Labor & Employment丨Pay To Leave: Severance In China

With many employers in China now laying off employees, this article provides a quick recap of the rules of severance compensation.

Severance must be paid in most situations except when an employee is terminated on grounds considered to be for cause or when the employee resigns. This means employers generally have to pay severance when:

1. a fixed-term contract is not renewed;
2. employees are terminated for redundancy;
3. a contract automatically ends due to the employer deciding to shut down and liquidate; or
4. the employer and employee agree to a termination.

The general rule on severance is that employees are entitled to one month of their average monthly compensation for each year of service. Partial years of service over six months are rounded up to one year, while partial years less than six months are counted as half a year.