contract Regulations are passed into law. While the new regulations look to provide more rights to employees, the changes could also help to ease situations such as those recently publicized in Dongguan, by providing a legal framework for employees to demand fair compensation.

Employees may soon be legally allowed to strike in certain circumstances, if new draft Collective Bargaining and Collective Contract Regulations are passed into law.

Labor Dispatch Rules in Guangdong

Many companies in Southern China, and specifically Dongguan, use labor dispatching service providers as opposed to directly hiring employees in order to save on labor costs. Beginning on March 1, 2014, a company’s total number of dispatched employees should not exceed 10 percent of its total number of employees, including regular and dispatched employees. The new regulations may have a negative impact on some enterprises, mainly due to the possible increase in labor costs. In Dongguan, the workers of some manufacturing enterprises are all dispatched employees. This is especially true for FIEs in the manufacturing industry, where the seasonal cycle of operation creates large labor shortages for certain months of the year. The new regulations are forcing these FIEs to either cut business or increase labor costs.

Payment of Labor Union Funds in Guangdong

Entities in Guangdong province that have established labor unions must pay labor union funds to the relevant tax authorities. These entities are comprised of: enterprises, public institutions, government organs and other economic organizations and social organizations. These entities shall also pay the preparation funds for the establishment of a labor union if they fail to establish one within six months of their founding. These payments are 2 percent of the total monthly wages of the entities’ employees and must be paid on a monthly basis.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

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