China – Increased costs for employee severance, unfair dismissal claims and social insurance contributions

What’s new?

Several major cities in China have increased their official average local monthly compensation figures, which means many employers will be facing increased costs for employee severance, unfair dismissal claims and social insurance contributions.


Whilst the central government usually requires minimum compensation figures to be increased at least once every two years, some cities chose not to increase the figure in recent years due to concerns around economic uncertainty, international trade tensions and higher levels of unemployment. However, many major cities have now opted to increase their average monthly compensation.

The key cities that have been affected (amongst others) are Beijing, Shanghai, Shenzhen, Guangzhou and Chengdu, with the average local monthly compensation figure increasing by 5% – 7%, depending on the city.

The monthly compensation figures are used as a benchmark to cap employer severance obligations at 300% of the local average monthly compensation and are also used as a reference point when negotiating severance packages. The changes will also result in an increase to the cap on statutory unfair dismissal damages, as the figure is typically based on 200% of an employee’s statutory severance. In addition, employers and employees will be impacted by a rise in minimum and maximum contributions for pension, medical and unemployment insurance programme due to the increased monthly compensation figures.

What should employers do now?

The increases came into effect in June and July (depending on the city), and so employers should ensure that they are compliant in making the relevant payments in line with the increased monthly compensation figures. If you need any support with this or would like any further information, please get in touch with a member of the MDR ONE team.


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