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There are many aspects involved in social responsibility oversight, one of which is tracking and confirming compliance with minimum wage laws. If you have contracts with Chinese factories, you may have already reviewed their “minimum salary” practices and standards to ensure they are in compliance with China’s laws and the rules of your corporation. However, more and more these days, companies across the globe are experiencing reputational meltdowns as their overseas manufacturing “partners” fail to comply with both contractual and legal standards. Especially when it comes to social responsibility criteria, consumers from every country have taken a stand against buying from any company that exploits the workforce in their foreign-based production facilities. It is usually a wise course of action to intentionally and frequently review both the wage regulations that govern your Chinese factory and how that plant is faring in compliance details.

The Basics: China’s Wage Determination Scheme

Like other countries, China’s wage limits are set by provincial leadership, not by national leadership. Also like other nations, salary levels differ from region to region, with the highest rates offered in the larger population centers (Shanghai and Shenzhen), and the lowest rates in the outlying, more rural provinces (Jinxiu and Yichun).

Even with the regional variations, China’s minimum salaries have been rising steadily over the past five years. As of April 2016, the city with the highest minimum monthly salary was Shenzhen, a Tier 1 city, where the minimum salary was set at CNY 2030 (A $402), an increase of approximately 33 percent since 2012. The lowest published minimum monthly salary, in the province of Guangxi, of Tier 5 cities, was CNY 1000 (A $198).

Some examples of well known cities minimum salary developments can be seen here:

minimum wage report

Be sure to know what the prevailing standard for Chinese wages is in your factory’s province as you start your “wage-compliance” project. Note also, that China’s minimum wage was never meant to be a “living” wage (one which, in and of itself, would support the worker and/or the family). Most employees that receive minimum wage also work many hours of overtime and rely on production bonuses to make ends meet.

Other Wage-Related Laws

Legally, China’s work week is 40 hours, eight hours per day, five days per week. Overtime – more than 40 regular hours per week – is (supposed to be) compensated at 150 percent of normal wages for normal workdays; 200 percent on “rest” days (weekends), and 300 percent for working on national holidays. Workers are limited to 3 overtime hours per day or 36 hours per month – provided that overtime permit has been obtained. Wages should be paid monthly, and should include compensation for statutory holidays, marriage or funeral leave.

Determining Compliance

Piece rate versus hourly rate

Determining compliance with above-stated legal rules can be tricky because so many of China’s factories work on a piece rate. They pay their staff based on the amount of product (pieces) produced, not on the number of hours which they work. It becomes especially difficult when the piece rate includes items produced during normal and overtime hours. The worker is owed compensation at a higher rate during the overtime period. One way to resolve this conflict is to have the factory start recording both hours and pieces, to ensure that the plant is in compliance with both the law and the contract. (There is a case study on this issue in my book, “Red Flag,” available for sale here).

Inappropriate Apprentice Schemes

Sometimes factories try to skirt wage laws by hiring “apprentices” to perform the same work as their regular staff but at a reduced pay. Apprenticeships are valuable worker development tools, but they are intended to train and educate the employee. If it appears that the “apprentices” in your factory have been on the job, at that lower rate of pay, for too long, it may be that plant management is exploiting their “apprentice” status.

Inappropriate Penalties

Another way that I’ve found facilities taking advantage of their workers is by charging them improper “penalties” or “fees.” Some factories required workers to purchase manufacturing line parts because they “broke” them. In reality, the parts failed because of normal, company-caused wear-and-tear. Other factories have “fined” their employees for smoking on their breaks, spitting in public, and even wearing their uniform “wrong.”

Your Reputation Relies on Your Business Practices, Even Overseas

With the Internet providing a microscopic view of the world’s largest manufacturing sector, it is worth your time and effort to maintain vigilance over the activities of your Chinese manufacturing facilities. Ensuring a fair wage for your contracted employees is an important message to share with your corporate partners and customers. There is more to learn about these and other “red flags” to watch for in your Chinese facilities by downloading the information here. And, by all means, call me if I can be of further assistance.


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