On May 8 2012, China's Ministry of Human Resources and Social
Security (MOHRSS) issued draft national rules regarding application
qualifications and procedures for overtime exemptions under the flexible
working hours system and the comprehensive working hours system.
The current national rules governing overtime exemptions are
scattered in regulations and circulars issued by the Ministry of Labor
(the predecessor of the MOHRSS) in the 1990s. Almost every province has
since issued its own local regulations, which in some cases vary from
the national rules. Additionally, local labour bureaus have also adopted
various practices and rules for the approval of overtime exemptions.
The inconsistencies in law and practice have often made it difficult
for employers to standardise overtime policies when they have operations
in different locations. For example, senior executives working for
companies registered in Beijing are automatically subject to the
flexible working hours system without approval from the local labour
bureau. In contrast, companies registered in other cities may need to
obtain approval. The draft MOHRSS rules appear aimed in part at
eliminating regional differences and local discretion in the approval
process for overtime exemptions.
After a period of public comment and expected revisions, the
finalised rules should be issued before the end of this year. There are
several significant highlights in the rules.
The first is that the scope of positions that are eligible for the
flexible working hours system are expanded to include "positions where
employees may arrange their own time with no attendance requirements,
such as technical, research and development, and creative positions".
Management positions eligible for the flexible working hours systems
would be limited to board chairpersons, directors, supervisors, general
managers, and deputy general managers.
Current rules do not specify the scope of senior managers eligible
for the flexible working hours systems. As a result, many local labour
bureaus often refer to Article 217 of the Company Law, which defined
"senior managers" to include general managers, deputy general managers,
financial controllers, secretaries to the board of directors of listed
companies, and others set forth in the article of association of a
company. The draft rules take away employer flexibility to define the
management positions that are eligible for the flexible working hours
Next, employees subject to the flexible working hours system will be
required be paid at least the average local monthly salary, which is
currently Rmb4,672 ($735) in Beijing and Rmb4,331 in Shanghai. This
requirement prevents employers from abusing the flexible working hours
system, for example, by paying the minimum wage without overtime pay.
The new requirement to pay the average local monthly salary employees is
the first time that a minimum compensation requirement has been applied
to a certain type of employees.
Thirdly, the draft rules will reduce the scope of positions eligible
for the comprehensive working hours system. Under current rules, the
comprehensive working hours system may be applied to job positions based
on the business needs of the employer regardless of the type of
industry. The scope of positions eligible for comprehensive working
hours system under the draft rules is generally restricted to primary
industries (for example farming, mining, construction and public
services such as railway and air transport, telecommunication) and other
industries as determined by MOHRSS. The comprehensive working hours
system permits employers to average working hours over approved periods
of time, such as months or quarter years.
Manufacturing is excluded from the scope of eligible industries. As a
result, employment costs are expected to increase with manufacturers
facing the choice in peak seasons of increased overtime payments or
hiring additional staff.
Fourthly, more overtime limits will be introduced for the
comprehensive working hours system. Daily, weekly, quarterly, and annual
overtime limits (in addition to the current limit of 36 hours per
month) are created in the drafted rules. Such limits further reduce
employer flexibility to allocate working hours over approved time
Another change is that the consent of unions or employee
representative congresses will be required for an employer with a union
to apply to adopt an alternative working hours system. An employer
without a union would be required to obtain the consent of each affected
employee. The requirement to obtain employee consent appears to be
leverage to encourage employers to form unions given that obtaining the
consent of each employee would likely be difficult.
Under the draft, the scope of employers that may seek approval for
alternative working hours systems will also be expanded to include
accounting firms, law firms, public institutions, social organisations,
and foundations. Under current rules, only companies may seek approval
for alternative working hours systems.
Finally, the definition of 'working hours' is to be expanded to
include time spent preparing and finishing work, a mandatory break time,
and required stand-by periods. The expanded definition is likely to
increase costs and reduce productivity for affected employers.
Dongpeng Wang and Jeffrey Wilson