Meaning
The legal mechanism for calculating financial compensation ensures standardized payments when an employer terminates a labor contract under specific statutory conditions. Within the framework of the China Labor Contract Law, the article 47 severance formula mandates a payment equal to one month of salary for each full year of service. Fractions of a year between six months and twelve months count as a full year, while periods under six months require a half month payment.
Compensation Base
The wage used for the calculation is the average monthly salary of the employee over the twelve months preceding the termination. If this average exceeds three times the local social average wage, the article 47 severance formula applies a cap based on that local average. This ensures that the statutory burden on the employer remains within predictable limits regardless of the individual high earnings.
Service Duration
Length of employment determines the total number of months used in the final multiplication.
Statutory Ceiling
Total payouts for high earners are restricted both by the monthly wage cap and a maximum duration of twelve years of service. An article 47 severance formula provides the finality needed for the settlement of labor relations.
