Shanghai, a bustling global financial hub, continues to attract international businesses looking to tap into Asia’s dynamic markets. For HR leaders and global employers in the US and UK eyeing expansion into this vibrant city, understanding the intricate landscape of local labour laws and compliance is paramount. Navigating these regulations can be complex, with nuances that differ significantly from Western jurisdictions.
This article delves into the critical labour law considerations for hiring employees in Shanghai in 2025, offering insights to ensure a smooth and compliant expansion.
The Foundation: China’s Labor Contract Law and Shanghai’s Specifics
At the core of China’s employment framework is the Labor Contract Law of the People’s Republic of China, enacted on January 1, 2008, with subsequent amendments. This national law sets the overarching principles for labor relations, but local regulations in Shanghai often provide more specific interpretations and requirements.
In 2025, several key areas continue to evolve, particularly concerning contract types, termination, and employee protections. Recent reforms underscore China’s increasing focus on safeguarding employee rights and promoting transparent business practices.
Key Labor Law Considerations in Shanghai for 2025
1. Employment Contracts: Clarity and Compliance
The employment contract is the bedrock of the employer-employee relationship in Shanghai. Businesses must issue a written labor contract to employees, ideally within the first three days of employment, and legally, it must be issued within one month. Failure to do so can result in significant penalties, including double wages for the period without a written contract, as stipulated by Article 82 of the Labor Contract Law.
- Types of Contracts:
- Fixed-Term Contracts: These contracts have a specific duration. However, 2025 updates introduce stricter rules on their renewal. Employees who have completed two consecutive fixed-term contracts generally must be offered an indefinite-term (permanent) contract if they continue working. This is a crucial point, as Shanghai’s judicial practice has shown a trend towards favoring employee’s right to renewal, shifting from previous interpretations.
- Indefinite-Term Contracts: These contracts do not have a specified end date and typically offer greater job security to employees.
- Non-Fixed-Term Contracts: These are less common for direct hires but can arise after multiple fixed-term renewals.
- Mandatory Clauses: Contracts must clearly define terms such as working hours, remuneration, job roles and responsibilities, probation periods, and termination grounds. Missing or incomplete clauses are a common source of compliance failures.
- Bilingual Contracts: While not legally mandated for all aspects, drafting bilingual contracts (Chinese and English) is highly recommended for clarity and to mitigate potential misunderstandings, especially for foreign companies.
2. Probation Periods: Strict Regulations
Probation periods in Shanghai are subject to stringent regulations. Their duration is tied to the length of the employment contract:
- For contracts of less than three months, no probation period is allowed.
- For contracts of three months to one year, the probation period cannot exceed one month.
- For contracts of one year to three years, the probation period cannot exceed two months.
- For indefinite-term contracts or fixed-term contracts of three years or more, the probation period cannot exceed six months.
Crucially, employers cannot extend probation periods beyond these statutory limits, and repeated extensions are now punishable with fines and damages. During probation, an employer can only terminate an employee for specific reasons, such as the employee failing to meet recruitment conditions or being found to be unqualified for the position.
3. Working Hours, Overtime, and Leave Entitlements
China’s standard working week is 40 hours, typically 8 hours a day, 5 days a week. Any work exceeding these hours is considered overtime and must be compensated accordingly.
- Overtime Pay:
- Working on weekdays beyond standard hours: 150% of the normal wage.
- Working on rest days (typically weekends) without compensatory leave: 200% of the normal wage.
- Working on statutory public holidays: 300% of the normal wage.
- Public Holidays: China observes several legal public holidays, including New Year’s Day, Spring Festival, Qingming Festival, Labor Day, Dragon Boat Festival, Mid-Autumn Festival, and National Day, totaling 13 days off annually. Employers must grant paid time off for these holidays.
- Annual Leave: Employees are entitled to paid annual leave based on their accumulated working years:
- 1-10 years of service: 5 days
- 10-20 years of service: 10 days
- Over 20 years of service: 15 days
- Other Leaves: This includes sick leave, maternity leave (typically 98 days, with additional days for difficult childbirth or multiple births), paternity leave, marriage leave, and bereavement leave, all subject to specific regulations.
4. Minimum Wage
Shanghai consistently maintains one of the highest minimum wages in China. As of July 1, 2025, Shanghai’s monthly minimum wage has been adjusted to RMB 2,740 (approximately US378permonth),withanhourlyminimumwageofRMB27.7(approximatelyUS3.7 per hour). Employers must ensure that their employees’ wages meet or exceed these thresholds.
5. Social Insurance and Housing Provident Fund
Both employers and employees are mandated to contribute to China’s comprehensive social insurance system, often referred to as the “Five Insurances and One Fund”:
- Five Insurances:
- Pension Insurance: Provides retirement benefits. Employer contribution is typically around 16% (can vary by region), employee contribution around 8%.
- Medical Insurance: Covers medical expenses. Employer contribution around 6%, employee contribution around 2%.
- Unemployment Insurance: Offers support during periods of unemployment. Employer contribution approximately 1%, employee contribution approximately 0.5%.
- Work Injury Insurance: Covers injuries sustained during work. Employer pays 0.5% – 2% (depending on industry risk), employee contributes 0%.
- Maternity Insurance: Provides benefits related to pregnancy and childbirth. Employer pays approximately 1%, employee contributes 0%.
