Introduction

Shanghai continues to be a global hub for innovation, investment, and rapid commercial growth. But for foreign employers entering or operating in this dynamic market, navigating China’s labour laws requires more than good intentions. Recent regulatory changes, increasing enforcement, and evolving expectations around social security, working hours, and terminations make compliance non-negotiable.

The cost of getting it wrong is high. Missteps can lead to significant fines, legal claims, and even restrictions on operating licences. According to the International Labour Organization, China is intensifying scrutiny of foreign companies’ employment practices, particularly in Tier 1 cities like Shanghai. If you’re hiring, managing, or planning a workforce in the region, understanding your obligations under local law is not just advisable – it’s essential.

Quick Tips

• All employees must have a written employment contract signed within one month of starting work.

• Working hours are typically capped at 40 hours per week – overtime rules are strictly enforced.

• Foreign employers must contribute to five statutory social insurances plus a housing fund, unless exempted under a bilateral treaty.

• Terminations without mutual agreement or strong legal grounds can be risky and expensive.

• Probation periods and fixed-term contracts are tightly regulated – assumptions from other jurisdictions rarely apply.

The Contract is King – and Timebound

One of the most common missteps in Shanghai is failing to provide a compliant written contract within the first 30 days of employment. Under China’s Labour Contract Law, failure to do so obliges the employer to pay double salary until the contract is signed – and can create exposure to disputes.

I once supported a UK client who assumed a verbal agreement would suffice during an employee’s probation. Six months later, a dispute arose around job duties and entitlements. Because there was no signed contract, the case defaulted in the employee’s favour. In Shanghai, the contract isn’t just a formality – it’s your strongest legal safeguard.

Ensure your employment contracts are drafted in Chinese, state clearly the terms of employment, include role descriptions, and reflect local policies. Dual-language contracts can be helpful for global teams, but in legal proceedings, the Chinese version prevails.

Social Security Contributions: No Room for Error

Employers in Shanghai must contribute to five statutory social insurance schemes: pension, medical, unemployment, work injury, and maternity – as well as the housing provident fund. These are non-negotiable unless a bilateral agreement provides an exemption (for example, between China and Germany).

Contribution rates vary between cities and are adjusted frequently. A 2024 update in Shanghai revised the minimum contribution base, catching many international businesses off guard. These are not costs you can afford to get wrong – non-compliance can trigger back payments, fines, and reputational damage.

We worked with a US tech company expanding into Shanghai who had not budgeted for the housing fund, assuming remote workers were exempt. We helped them register correctly, update payroll systems, and negotiate benefit adjustments with employees to remain competitive.

Managing Termination and Dispute Risk

Dismissal processes in China require caution, documentation, and legal justification. ‘At-will’ termination does not exist. Employees can only be terminated under specific grounds defined by law, and severance is typically payable unless dismissal is for serious misconduct.

In Shanghai, employers must also consider the growing number of labour arbitration cases. According to the Ministry of Human Resources and Social Security, labour disputes rose by over 20% in major cities post-COVID, largely due to unclear termination processes and non-standardised employment practices.

Avoid risk by documenting all performance concerns, using formal warnings where needed, and seeking mutual agreements where possible. In more complex scenarios, especially involving foreigners or senior roles, always consult with local legal experts before taking action.

A Real Example: Getting the Basics Right Pays Off

I supported a European manufacturing client entering the Shanghai Free Trade Zone. We reviewed their global HR templates, stripped out non-compliant clauses, added China-specific terms, and trained their local HR team on managing working hours, leave, and social fund compliance.

Six months in, they faced an unannounced audit from local authorities. Because everything was in order – from contracts to payroll records – they passed without issue. The general manager called it a turning point in their China operations, shifting their mindset from reactive to proactive.

Final Thoughts

Shanghai offers remarkable opportunity, but it demands preparation and cultural understanding. Labour laws in China are nuanced and strictly enforced. Western assumptions don’t travel well, and what worked in London or New York won’t always apply here.

If you’re expanding into Shanghai, make labour compliance a foundational part of your HR strategy. It’s about protecting your people, your reputation, and your future growth.

What’s next for your global people strategy?

Book a free compliance check-in or HR audit with ThinkGlobal HR. We help businesses operating in China and across the globe navigate employment law, build solid contracts, and scale confidently. Let us be your partner on the ground – with practical insight, tailored packages, and unwavering support.