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How Can Enterprises Save Themselves?



Authors: Shao Weiyan, Qin Gong
Translator: Normand Gauthier

At the beginning of 2020, COVID-19 disrupted the lives of everyone and the normal production and operation of enterprises. According to a survey[1], 85% of companies have only three months of fund balance, and nearly 63% of the company attributed the main cost pressure to labor cost. News of dismissal of employees, bankruptcy and liquidation, and collective salary reductions have begun to appear in the newspapers. Fortunately, various measures have been introduced at the national and local levels to support enterprises (such as the phased reduction of social insurance premiums, the implementation of the enterprise deferred housing fund policy, the implementation of training fees subsidies, etc.) to alleviate the pressure on enterprises a certain extent. It will take some time for the economic recovery to reach the desired level. Then, in this special period, on the basis of this external support, how can companies save themselves? According to the existing background and policies, the author has listed some suggestions for enterprises’ reference.

1. Comprehensive adjustment of rest days
In order to help the stable and healthy development of enterprises in difficulty during this special period, many governments have issued regulations on comprehensive adjustment of rest days. For example, the General Office of the Beijing Municipal People's Government has issued the "More Supports for Fighting Against Pneumonia Epidemic Cause by COVID-19 Infection”, Article 10 (Jing Zheng Ban Fa [2020] No. 5)[2]; the Shanghai Municipal People's Government issued the "Notice of the Shanghai Municipal People's Government on the Issuance of Several Policies and Measures to Prevent and Contain the Epidemic and Support the Stable and Healthy Development of the Enterprises." (Hu Fu Gui [2020] No. 3) Article 22[3]; The Shenzhen Municipal People's Government issued Article 14 of "Shenzhen's Measures to Support Enterprise to Overcome Difficulties in Response to COVID-19 Outbreak" (Shen Fu Gui [2020] No. 1).[4]

The comprehensive adjustment of rest days of the year is mainly applicable to employees under the standard working hours system. Enterprises can negotiate with the trade union and employees according to their own circumstances. Employees can take rest days and then work make-up shifts at a later time. However, the company must comply with the relevant provisions of the labor law when making comprehensive rest days adjustments, ensuring that employees have at least one day off per week[5], and that extended working hours must not exceed 36 hours per month.[6]

There are two ways to pay wages when using comprehensive adjustment of rest days. The first method: Since the rest day is an unpaid leave, the salary is paid according to the actual number of working days, that is, one day's salary is calculated when the shift is worked. The second method: the normal salary is paid monthly as usual according to the standard of the labor contract. The author recommends that if the enterprise adopts the comprehensive adjustment of rest days, the payment of wages shall be in accordance with the provisions of Article 4 of the Labor Contract Law[7], and shall be negotiated in advance with the trade union and employees’ representative and confirmed in writing by employees. With the first wage payment method, you need to pay attention to the minimum wage regulations at the location of the company or the place where the labor contract is performed. With the second wage payment method, it needs to be taken into account the risk that the employee will not be able to balance the advanced rest days with the make-up working days when the labor relationship with the enterprise is dissolved or terminated. Risks and advantages are recommended to be considered together during the negotiation.

2. Application for Comprehensive Working Hours System[8]
Article 39 of the Labor Law stipulates: “If an enterprise cannot follow the stipulations in Article 36 and Article 38 of this Law due to special characteristics of its production, it may follow other rules on work and rest with the approval by labor administrative departments. In order to encourage enterprises affected by the epidemic to flexibly arrange working hours, Suzhou issued a notice on February 11th[9] to relax the application for comprehensive work hours system for the enterprises affected by the epidemic. This measure not only expanded the scope of examination and approval, but also shortened the time limit for processing (from the original statutory examination and approval of 20 working days to 5 working days). Changzhou Human Resources and Social Security Bureau released information on February 13, including Jiangsu Datang International Jintan Thermal Power Co., Ltd., Eaton Power Equipment Co., Ltd. and many other enterprises were approved to implement a comprehensive working hours system. According to the spirit of the document of the Changzhou Human Resources and Social Security Bureau, the Liyang City Human Resources and Social Security Bureau also issued a corresponding notice on February 18.[10] Therefore, enterprises can apply for comprehensive working hours in a timely manner according to their own circumstances in conjunction with local policies.

The advantage of applying for comprehensive working hours system is that in the comprehensive calculation cycle, the actual working time of a specific day and week can exceed 8 hours and 40 hours respectively. However, the total actual working time in the comprehensive calculation cycle should be basically the same as the total legal standard working time. For enterprises, this is actually an effective approach to put enterprises in normal order and back to operation. Of course, in a comprehensive calculation cycle, if the working time exceeds the legal standard time, it is regarded as an extension of the working time, and the excess is calculated as overtime, and need to be paid accordingly.

