China Severance Pay Calculator: Estimate Termination Costs
China’s severance pay formula, defined under Article 47 of the Labor Contract Law (劳动合同法, láodòng hétóng fǎ), typically equals one month’s salary per year of service, with a cap at three times the local average monthly wage and a maximum of 12 years’ calculation for high earners. Our China Severance Pay Calculator helps foreign executives and HR teams estimate termination costs quickly—whether you are restructuring, closing a subsidiary, or letting go of a single employee in cities like Shanghai, Beijing, or Shenzhen.
Understanding the exact payout is critical. A miscalculation can trigger labor arbitration fines of 50–100% of the underpaid amount under Article 85 of the same law. This tool translates China’s statutory formula into a clear, city-specific cost estimate.
- Legal basis: Article 47 & 87 of the Labor Contract Law (劳动合同法, láodòng hétóng fǎ)
- Calculation rule: 1 month × years of service (capped at 12 years for monthly salary exceeding 3× local average)
- Wage cap: 3× local average monthly wage for high earners (e.g., Shanghai 2025 cap ≈ ¥36,534)
- Additional penalty: 2× severance for unlawful termination under Article 87
- Notice period: 30 days written notice or payment in lieu (代通知金, dài tōngzhī jīn)
How the Severance Pay Formula Works
China’s standard severance (经济补偿金, jīngjì bǔcháng jīn) is straightforward for most employees. You multiply the employee’s average monthly wage over the last 12 months by the number of full years worked. Partial years of six months or more count as one full year; less than six months count as half a year.
Example: An employee in Beijing with 5 years of service and an average monthly wage of ¥20,000 would receive ¥100,000 (5 × ¥20,000). If the employee earned ¥50,000 per month (above Beijing’s 3× cap of ¥37,128 in 2025), the calculation uses the capped monthly wage and a maximum of 12 years: 12 × ¥37,128 = ¥445,536.
Key cap details: For 2025, Shanghai’s 3× local average monthly wage is approximately ¥36,534, Beijing’s is ¥37,128, and Shenzhen’s is ¥34,836. These figures are updated annually by each city’s Bureau of Statistics.
Key Variables That Affect Your Calculation
Several factors can increase or decrease the final severance amount. Foreign executives must consider these when budgeting for workforce changes.
| Variable | Impact | Example (Shanghai 2025) |
|---|---|---|
| Years of service | Direct multiplier – more years = higher payout | 10 years × ¥20,000 = ¥200,000 |
| Monthly wage vs. 3× cap | If wage > 3× local average, capped at 3× and max 12 years | Wage ¥40,000 → capped at ¥36,534 × 12 = ¥438,408 |
| Lawful vs. unlawful termination | Unlawful = 2× severance (Article 87) | Lawful ¥200,000 → unlawful ¥400,000 |
| Notice period compliance | Payment in lieu if no 30-day notice | Add 1 month wage (e.g., ¥20,000) |
Unlawful termination risk: Under Article 87, if the employer cannot prove statutory grounds (e.g., gross misconduct or mutual agreement), the employee is entitled to twice the standard severance. This is a common trap for foreign managers unfamiliar with China’s strict termination requirements.
Other variables include probation period miscalculation, failure to pay social insurance, and failure to pass a valid legal amendment to the employment contract. Each can trigger additional compensation or reinstatement orders.
Using the Calculator for Workforce Planning
Our China Severance Pay Calculator allows you to input three key data points: city, employee’s average monthly wage, and years of service. The tool instantly displays the minimum statutory severance, the capped severance for high earners, and the potential penalty for unlawful termination.
Practical use case: A foreign-invested enterprise (FIE) in Shenzhen considering a 15% headcount reduction can run batch estimates. For 20 employees with average wages of ¥18,000 and 4 years of service each, the total severance liability is approximately 20 × 4 × ¥18,000 = ¥1,440,000—before any notice pay or penalties. This clarity enables accurate budget planning and negotiation leverage with legal counsel.
The calculator also factors in the 30-day notice period requirement. If the company wishes to terminate immediately, it must add one month’s wage as payment in lieu (代通知金, dài tōngzhī jīn). This is not severance but a separate statutory cost.
City-specific adaptability: Because China’s severance rules are national but wage caps are local, the calculator automatically pulls the latest 3× average monthly wage for each major city (Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou, Chengdu, and others). This ensures your estimate is legally accurate for your location.
NEXT STEPS
- Run a batch estimate: Use the calculator to input all employees in a planned termination group. Identify high-cost individuals (long tenure or high salary) and evaluate whether a mutual agreement or performance-based termination could reduce risk.
- Review local cap updates: Each March, municipal statistics bureaus publish the new average monthly wage. Verify your calculator’s cap for your city for the current year to avoid underpayment.
- Engage local HR legal counsel: Before issuing termination notices, have a Chinese labor lawyer review the statutory grounds. Unlawful termination penalties (2× severance) often exceed the savings from rapid execution.
— China Gateway 360 —
