China’s labor law is among the strictest in Asia when it comes to written employment contracts. For foreign-invested enterprises (FIEs) and any employer operating in China, failure to comply can result in severe financial penalties, long-term legal obligations, and reputational damage. 

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This guide explains exactly what happens when an employer is fined for missing written contracts in China, how penalties are calculated, and crucially, how to avoid these costly mistakes.

Why Written Contracts Are Non-Negotiable in China

The Labor Contract Law of the PRC

Article 10 of the Labor Contract Law of the People’s Republic of China (LCL) is unequivocal:

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“A written employment contract shall be concluded at the time of establishment of the employment relationship.”

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This applies to all employers in China, including FIEs, Chinese companies, and representative offices.

Definition of "Employment Relationship" and Its Commencement

An employment relationship is typically established the moment an employee starts providing labor and receives compensation. 

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This can occur even if a written contract has not yet been signed.

The 30-Day Grace Period

Employers have a 30-day grace period from the employee’s start date to sign a written contract. During this time, the employment relationship is valid, but the contract must be formalized in writing.

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When Written Contracts Are Not Required

Genuine part-time employees (working less than 4 hours per day and 24 hours per week) may be exempt from the requirement for written contracts, but strict statutory definitions apply.

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Also read: Quality Control Clauses in Chinese Manufacturing Contracts

Double Wage Penalty and Its Financial Impact

How the Double Wage Penalty is Triggered

If an employer fails to sign a written contract within 1 month but less than 1 year from the start of employment, Article 82 of the LCL mandates that the employer must pay the employee double wages for each month without a contract, starting from the second month.

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• Period covered: From the second month up to the twelfth month of employment.
• Trigger: Employee files a claim with the labor arbitration commission.

Calculation of Double Wages and What "Wages" Include

“Wages” typically refers to the employee’s normal monthly salary, including base pay, allowances, and regular bonuses. However, local interpretations may vary. Some regions include more components (e.g., housing allowances, overtime), so always check local HR guidelines.

Example of Double Wage Penalty Calculation

Scenario:

• Employee starts: January 1  
• No written contract signed until June 1 (5 months late)  
• Monthly salary: RMB 10,000

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Penalty: 

• Months without contract after first month: 4 (February–May)  
• Double wage owed: 4 months × RMB 10,000 = RMB 40,000 (in addition to regular salary already paid)

Statute of Limitations for Claims and Employee's Window to Act

Employees have one year from the date they become aware of the violation to file a claim for double wages. This window can be extended under certain circumstances.

Automatic Establishment of an Open-Ended Contract

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The 1-Year Threshold: When a Contract Becomes Indefinite-Term

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Article 14 of the LCL states that if an employer fails to sign a written contract after one year of continuous employment, the law automatically deems an open-ended (indefinite-term) contract to exist.

Implications for Termination

Terminating an open-ended contract in China is significantly more difficult than ending a fixed-term contract. Employers must demonstrate statutory grounds (e.g., gross misconduct, redundancy) and pay substantial severance, often calculated as one month’s salary per year of service.

Comparing Termination of Fixed-Term vs. Open-Ended Contracts

• Fixed-term: Ends automatically upon expiry (with proper notice and severance if applicable).
• Open-ended: Can only be terminated for statutory reasons; otherwise, the employer faces high legal and financial hurdles.

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Also read: How To Terminate a Contract With a Chinese Supplier Effectively

Direct Administrative Fines from Labor Authorities

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In addition to double wage payments to employees, labor authorities may impose direct administrative fines on non-compliant employers.

Legal Basis for Administrative Fines

Article 81 of the LCL empowers labor bureaus to issue fines for missing written contracts, especially when violations are widespread or repeated.

How Fines are Determined

Administrative fines are typically calculated based on:

• The number of employees affected
• The severity and duration of non-compliance
• Local regulations (amounts and procedures vary by city/province)

Reputational Damage: The Unseen Cost of Non-Compliance

Being publicly listed as a non-compliant employer can damage your business reputation, affect government relations, and hinder future hiring.

Common Scenarios Leading to Missing Contracts & Penalties

Over-reliance on Offer Letters or Verbal Agreements

Some employers mistakenly believe a signed offer letter or verbal commitment is enough. It is not a formal written contract.

Failure to Renew Expired Fixed-Term Contracts

If a fixed-term contract expires and the employee continues working, a new written contract must be signed. Failure to do so triggers penalties.

Overlooking Probationary Period Formalities

Probationary periods must be clearly defined in the written contract. Employing someone on “probation” without a written contract is a violation.

Misunderstanding Rules for Foreign Employees and Expats

All employees in China including foreign nationals require a written contract in compliance with Chinese law. English-only contracts are not sufficient.

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Also read: Employment Contract in China: Guide for Employers and Employees

How Employers Can Avoid Penalties

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1. Sign Written Contracts Within 30 Days (and Keep Records!)

• Ensure every new hire signs a compliant contract within one month of starting work.
• Retain signed copies (physical or digital) for at least two years after employment ends.

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2. Ensure Contracts Are Bilingual (Chinese & English) and Legally Valid

• Use bilingual contracts with the Chinese version as the governing text.
• Affix official company chops/seals.

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3. Properly Manage Contract Renewals and Terminations

• Track contract expiry dates and renew or end contracts in writing.
• Document all terminations and ensure statutory procedures are followed.

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4. Understand Local Regulations (City/Province Specifics)

• Double wage calculations and administrative fine procedures can vary regionally.

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5. Regularly Review HR Practices and Templates

• Update contracts and employee handbooks in line with the latest labor law amendments.

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6. Engage Local Legal/HR Experts for Guidance

• Consult with local professionals to audit compliance and handle disputes.

Conclusion

Strict compliance with China’s labor contract requirements is non-negotiable. Failing to sign written contracts exposes employers to substantial financial penalties, administrative sanctions, and long-term legal risks. 

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By understanding the law, implementing robust HR processes, and seeking local legal advice, employers can avoid being fined for missing written contracts in China and ensure smooth, compliant operations.

Frequently Asked Questions

What are the penalties for not having a written employment contract in China?

Employers must pay double the employee’s monthly wage for each month without a written contract (after the first month, up to 11 months). Labor authorities may also impose administrative fines, and after one year, an open-ended contract is automatically established.

How is the double wage penalty calculated for missing contracts in China?

The penalty equals the employee’s regular monthly wage (including allowances/bonuses, depending on local rules) for each month after the first month without a contract, up to 11 months. For example, if the monthly wage is RMB 10,000 and the contract is missing for 4 months, the penalty is RMB 40,000.

Does a written employment contract need to be in Chinese to be valid?  

Yes. The contract should be in Chinese or bilingual (Chinese and English), with the Chinese text having legal precedence. English-only contracts are not recognized by Chinese labor authorities.

Can an employment contract become open-ended if not signed in China?  

Yes. If no written contract is signed after one year of continuous employment, Chinese law automatically deems the employment relationship to be open-ended (indefinite-term), making termination very difficult and costly for the employer.

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