In recent months, the number of international businesses in China (especially Beijing) that have been contacted by the local labor bureau for an audit has been markedly rising. These audit processes can come out of the blue and can be intimidating in terms of the volume of information requested and the access to company documents required to be handed over. The document audit is just one of the ways in which the PRC authorities can seek to audit a business via the local labor bureau - and is often followed or even preceded by a request for on-site inspection or investigation of a specific complaint of non-compliance. So how can companies get themselves on the "front foot" during a document audit to try and head off a more in-depth review by the labor bureaus? This note sets out our top tips for handling labor bureau document audits in China.
Q1: What form does a document audit by the labor bureau usually take?
Usually the local labor bureau requests a list of documents from the company in advance relating to the company's labor situation. They normally ask a representative of the company to bring the documents to the local labor bureau's office for inspection at a specified time.
Q2: Are document audit requested by local labor bureaus lawful?
Yes, they are permitted under the Labor Inspection Supervision Regulation (2004) and local various local implementing rules.
Q3: What documents are usually requested?
The following documents are usually requested by the labor bureau in the initial inspection notice:
- the company's business licence (duplicate);
- photocopy of the passport of the company's legal representative and an authorization letter if the legal representative is not attending the document inspection in person;
- employment contracts of some or all employees;
- employee handbook or work rules;
- list of employees and employment contract information list;
- attendance records for the past 1-3 months;
- approval to implement flexible or comprehensive working hours system (if any);
- payroll record of the past 1-3 months;
- social insurance registration certificate;
- social insurance filing forms of the past 1-3 months;
- social insurance payment receipts of the past 1-3 months; and
- a completed Document Audit Form for Employers.
Q4: How much time does the company have to prepare the requested documents?
Companies are not usually given a lot of time to prepare the requested documents in the initial notice - usually 1 week. The labor bureau tends to set a date when a representative of the company must bring the requested documents to the local labor bureau's offices for inspection - in some cases this date could be less than a full week from receiving the document audit / inspection notice. However, the inspection notice will contain a contact number of the responsible labor bureau officer. An extension of 1-2 weeks is usually permissible by contacting the responsible labor bureau officer.
Q5: What if we are unsure whether certain documents should be provided for inspection?
Companies need to be careful about disclosing to the labor authorities documents that contain sensitive information or are subject to legal privilege in other countries. The documents requested by the local labor bureau in the initial inspection notice do not normally include sensitive or privileged documents. However, where such documents are involved, the company will need to consider how much can be disclosed and the response to the labor bureau - contact legal department or outside counsel for assistance to resolve these issues.
Penalties apply for failing to provide the documents requested by the local labor bureau. Under the Labor Inspection Supervision Regulation (2004), a company that fails to provide the requested documents, conceals the facts, provides false documents or hides or destroys evidence will be required to provide accurate documentation and pay a fine of RMB2,000-20,000. In addition, there will be reputational damage and further scrutiny of the company's compliance situation by the labor bureau in the future.
If the labor bureau is requesting sample contracts, the company should provide those contracts that are representative of the general situation, rather than contracts that reflect special arrangements or specific employees' packages. Certain documents are not expressly requested by the labor bureau but are relevant. For example, agreements with interns, retirees and labor dispatch agencies. The company will need be prepared to answer questions about them and be prepared to provide them if the labor bureau subsequently requests for them.
Q6: Who should represent the company in the inspection?
The person who represents the company should be able to answer questions from the labor bureau officer about the company's employees during the inspection. This is usually the company's HR representative or CAO. Colleagues from other departments or external counsel may also attend the inspection to support the company representative where necessary.
Q7: What questions might be asked during the inspection?
During the inspection, the labor bureau officer may ask any questions relating to the company's employees, foreign workers, interns, retirees, and labor dispatch workers. These tend to range from basic information regarding the number of personnel that falls into each category to detailed questions regarding each document that is submitted.
Common issues that arise from the questioning include:
- whether employees are eligible for flexible working hours system or entitled to overtime pay;
- whether interns or other non-employees working for the company satisfy the criteria to be hired as non-employees;
- whether the company is paying social insurance for its employees properly; and
- request for documents to be translated into Chinese if they are available in foreign language only.
If any special circumstances apply to the company, it may be worth indicating in the commentary section in the Document Audit Form for Employers, in addition to having the company representative explain it during the inspection. For example, the company may include an explanation in the commentary section regarding why certain positions are eligible for flexible working hours system. It is important to show willingness to cooperate with the labor bureau and comply with the local labor regulations.
All businesses operating in China should ensure that their employee-related documentation is in good order in case an inspection notice is served. If an inspection notice is served, the company should be well prepared to answer questions from the labor bureau officer in order to ensure that the inspection is completed smoothly. If all requested documents are provided and the inspection is meeting completed smoothly, the labor bureau will usually affix its seal on the Document Audit Form indicating that the company has passed the audit within 15 days of the inspection.
Head of Employment - Asia
T +852 2103 0818
Of Counsel, Beijing
T +86 10 8520 0709
T +86 21 3852 2131
T +86 10 8520 0628
Dec 11, 2015