배움과 공유의 시간

2. Implementing labor contract laws and changing payment standards

Economic compensation for the termination of employment due to contract
With the implementation of the Labor Contract Act in January 2008, China's economic compensation payment system was greatly expanded. In other words, in the labor law era until 31 December 2007, there was no obligation to renew the contract and to pay economic compensation when the fixed-term labor contract was due. Companies were able to use it to send out senior employees with higher wages and replace them easily with younger workers with lower wages. The Labor Contract Act provides for a wedge in the short-term employment phenomenon triggered by this, and at the end of the contract, an attempt to terminate the employment (in case of contract renewal), economic compensation.
He imposed a payment obligation
Under the principle of non-payment of laws, the period of application of economic compensation for termination of employment due to contract expiration is January 2008.
Only applicable for service period after 1 day.

High-wage economic compensation - Application of the upper payment ceiling regulation
In order to curb some high-wage earners’ excessive receipt of economic compensation, the Labor Contract Act established the upper limit of the high-wage wage earner (3 times) and the limit of the period (12 months). The cap on economic compensation money existed even in the pre-2008 labor legal age. However, at that time, the 12-month cap on economic compensation was applied in exceptional cases only to some statutory requirements (e.g., the lifting of negotiations, the lifting of non-compliance, etc.).
With the upper limit on economic compensation for high-wage workers, the economic compensation shall be calculated by applying the criteria of the past labor legal age to be transferred from January 2008 to January 2008 and the labor contract law era to the period of service thereafter.

3. Calculation of economic compensation and calculation of the number of years of service


Amount of economic compensation = Monthly wage standard corresponding to the number of service

Calculation Method of Wage Standards
It is based on the monthly average wage divided by 12 for the previous 12 months, which includes total wage income for the last 12 months (including bonuses, bonuses, bonuses and overtime expenses) before the termination or termination of labor contracts. If the work is less than 12 months, the average wage is calculated based on the number of months actually worked. Meanwhile, the last 12 months are assumed to be normal business conditions, such as "cancellation of operations" and, in the case of receiving abnormal wages, the period is excluded from the 12 months.

[Local judicial standards for Shanghai]
The Shanghai court was the only court in the country to make a local judicial interpretation that the calculation of economic compensation is deductible because overtime costs are not "normal wage income." However, in order to avoid unnecessary friction with retired employees, economic compensation is calculated and paid, including overtime expenses, unless special circumstances exist in Shanghai.
(Building) Civil Code Application Questionnaire of the High-Level People's Court in Shanghai (2013-1)--Calculator of Economic Compensation Funds

Restriction of economic compensation for high-wage employees

the upper limit of a sum
If the monthly wage of an employee (12 months average wage) exceeds three times the average monthly wage of an employee in the previous year, the wage standard of the economic compensation paid to that employee is calculated as three times that of the previous year's average wage of the company's property.
two-year limit
In calculating the service life, the number of months corresponding to the service life shall not exceed a maximum of 12 months. Even if a person has worked for 20 months, 12 months will be the legal upper limit.

Calculation of years of service

1 Time of service life
The number of years of service at the time of calculating the economic compensation shall be calculated from the working day at the company. However, the fixed-term labor contract is signed and the employment termination date at the end of the contract is subject to the payment of economic compensation only for the years of service from January 2008 (the new clause of the Labor Contract Act).
It is the case of termination of the contract that requires attention here. Economic compensation paid based on the total number of years of service from the time of employment when the contract is terminated from the previous era of labor law
On the other hand, if a medical period is given due to a worker's illness or non-work injury, this medical period is also counted as a continuous service life.

2 Retired soldiers' years of service
Care should be taken when hiring veterans when the military service training is calculated for the first time since retirement and economic compensation requirements are met for the relocation of the company, the economic compensation shall be calculated for the combined period of the company's service and military service (the opinion on the resettlement of veterans in accordance with the employment unit's labor contract system).
However, because the military service training is only counted on the first company after retirement, if a veteran joins the company after several companies, it does not count on the number of years he or she has received economic compensation in his first job or not. Therefore, it is very important for veterans to check whether they are first-time employees or have other company experience.

3 Employee's years of service from China's joint partner company
Many Chinese companies are transferred to the joint venture after their Chinese counterparts set up joint ventures with Korean companies. In this case, the employee’s years of service in the Chinese company are summed up in the joint venture’s years of service. However, if the employee transferred to the joint venture at the instruction of the Chinese joint partner, the employee has terminated the labor contract with the Chinese company that worked as his doctor and joined the joint venture, the number of years of service shall not be added.

4 Training for employees who have been transferred to related companies
If the company transfers employees to a separate company (new company) without the cause of the employee itself, the old company's years of service are added to the new company's years of service (Article 10 of the Labor Contracts Act).
Many cases involve shutting down companies or certain departments whose management has deteriorated, and transferring related employees to related companies. In this case, the employee’s service life is counted on the employee’s service life, which is a separate entity, if the former employee does not pay the economic compensation. However, if the company does not provide a job security service, if an employee releases a labor contract with the former job at his own discretion, and transfers to a related company, the employee's service life will not be added.

4. Requirements for the payment of economic compensation and the standard of tax payment

Payment upon completion of handover
Economic compensation shall be paid upon completion of the employee's handover of work (Article 50, Clause 1 of the Labor Contract Act). The Labor Contract Act stipulated the timing of payment of economic compensation to the completion of the work handover in order to prevent the failure of workers to take over upon retirement. Therefore, employees who have not completed the handover should be paid after confirming the firm implementation of the transfer, since it is not legally problematic to postpone the payment of the economic compensation.

[Labor Contracts Act]
Article50 Workers shall carry out work handover procedures in accordance with both parties' agreements. If the user is required to provide economic compensation to workers under the relevant provisions of this Act, the payment shall be made upon completion of the work handover process.

lump sum payment
Economic compensation money needs to be paid in batches (Article 2 of the Economic Compensation Rules for violating and lifting labor contracts). However, if labor and management agree on the payment in installments, follow the agreement.

a tax payment on economic compensation
Since economic compensation amounts to employee income, it is subject to taxation of personal income tax. In practice, money is paid in the name of consolation money in addition to economic compensation, which is also subject to taxation of personal income tax. When an entity pays economic compensation to its employees, it is obliged to pay the employee’s personal income tax by proxy deduction, as is the case with the payment of wages (article 8 of the Personal Income Tax Act).

[Personal income tax payment method]

1 Income tax exemption limit
Individual income taxes are exempted for income from economic compensation acquired on a one-time basis, and for the amount less than three times the average annual wage of the previous year on corporate property.
[Example] Tax exemption for Shanghai 2013: 4,692元(a monthly average wage in Shanghai 2012)×12 months
= 56,304元3배=168,912元
2 Calculation of personal income tax on excess of the exemption limit
Economic compensation (including surcharges, etc.) is calculated on the basis of the following principles:
(a) Segments within three times the previous year's average annual wage of a workman in the area shall be deducted from the taxable amount of the personal income tax.
(b) Social insurance and kitchen public funds paid from economic compensation as personal burden shall be deducted from the taxable amount of personal income tax.
(c) Since economic compensation is paid in proportion to the period of service, the wages for several months are considered to have been acquired once, and are calculated on average by dividing them into the number of years of service. Meanwhile, if the number of years of service exceeds 12 years, it is calculated as 12 years.

[Personal income tax calculation formula]
Personal income tax = {economic compensation - 3 times the average annual wage in the area - actual kitchen credit paid - social insurance premium paid]기업의 Corporate service life - personal income tax deduction amount} x applied tax rate - calculation deduction amount] x Company's continuous service life