Legal Update: Salary Payment Issues During COVID-19 Lockdown in China

To fight against a new wave of the Omicron-dominated pandemic in Shanghai, the Chinese government imposed a two-month full lockdown in the city beginning at the end of March 2022, confining around 25 million residents to their homes. Under the Chinese government’s zero-COVID policy, the full lockdown has led to challenges not only for residents, but also for businesses in China, especially those with operations that do not lend themselves well to remote work. Employers encountered significant difficulties when workplaces and factories were quickly closed for months, which led to some exploring reductions to employee salaries and deferred payments. 

Is it permissible to reduce employees’ salary during a COVID lockdown?

As per the Interim Salary Payment Regulation that applied nationally across China, if a business is shut down due to no fault of employees for less than one salary payment cycle (normally one month in China), then the employer is required to pay employees their full salary. However, if the shutdown period exceeds one salary payment cycle, and the employees have not provided any service, the employer can pay employees a basic allowance that is below their salary. According to a local regulation in Beijing, the amount of such basic allowance should not be less than 70% of local minimum salary announced by the local government. In Shanghai, local laws are silent on the standard of the basic allowance. Based on judicial precedent, the basic allowance in Shanghai is from 70% to 80% of local minimum salary.

Can employers postpone salary payments during a COVID lockdown?

Many employers in Shanghai, like those in other cities under the lockdown, discovered that their HR staff could not complete salary payment procedures on a normal schedule, as they had no access to the necessary facilities kept in the office. 

An employment-related guideline has been released jointly by the Shanghai Higher Court and Shanghai labor authority, which specified that employers unable to pay salaries due to the COVID lockdown could postpone salary payments after consultation with trade union or employee representatives. According to this guideline, during the lockdown period, such consultation could be conducted remotely via emails, the employer’s remote access system, or even social media apps. Based on our experience, however, neither the union nor the employee representatives have been able to wield any power over decisions to postpone salary payments due to the COVID lockdown. 

In summary, it is permissible to reduce employees’ salaries and postpone the salary payment schedule during the COVID-19 lockdown. In practice, however, salary reductions and salary payment postponement should be handled in compliance with the Chinese law. 

If you have any questions related to salary payment issues in China as a result of the lockdown, please contact Wan Li at lwan@seyfarth.com or any member of Seyfarth Shaw’s specialist International Employment Law Team.