How a Foreign Owned Company Runs Day to Day in China
Foreign-owned companies in China operate through physical seals registered with the Public Security Bureau, strict local payroll baselines, and tax-cleared bank remittance pathways.
Labour Contract Law Article 19
Meaning
A specific set of rules in the employment code regulates the maximum duration of probation periods based on the total length of the labor agreement. Inside the formal staffing protocol, labour contract law article 19 dictates that for agreements under one year, the trial window cannot exceed one month. If the contract spans between one and three years, the permissible probation length increases to a limit of two months.
Only agreements with a duration of three years or more, including open ended contracts, allow for the maximum statutory probation of six months. This rule prevents firms from maintaining workers in a lower paid, high risk trial status for an unreasonable length of time. The boundary is clear: only one probation can be served per worker at the same enterprise, regardless of changes in position or rank.
If a firm violates these timelines, they must compensate the worker at the full contract salary for each month of excessive probation served.
Operational Limit
Managers are prohibited from using the probation period as a temporary contract to fulfill seasonal tasks or short term operational needs. According to labour contract law article 19, the probation period must be included as part of the total labor contract duration and not separated as a standalone phase. This linkage ensures that workers receive credit for their time on site starting from the very first day of the relationship.
During this window, the salary of the worker must be at least eighty percent of the agreed contract pay or the minimum wage. HR teams monitor these dates closely because any extension beyond the statutory cap results in a mandatory fine payable to the employee. Once a probation is successfully completed, the worker moves into the regular staff register with full access to standard dismissal protection rules.
If the individual is transferred between departments, the company cannot restart the probation counter under any administrative pretext.
Compliance Standard
Local bureaus examine the dates listed on formal contracts during routine inspections of large industrial facilities or corporate branch offices. Under the rules of labour contract law article 19, an audit that discovers a six month probation on a one year contract triggers a correction order. The employer is forced to pay the difference between the actual salary and the contract salary for all time beyond the second month.
Beyond wages, the firm is also subject to administrative penalties if the terms of the trial period were not properly communicated in writing. This provision protects fresh graduates and migrant workers from systematic exploitation by firms using trial status to avoid severance duties. Operational checks also verify that social security contributions are being paid starting from the first month of probation as required by law.
Most sophisticated enterprises implement digital tracking tools to alert supervisors when a probation period is within two weeks of its statutory completion.
Risk Management
Companies utilize the probation period to assess technical skills and cultural fit before committing to the full expense of a long term employment deal. Through the consistent application of labour contract law article 19, the state forces employers to move quickly in their evaluation of new human resources. If a manager decides an employee is unsuitable, they must provide verifiable proof that the worker failed to meet the specified job requirements during the window.
A vague dismissal without measurable criteria during probation often leads to successful claims for unfair termination in the local labor court. Consequently, firms must develop objective scoring systems and feedback loops to support any negative probation outcomes they reach. Proper documentation of the initial hiring criteria ensures that article 19 remains a tool for quality control rather than an invitation to legal risk.
The system balances the flexibility of the enterprise with the right of the worker to eventual job stability and full compensation.