3. Rotating rests, shortened work hours
The Article 2 of the “Notice of the General Office of the Ministry of Human Resources and Social Security on Properly Handling Labor Relation Issues During the Period for Prevention and Control of COVID-19 Epidemic” (Ren She Ting Fa Ming Dian [2020] No. 5) issued by the General Office of the Ministry of Human Resources and Social Security issued the states that “Where an enterprise has difficulties in production and operation due to the impact of the epidemic, it may stabilize posts by adjusting salaries, rotating posts and taking holidays, shortening working hours or other means through negotiating with employees and by reaching an agreement, so as to avoid or reduce layoffs to the greatest extent…

Due to the impact of the epidemic situation, there may be a sharp decrease in the business demand of the enterprise in the early stage of resumption of work. In order to meet the business production needs of the enterprise, and also to respond to the government's call to do a good job of prevention and control to reduce the flow of employees, qualified enterprises can carry out democratic negotiation with employees to divide departments or production lines into several groups, take turns to work, or shorten the working hours. These measures intend to ensure the basic living standards of employees and the stability of labor relations while maintaining the normal operation of the enterprise.

In the case of rotating rests and shortened working hours, democratic negotiation procedures are required. For example, employers and employees issue draft plans on specific matters such as rotations and reductions in work hours, and submit them to the Worker’s Congress or all employees for review. If a collective contract is formed, it must be approved with the consent of more than half of all employee representatives or more than half of all employees. The wages paid by the enterprise on the basis of the negotiation and agreement with the employees, shall not be lower than the minimum wage stipulated in the enterprise location or where the labor contract is performed.

4. Broaden new employment models
Affected by the epidemic, more and more companies and different industries have begun to test the new employment model of "shared employees" as an answer to their struggles. On February 21, 2020, the Ministry of Human Resources and Social Security issued an “Authoritative Answer to the Issues of Labor Employment, Labor Relations, Wages, and Social Security Contributions During Resumption and Work and Production” and answered to the question on how to view “shared employment” between enterprises during the outbreak.

At present, some companies lacking work and companies that have not yet resumed work have implemented “shared employment” and adjusted the surplus of employment and, to a certain extent, improving the efficiency of human resource allocation. "Shared employment" does not change the labor relationship between the original employer and the laborer. The original employer shall protect the wages, social insurance and other rights of the laborer. The original employer shall urge the seconded enterprise to provide necessary labor protection, to ensure the physical and mental health of workers and to reasonably arrange the working hours and work tasks of the laborer. The cooperative enterprises can clarify the relationship between the rights and obligations of the two parties by signing a civil agreement. The original employer shall not lend employees for profit. Neither the original employer nor the seconded unit may conduct illegal labor dispatch in the name of "shared employment" or induce workers to register as individual industrial and commercial households to avoid employment responsibilities.”

It can be seen from the response of the Ministry of Human Resources and Social Security that it recognized the “shared employees” model among enterprises during the epidemic period. However, the nature of this employment mode is not of labor dispatch, it is of secondment between enterprises and does not change the labor relation between the original employers and employees. (For an enterprise to conduct labor dispatch business, there are specific conditions and approval from relevant departments according to the provisions of Article 57 of the Labor Contract Law[11], otherwise the labor dispatch by the enterprise is illegal.)

Enterprises can negotiate and adopt similar flexible employment models based on their own situation, the opinions of employees and the needs of the second enterprises. However, when applying these models, first, democratic negotiation and the consent of employees are needed; second, the relationship between the three parties needs to be confirmed, and in principle, the labor relationship between the original employer and the employee remains the same while the relationship between the two enterprises belongs to the adjustment of civil legal relationship. In addition, the rights and obligations of the three parties need to be specified in written form to prevent the legal risks of the “shared employment” model, including management of employment, payment of employees' salaries, welfare benefits, social security tax payment, and disciplinary treatment, etc.

5. Business transformation, cost reduction and efficiency
Regarding business transformation, enterprises can follow the trend of supply and demand in the market. According to incomplete statistics[12], from January 1st to February 7th, a total of nearly 4,000 companies have added to their businesses, "masks, protective clothing, disinfectants, thermometers, medical equipment, etc." Enterprises can flexibly have "cross-border" production according to their own characteristics, and qualified enterprises can also develop online business models. For companies with business transformation, there are a few points to note: 1. Resolutions of the shareholders' meeting and amendments to the relevant articles of the Articles of Association; 2. Increase in the scope of business in the business licence; 3. Qualification verification, declaration and approval of related industries or products.

Regarding cost reduction and efficiency improvement, contemporary companies often develop in a diversified direction. In addition to the main business, there may be scattered related or non-related businesses. In the current period, companies can focus on the main business, and make appropriate choices for secondary business. In terms of enterprise quality management, enterprises can also apply or learn from some management methodology (such as Six Sigma, etc.) to improve the functional management and the level of standardized operations.

