Calculation and payment of economic compensation
1. Does the formula for calculating statutory economic compensation under the PRC Labour Contract Law apply in respect of an employee’s pre-2008 period of employment?
The basic formula is similar; however, due the the difference between the Labour Contract Law and the relevant pre-2008 rules on calculation of severance pay, the statutory economic compensation payable to an employee who joined the employer before 2008 may have to be calculated differently based on the pre-2008 period and post-2008 period. This is subject to the local judicial practice.
2. An employee joined the Company in Shanghai on 1 August 2006 under an employment contract stated to expire on 30 April 2013. The Company does not renew the employee’s employment after its expiration. The employee’s average monthly salary during the 12months prior to the expiration of the employment contract is RMB 15,000. How much statutory economic compensation is payable to the employee?
The employee in this example is only entitled to economic compensation calculated based on his or her post-2008 service period. According to the pre-2008 rules, no statutory economic compensation is payable to the employee where the employment contract ceases due to expiry if its stated duration.
3. Adopting the same facts as above, except that the employee has agreed to terminate his employment with the Company by mutual separation on 30 April 2013.m how much the statutory economic compensation is the employee entitled to?
For pre-2008, the calculation basis is the employee’s actual average monthly salary during the previous 12 months and the actual period of service of 1 year and 5months can only be deemed as 1year for the purpose of the Service Period.
As to the post-2008, the calculation basis is capped at 300% of the Local Average Monthly Salary in Shanghai and the actual years of service after 1 January 2008 are 5years and 4 months, which should be counted as 5.5 years.