Severance Pay For Non-Renewal of Contract

In today’s article, we will discuss how much severance pay you are entitled to if your contract is not renewed.

It’s summer holidays again, and employment contracts are coming to an end. Your employer may inform you that enrollment rates have decreased, they have found cheaper employees, or you simply don’t meet their requirements. Today, I’d like to discuss three scenarios of non-renewal: offering a worse contract, informing you of non-renewal directly, and not discussing renewal at all.

Offering a worse contract means presenting a contract with a lower salary, longer working hours, or reduced bonuses and allowances. Essentially, this forces you to decline their renewal offer because no one in their right mind would accept a lower salary. To be honest, it is my personal opinion that if even if they offer the same salary, it’s actually a reduction due to inflation, so if I were a lawmaker, I would have employers adjust salaries to inflatio. For instance, 1 million RMB could buy an apartment in Shenzhen 10 years ago, but that same amount of money wouldn’t even cover the cost of a toilet now.

The second scenario is when your employer explicitly tells you that you won’t be renewed because you’re too expensive or they feel you’re not suitable for their needs. In such cases, ensure you document this in writing. Emails, WeChat conversations, or a physical letter with a stamp are all acceptable forms of documentation. I can’t stress enough how important it is to have written evidence because verbal statements cannot be proven in court. It becomes a matter of “your word against mine.” If possible, even a secretly recorded conversation would be sufficient, but I highly recommend obtaining written proof.

The last scenario is when your employer doesn’t mention anything about renewing your contract. In this situation, it’s crucial to document your requests for renewal. You can express your interest in writing by saying something like: “My contract is coming to an end, and I would like to know when you are available to sign a new contract. I enjoy working at this company and would like to continue under the same conditions.” This way, you can establish that you have requested a renewal, and their lack of response signifies rejection.

In any of the three scenarios mentioned above, you may be entitled to severance pay as per the law, which states that a contract must be renewed under the exact same conditions. Severance pay is calculated as one month’s salary for each year of work at the company, denoted as “N”. N is determined by averaging your past 12 salaries, including basic pay, bonuses, overtime pay, and all types of allowances. Each half-year period is rounded up when calculating severance pay. For example, if you have worked for 2 years and 2 months, you would receive 2.5N as severance pay. If you have worked for 3 years and 11 months, you would receive 4N.