Whether it is business transformation or cost reduction and efficiency improvement, it may involve significant changes in the objective situation of the enterprise, resulting in the inability to perform the labor contract. In this case, the enterprise should not terminate the employee's labor contract, it should negotiate with employees on changes to the content of the labor contract in accordance with the law.

The vast majority of companies are advancing through the trouble water that is the COVID-19 epidemic. We believe that employees, as members of the ship, really appreciate the close relationship between the company and the individual during the highs and lows of waves. We recommend that companies fully listen to the opinions of employees during this “self-rescue”, and handle fairly and justly relevant issues related to the epidemic. The success of the company cannot be achieved without the support of employees. We have entered the 20th century, crisis, challenges, and opportunities may arise at any time. How to resolve the crisis, how to meet the challenge, and how to grasp the opportunity are worthy of everyone's consideration.


[1] Survey Report on the Impact of COVID-19 on SMEs and Countermeasures Suggestions, issued by China Association of Small and Medium Enterprises

[2] Efforts shall be made to help various kinds of enterprises stabilize production and operation. We should assist enterprises in solving issues related to epidemic prevention and control material security, raw material supply and logistics transportation, and strengthen supervision and guidance in prevention and control to ensure that enterprises can carry out normal production on the premise that they meet the standards for epidemic prevention and control. Flexible employment policies shall be implemented.

[3] Implementing flexible employment policies. Enterprises that have suffered from difficulties in production and operation due to the impact of epidemics may stabilize their posts by adjusting salaries, rotation of posts, flexible working hours, comprehensive adjustments to annual rest days and other means, the specific method of which shall be determined by the enterprises and employees through negotiation.

[4] Implement flexible employment policies. Enterprises are allowed to comprehensively adjust the rest days of the year according to the law to balance the overall working hours of current staff and those who cannot return to work normally.

[5] Labor Law of the PRC, Article 38: The employer shall guarantee that its laborers have at least one day off a week.

[6] Labor Law of the PRC, Article 41: The employer can prolong work hours due to needs of production or businesses after consultation with its trade union and laborers. The work hours to be prolonged, in general, shall be no longer than one hour a day, or no more than three hours a day if such prolonging is called for due to special reasons and under the condition that the physical health of laborers is guaranteed. The work time to be prolonged shall not exceed, however, 36 hours a month.

[7] …Where an employer formulates, amends or decides rules or important events concerning the remuneration, working time, break, vacation, work safety and sanitation, insurance and welfare, training of employees, labor discipline, or management of production quotas, which are directly related to the interests of the employees, such rules or important events shall be discussed at the meeting of employees' representatives or the general meeting of all employees, and the employer shall also put forward proposals and opinions to the employees and negotiate with the labor union or the employees' representatives on an equal basis to reach agreements on these rules or events. 
During the process of execution of a rule or decision about an important event, if the labor union or the employees deem it improper, they may require the employer to amend or improve it through negotiations. 
The employer shall make an announcement of the rules and important events which are directly related to the interests of the employees or inform the employees of these rules or events.

[8] 1. Calculation of working days:
Annual working day: 365 days - 104 days (rest days) -11 days (legal holidays) = 250 days;
Quarterly working days: 250 days ÷ 4 quarters = 62.5 days
Monthly working days: 250 days ÷ 12 = 20.83 days
2. Calculation of working hours:
Annual working hours = 250 * 8 = 2000 hours per year;
Quarterly working hours = 62.5 * 8 = 500 hours;
Monthly working hours = 20.83 * 8 = 166.64 hours

[9] Notice on Relevant Issues Concerning the Relaxation of Comprehensive Calculation of Working Hours System for Enterprises Affected by the Epidemic《关于对受疫情影响企业放宽综合计算工时工作制审批有关事项的告知书》

[10] Notice on Responding to the Impact of the Epidemic and Doing a Good Job in the Examination and Approval of the Comprehensive Working Hours System in 2020《关于应对疫情影响做好2020年度企业实行综合计算工时工作制审批工作的通知》

[11] Labor Contract Law of the PRC, Article 57: To engage in the labor dispatch business, an entity shall satisfy the following conditions:
1. Its registered capital is not less than two million yuan;
2. It has fixed business premises and facilities suitable for businesses;
3. It has labor dispatch management rules in compliance with the provisions of laws and administrative regulations; and
4. It satisfies other conditions prescribed by laws and administrative regulations.
To engage in the labor dispatch business, an entity shall apply to the labor administrative department for administrative licensing in accordance with law; and after obtaining licensing, shall undergo corresponding company registration formalities in accordance with law. No entity or individual may engage in the labor dispatch business without licensing.

[12] Tianyancha,

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