- One Fund (Housing Provident Fund – HPF): This mandatory savings scheme helps employees afford housing. Both employer and employee contribute to individual accounts, typically at a rate between 7% and 14% of the employee’s monthly salary in Shanghai. Contributions are tax-exempt up to a certain limit. Foreign employees with valid work and residence permits are generally eligible and often required to participate.
The contribution base for both social insurance and the housing fund is determined by the employee’s average monthly salary from the preceding year, subject to local minimum and maximum contribution caps. For instance, in Shanghai, the housing fund salary cap for July 2024 onwards is RMB 36,921.00.
6. Individual Income Tax (IIT)
Foreign employees working in Shanghai are subject to China’s Individual Income Tax (IIT). China’s IIT system is progressive, with rates ranging from 3% to 45%. Taxable income includes salaries, bonuses, allowances, and equity compensation. Foreign-sourced income is also taxable for tax residents.
It’s crucial for employers to correctly calculate and withhold IIT, and also to understand applicable exemptions and deductions, such as certain housing stipends, transportation allowances, and education expenses for children, provided they are properly documented and filed. The “Administrative Measures for the Annual Final Tax Settlement on Comprehensive Individual Income” effective from February 26, 2025, standardize the final settlement process, requiring taxpayers to complete reconciliation between March 1 and June 30 of the following tax year.
7. Termination of Employment
Terminating an employment contract in China, and particularly in Shanghai, is a highly regulated process. The Labor Contract Law offers strong protection to employees, making “at-will” employment virtually non-existent.
- Legal Grounds for Termination: Employers must have clear, documented grounds for dismissal, such as:
- Material breach of the labor contract by the employee.
- Serious violation of company rules and regulations (which must be clearly communicated and accessible to employees).
- Incompetence after training or adjustment of position.
- Economic layoff in specific circumstances.
- Notice Period and Severance Pay: Depending on the reason for termination and the contract type, employers are usually required to provide a statutory notice period (typically 30 days) or payment in lieu of notice, and severance pay (N+1, where N is the number of years of service, with some limitations on the maximum N). Unlawful termination can lead to significant compensation claims, potentially double the statutory severance.
- Judicial Trend: Shanghai’s judicial practice in 2025 emphasizes employee stability. For instance, there’s a judicial development regarding the termination of a second fixed-term employment contract, where if an employee proposes to sign an indefinite-term contract upon its expiration, the employer might be compelled to sign it, diverging from past practices that allowed employers more leeway.
8. Work Permits and Visas for Foreign Employees
For foreign professionals, securing the correct work permits and visas is a multi-step process. The Foreigner’s Work Permit (categorized as A, B, or C based on talent level) and a corresponding Z-visa are essential. The application typically involves:
- Applying for an Employment License/Notification Letter of Foreigner’s Work Permit before the employee enters China.
- Applying for a Z-visa at a Chinese embassy/consulate in the employee’s home country.
- Undergoing a physical examination upon arrival in Shanghai.
- Applying for the Foreigner’s Work Permit and a Residence Permit after entering China.
It is crucial to ensure all documentation is accurate and submitted within strict timelines.
The EOR Advantage: Simplifying Shanghai’s Labor Compliance
The complexities of Shanghai’s labor laws, from drafting compliant contracts and managing social insurance contributions to navigating termination procedures and foreign talent permits, can be a significant hurdle for international businesses. This is where an Employer of Record (EOR) like Eos Global Expansion becomes an invaluable partner.
An EOR legally employs your staff in Shanghai on your behalf, handling all the intricacies of local labor law compliance. This includes:
- Drafting and managing legally compliant employment contracts tailored to Shanghai’s specific regulations, including the latest 2025 updates on fixed-term contracts and probation periods.
- Ensuring accurate and timely payroll processing, including calculation and remittance of wages, overtime, and statutory benefits.
- Managing all social insurance and housing provident fund contributions, adhering to the correct contribution bases and rates.
- Handling individual income tax filings for your foreign and local employees, keeping abreast of any changes in tax policies.
- Facilitating work permit and visa applications for your foreign talent, streamlining the often-complex immigration process.
- Providing expert guidance on termination procedures, minimizing legal risks and ensuring compliance with severance and notice period requirements.
By partnering with an EOR, your company can focus on its core business objectives and strategic growth in the Asian market, confident that its Shanghai workforce operations are fully compliant with local regulations, without the need to establish a legal entity in China.
Conclusion
Expanding into Shanghai offers tremendous opportunities, but success hinges on a thorough understanding and strict adherence to its evolving labor laws. The regulatory landscape in 2025, with its emphasis on employee protection and specific rules for contract management and social contributions, demands meticulous attention to detail. For HR leaders and global employers in the US and UK, proactive compliance is not just about avoiding penalties, but about building a stable, motivated, and legally sound workforce.
Ready to Navigate Shanghai’s Labor Landscape with Confidence?
Don’t let the complexities of local regulations hinder your global ambitions. Eos Global Expansion specializes in simplifying international expansion, providing comprehensive Employer of Record services that ensure seamless labor compliance in Shanghai and across Asia.
Contact Eos Global Expansion today to learn how our tailored EOR solutions can support your hiring needs and accelerate your growth in Shanghai. Check our full-range of EOR services here or book a free consultation now.
