Days of cheap labor are over for Taiwanese businesses in China
Apr 10, 2006
With the imminent implementation of the Labor Contract Law in China, the 100,000 Taiwanese companies there will confront stringent conditions in their personnel management and much higher labor costs.
The new law covers a wide range of labor-related affairs, including lay-off, severance pay, massive layoff, temporary help supply (THS), and competitive clause, whose contents are even more stringent than Taiwan. In the future, Taiwanese businesses in China will not be able to dismiss their employees recklessly, and will have to pay severance pay to laid-off employees, which will boost their personnel costs considerably.
Personnel managers noted that following the implementation of the law, it's even more difficult for Taiwanese businesses in China to lay off their employees than the situation in Taiwan. The golden days for the enjoyment of cheap labor by Taiwanese businesses across the Taiwan Strait are coming to an end. It's expected that major coastal cities will be the focal points for the enforcement of the law in the future.
The drafting of the law is in line with the planning of China's 11th five-year economic development plan, with the purposes of maintaining social harmony, stabilizing labor-management relations, and lowering unemployment rates. The law took references from similar labor laws in Germany, Belgium, and the U.S. in its drafting. The draft law was publicized on March 20 to solicit opinions and comments from various circles and submitted, along with those opinions and comments, to the standing committee of People's Congress for inspection. It will be put into force in September at the earliest.
Chou Chang-hsiang, a ranking official at Chung-Hua Human Resources Management Association, explained that the drafting of the law is designed to stem the spreading labor-management disputes, including back-pay issue, in China and stabilize the job market. During the preview period, the regulatory agency received over 5,000 proposals to modify the draft law, none from the Taiwanese businesses, though.
The law claims to be the most stringent labor law worldwide and will be applicable to all businesses in China. It hopes to replace the existing common one-year fixed-term labor contract with life-long employment system gradually, so as to assure the job stability of Chinese employees.
The draft law stipulates that for the termination of labor contracts, the management must notify labor union in advance, which has the right to raise objection. This will greatly restrict the right of businesses in China to lay off employees.
Currently, businesses in China don't necessarily have to pay severance pays to laid-off employees, depending on the regulations of local governments. In the future, all businesses in China will have to make severance payments to laid-off employees, equivalent to one month's pay for every one year of service or half-month pay for service less than half a year. Laid-off employees are entitled to extra one month's pay for odd months of their service. The calculation standard is even higher than Taiwan's Labor Standards Law, which only provides certain percentage of one-month pay for odd months of service proportionately.
Chou Chang-hsiang reported that in order to lessen their burden for labor management, many Taiwanese businesses in China rely heavily on temporary help supply in their employment and it's common to see 20,000-30,000 THS workers in a plant compound. The new law stipulates that THS firms must appropriate 5,000 yuan of deposit for every THS worker to prevent the problem of back pays. The costs of the deposits will inevitably be passed on to Taiwanese businesses. Moreover, Taiwanese businesses will have to bear associated liabilities for any damage on the rights of THS workers.
source & copyright: CENS