It is quite common in practice for employees to request termination of their labour relationship and seek economic compensation on the grounds that employers “fail to pay labour remuneration in time and in full”, citing article 38.1(2) of the Labour Contract Law.

This article analyses how to define such employer failures in light of local regulations and court decisions.

Failure to pay in (on) time. This refers to situations in which the employer fails to pay labour remuneration on the payday agreed in the labour contract, or as customarily practised. Notably, delayed payment is allowed in the event of force majeure – such as natural disasters and wars – or significant operational difficulties that affect cash flow.

In Beijing and Shanghai, employers are allowed to delay wage payment if critical operational difficulties prevent timely disbursement, pursuant to article 26 of the Regulations of Beijing Municipality on Wage Payment and article 10 of the Measures of Shanghai Municipality on Wage Payment by Enterprises. Such delays are subject to a consensus between the trade union and employee representatives, and employees must be duly informed as well.

A maximum delay of 30 days is allowed in Beijing, while in Shanghai the limit is one month. Similarly, Shenzhen also allows employers to delay wage payment during operational difficulties, with a grace period of up to 15 days in accordance with article 12 of the Regulations of Shenzhen Municipality on Wage Payment to Employees.

Failure to pay in full. This refers to a situation where the employer fails to pay full remuneration to employees as stipulated by law and the labour contract, resulting in underpayment. However, wage deductions made due to the employee’s violation of relevant regulations, if executed under the labour contract or valid internal documents of the employer, shall not be recognised as “failure to pay labour remuneration in full”.

In addition, the Supplementary Provisions on Issues Related to the Provisional Regulations on the Payment of Wages mandates that the following situations shall not be recognised as “failure to pay labour remuneration in full”:

1.Where it is explicitly provided for in the national laws and regulations;

2.Where it is explicitly provided for in the employer’s rules and regulations formulated in accordance with the law and approved by the employees’ representative meeting; and

3.Where the total wage bill is linked to the enterprise’s economic performance and wages must be adjusted downward when economic performance declines.

This term refers to the total compensation that the employer is obliged to pay the employee under the terms of the labour contract, provided that the employee has performed his/her duty as required.

Employer failure to pay statutory punitive damages or compensation should not be recognised as “failure to pay labour remuneration in time and in full”. Take the double wage payment, for example, which is imposed on employers who fail to sign a written labour contract with an employee. It is clearly stated in local guidelines of Beijing that the additional one-time wage shall not be counted as labour remuneration.

As for high-temperature subsidies and wages fully paid during medical treatment for work-related injuries, no consensus has been reached so far on whether they should be counted as labour remuneration.

Some courts, such as Songjiang district people's court of Shanghai in Hu 0117 Min Chu No. 6207 (2023), view high-temperature subsidies as special allowances provided by employers to employees working under extreme weather conditions, categorising them as employee benefits rather than labour remuneration.

Conversely other courts, including Lianyungang intermediate people’s court of Jiangsu province in Su 07 Min Zhong No. 2646 (2020), consider high-temperature subsidies as job allowances legally entitled to employees working in high-temperature conditions, thus classifying them as labour remuneration.

For wages fully paid during the medical treatment period, interpretations differ between Jiangsu province and Zhejiang province. Pursuant to article 5 of its Summary of Seminar on Controversial Issues in Labour and Personnel Disputes, Jiangsu province recognises such wages as labour remuneration.

However, Zhejiang province classifies these wages as work-related injury insurance payouts rather than labour remuneration, based on article 9 of the Answers to Several Questions in the Trial of Labour Disputes (V) issued by the First Civil Division of Zhejiang Higher People’s Court and the Arbitral Tribunal of Labour Disputes in Zhejiang province.

The legislative intent of article 38.1(2) of the Labour Contract Law is to prevent employers from maliciously defaulting on the payment of labour remuneration, thereby protecting the legal rights and interests of employees. It is therefore necessary to assess whether the employer has subjective malice to default on or withhold labour remuneration.

Regions such as Shanghai, Tianjin and Zhejiang have made clear provisions on subjective malice of employers in failing to meet their obligations of remuneration payment.

Although Beijing lacks specific guidelines in this area, its judicial practice reflects a similar tendency. For instance, in  Jing 0118 Min Chu No.204 (2021), the court held that the employer – facing operational difficulties during the pandemic – did not have the malicious intent to withhold wages, and thus rejected the employee’s request for payment of economic compensation for termination of the labour contract.

In summary, proving an employer’s “failure to pay labour remuneration in time and in full” requires not only the objective fact of delayed or insufficient payment, but also the employer’s malicious intent. Both the objective and subjective elements must be present to establish a violation of article 38.1(2) of the Labour Contract Law, rather than merely mechanical application of the legal provision.