Meaning
Average of an employee’s total monthly earnings over the year immediately preceding the date of a contract termination or social security adjustment. Total earnings used for the trailing twelve month wage base include the basic salary plus all bonuses and commissions paid out during that period. This figure serves as the fundamental denominator for determining the statutory severance pay an employee is entitled to receive.
Inclusion Variable
Components of the calculation must include all cash payments made to the worker such as food subsidies and performance based incentives. When determining the trailing twelve month wage base, the employer must use the gross amount before any tax or social security deductions. Months where the employee was on sick leave or maternity leave are often handled according to specific local regulations to avoid penalizing the worker.
Total annual income is divided by twelve to arrive at the monthly average used for legal filings.
Statutory Application
Article 47 of the Labor Contract Law and the corresponding implementation regulations define how this average is applied. It is the primary figure checked by labor inspectors during a compliance review.
Audit Requirement
Payroll departments must maintain accurate records of every payment type to ensure the base is not understated. Incorrectly calculating this figure can lead to claims for underpayment of severance and the potential for double compensation penalties. Foreign firms often centralize these records to ensure consistency across multiple regional offices in China.
