What Severance Pay Rules Must Employers Follow in China?

Which Employees Qualify for Severance Pay?

• Terminated due to company restructuring, merger, or dissolution
• Dismissed without cause or through mutual agreement initiated by the employer
• On fixed-term contracts that are not renewed by the employer (unless the employee declines renewal on equal or better terms)
• Resigned because the employer violated the labor contract or labor laws (for example, unpaid wages or unsafe working conditions)
• Laid off as part of an economic redundancy following legal procedures

What Are the Legal Timelines for Paying Severance?

Severance pay in China must be paid at the time of termination, typically on the employee’s final working day. Employers are expected to settle all outstanding wages, bonuses, and severance before or on the termination date. While local labor bureaus may have minor procedural differences, delaying payment can be deemed a breach of contract. In practice, many companies ensure payment is completed within the same payroll cycle to avoid disputes.

What Penalties Apply if Severance Is Not Paid Correctly?

Failure to pay severance according to Chinese labor law can result in serious penalties, including:

• Administrative fines imposed by the local Labor Bureau
• Mandatory back payment of the owed severance amount, possibly with interest
• Employee-initiated labor arbitration or court action
• Reputational damage and potential restrictions on future business licensing if repeated violations occur

Does Outsourcing Employment via an EOR Change Severance Liability?

Yes, when employment is managed through an Employer of Record (EOR) in China, the EOR is the legal employer of record, and thus holds primary responsibility for severance payments. The client company does not have a direct legal employment relationship with the worker, which means severance liabilities and compliance obligations fall to the EOR. Reputable EORs like Playroll ensure that the severance process aligns fully with Chinese labor laws, protecting both the employer and the employee.

Be 100% Compliant in Offering Severance with Playroll

Severance laws in China can be complex, with nuances across regions and changing salary caps. Getting it wrong can lead to costly disputes and regulatory scrutiny. Playroll takes the guesswork out of compliance by automatically applying the correct severance formulas, tracking local thresholds, and ensuring on-time payments in full alignment with Chinese labor regulations.

With Playroll, you can confidently scale your team in China without worrying about local employment law traps. Our platform handles every aspect of severance compliance, from calculation to documentation, giving you peace of mind and your employees the fair treatment they deserve. Partner with Playroll to stay compliant, protect your business, and simplify global employment the right way.