China Labor Law confers the right to take annual vacation with pay on employees who have worked for an employer for one or more years. According to relevant statutory requirement, a labor contract must include a clause for vacation arrangement. It also requires the employers to well organize and arrange the rest time and vacations for their employees, and there will be potential risk for employers to compensate employee for any inappropriate arrangement on vocations. Relevant regulation prescribes that under certain circumstance, for example, if there are too many work assignments, and the employer urgently needs specific employee to complete the work, the employer may disapprove the employee to take annual leave with the consent of such employee. In that case, the employer shall pay wage to the employees at the rate of 300% of the daily wage income of such employees.
HR and Admin staffs at our client’s companies often ask for our China lawyer’s advice on better managing the annual vacation with pay. Such kind of inquiries may be raised during all phase of the operation of a company including set-up, daily management, liquidation and dissolution. The vacation arrangement affects many aspects of corporate management such as the salary budget and calculation, balance between daily work allocation and overall production plan, compensation and severance payment calculation issues during resignation or termination of labor contract.
Employer should make clear rules as to under what conditions an employee may be entitled to take annual vacation with pay. The number of days of the annual vacation provided by employer to employee should not be less than the statutory minimum number. As such, at least 5 days shall be granted for the employee who has served an employer for more than one year but less than 10 years; the employee who has served for more than 10 years but less than 20 years will be entitled to take at least 10 days annual leave, and the minimum number of days for those who have served for more than 20 years should be 15. Laws and regulations provide leave for employer on not allowing employee to take annual leave for the current year under several specific conditions, for example, when the employee has taken for more than 20 days leave for private matters.
It would also be important for an employer to clearly incorporate specific rules on taking annual leave either in the labor contract or its employee handbook or any of its internal bylaws. In this way, there will be agreements in writing between the employer and the employee as to under what conditions an employee is entitled to how many number of days for annual leave for the current year. If the employer offers additional days of annual leave to an employee as allowance, but the employee has not taken up all days for annual leave at the end of the year, there should be a written acknowledgement between the employer and the employee as to the disposal of those untaken leaves. Possible ways for the disposal will include exchanging the untaken annual leave into compensation leave, exchanging the untaken annual leave into monetary compensation and conducting zero clearing at the end of the year. These written documents may be easily followed and referred to as evidence during any potential dispute between the employer and employee regarding the annual vacation with pay.