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Economic compensation shall be granted to an employee based on its years of service with the employer at the rate of one Month’s Wage for each full year of service. If the period of service was less than 6 months, a half month’s average monthly salary will be paid to the employee and a period of service of not less than six months but less than one year shall be counted as one year.

“Monthly wage” refers to the employee’s average wage during the 12 months prior to the termination or ending of his/her employment contract. It includes the hourly wages or piecework wages and other monetary incomes such as bonuses, allowances and subsidies[1]. It may also include the overtime payment.

If the Monthly Wage of an employee is three times greater than the average monthly wage of one employee for the previous year as published by the People’s Government of the Municipality where the employer is located (equivalent to 28740 RMB for Shanghai in 2020), economic compensation shall be paid to him/her at the rate of three times the average monthly wage of staff and employees and for a maximum period of service not exceeding 12 years.

If the labor contract is terminated illegally by the employer, double of the economic compensation shall be paid.

-> This article may also be of interest to you:

– How to dismiss an employee with poor performance?

To know more, download our legal handbook related to Employment in China…


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