China severance pay is statutory economic compensation owed only in specified termination or contract-ending scenarios. The standard N formula is service years × the employee’s average monthly wages due during the 12 months before termination. Each full year counts as one month; six months or more but less than a year counts as one year; less than six months counts as half a month. N+1 is not a universal dismissal package: it is N plus one month of pay in lieu of 30 days’ written notice for the three Article 40 scenarios. 2N is compensation for unlawful termination when reinstatement is not requested or cannot continue. High-income employees may have both the monthly base and counted service capped.
Employers should not calculate severance before confirming why the employment relationship is ending. A voluntary resignation, employer-proposed mutual termination, Article 39 dismissal, Article 40 termination, economic layoff, fixed-term contract expiry and unlawful termination can produce different payment results.
This guide covers mainland China. The applicable local wage benchmark, contract history, employee status and local practice should be confirmed before the employer communicates or pays a settlement.
China severance pay at a glance
N, N+1 and 2N are practical shorthand. They are not interchangeable packages that an employer may select only by comparing cost.
| Term | Practical meaning | Basic calculation | Main use |
|---|---|---|---|
| N | Statutory economic compensation | Severance service years × 12-month average monthly wage base, subject to statutory rules and any applicable cap | Situations in which economic compensation is required |
| N+1 | N plus one month’s wage in lieu of 30 days’ written notice | N + the employee’s previous month’s wage | The three Article 40 scenarios when the employer chooses immediate termination instead of 30 days’ written notice |
| 2N | Compensation for unlawful termination or unlawful contract ending | Two times the statutory N amount | Where termination is unlawful and continued performance is not requested or cannot continue |
| Negotiated settlement | An amount agreed between the employer and employee | Statutory amounts plus any additional negotiated payment | Mutual termination or dispute resolution; it should be documented separately from statutory N, N+1 or 2N |
When is severance pay required in China?
The Labor Contract Law identifies the main circumstances in which an employer must pay economic compensation. The payment obligation depends on the legal route, not simply on whether the employer or employee uses the word “termination.”
| Employment-ending scenario | Is N generally required? | Employer control |
|---|---|---|
| The employer proposes mutual termination and the employee agrees | Yes | Record who initiated the separation, the agreed amount, final working day, payment date and release terms. |
| The employee terminates because of a qualifying employer breach under Article 38 | Yes, if the statutory employer-fault ground is established | Review the alleged breach, employee notice and supporting payroll, social insurance or working-condition evidence. |
| The employer terminates under an Article 40 no-fault ground | Yes | Confirm the statutory ground, evidence and either 30 days’ written notice or one month’s pay in lieu. |
| The employer carries out an Article 41 economic layoff | Yes | Complete the qualifying-condition, consultation, reporting, protected-status and employee-selection review. |
| A fixed-term contract expires and the employer does not renew | Usually yes | Document the expiry date, renewal decision and calculation before the contract ends. |
| The employer offers worse renewal terms and the employee refuses | Usually yes | Preserve the old terms, proposed terms and employee response. |
| The employer becomes bankrupt, is ordered to close, loses its business license, dissolves or decides to dissolve early | Generally yes under the applicable statutory termination event | Coordinate the corporate event with employee notices, severance, final payroll and exit documents. |
| A contract for completion of a specific task ends because the task is completed | Yes under the implementation regulations | Confirm task completion, service period, salary base and final settlement. |
This page focuses on the amount and calculation. Before selecting the formula, use HROne’s guide to employee termination in China to confirm whether the proposed legal route and procedure are supportable.
When is severance usually not required?
A no-severance outcome still requires evidence. Employers should not label an employer-driven exit as a voluntary resignation or misconduct dismissal merely to avoid N.
| Scenario | Severance position | Evidence to preserve |
|---|---|---|
| The employee resigns voluntarily without a qualifying employer breach | N is generally not required | Signed resignation, submission date, final working day and evidence that the resignation was voluntary. |
| The employee proposes mutual termination | Statutory N is not automatically triggered solely by the employee’s proposal | Written proposal, negotiation history and final agreement. |
| The employer lawfully terminates under Article 39 | N is generally not required | Recruitment conditions, handbook, acknowledgment, investigation, misconduct or probation evidence and termination notice. |
| The employer offers renewal on the same or better terms and the employee refuses | N is generally not required | Written renewal offer, comparison of terms and employee refusal. |
| Statutory part-time employment is ended | Economic compensation is generally not required under the ordinary part-time rule | Part-time agreement, actual working hours, payment records and termination communication. |
How is China severance pay calculated?
Standard formula: severance pay = severance service years × monthly salary base.
For an employee who is not subject to the high-income cap, the service period is converted as follows:
| Service period with the employer | Severance service count | Economic compensation |
|---|---|---|
| Less than 6 months | 0.5 year | Half of one month’s salary base |
| 6 months or more but less than 1 year | 1 year | One month’s salary base |
| Each full year | 1 year | One month’s salary base for each year |
| 3 years and 4 months | 3.5 years | 3.5 months of the salary base |
| 3 years and 7 months | 4 years | 4 months of the salary base |
How should the employer confirm service years?
- Start with the date the employee actually began working for the employer, including the probation period.
- Check whether the employee was moved from a previous employer to the current employer for reasons not attributable to the employee. Under specified circumstances, the earlier service period may need to be combined.
- Do not count an earlier service period again if the former employer already paid economic compensation for that period.
- Review entity transfers, mergers, EOR or dispatch transitions, contract novations and business acquisitions rather than relying only on the latest contract date.
- Flag service before January 1, 2008 for separate review because transitional calculation rules may apply.
Step-by-step China severance formula
The following hypothetical example assumes a lawful exit requiring N, 3 years and 7 months of qualifying service, a RMB 15,000 monthly wage base, no pre-2008 service and no high-income cap. It is a calculation example, not a conclusion that a proposed dismissal is lawful.
| Step | Rule | Legal basis | Example |
|---|---|---|---|
| 1. Establish the wage base | Use earned wages averaged over the preceding 12 months; apply the statutory minimum floor and actual-month rules where relevant. | Article 47; Implementing Regulations Article 27 | RMB 15,000 |
| 2. Convert service | Each full year counts one month; a remainder of at least six months counts one year, less than six months counts half. | Article 47 | 3 years 7 months → 4 months |
| 3. Test the high-income rule | If the wage exceeds three times the applicable prior-year local monthly average, use that capped base and at most 12 counted years. | Article 47 paragraph 2 | Assumed not triggered; retain 4 months |
| 4. Multiply and classify other payments | N = applicable monthly wage base × counted service. Assess Article 40 payment in lieu and unlawful-dismissal remedies separately. | Article 47; Articles 40 and 87 as applicable | N = RMB 15,000 × 4 = RMB 60,000 |
Source: Labor Contract Law and Implementing Regulations. China severance calculator: use these steps as a worksheet and confirm the route, service and wage inputs before relying on an estimate.
What is the 12-month salary base?
Under the Regulations on the Implementation of the Labor Contract Law, the monthly wage used for N is based on wages due to the employee and includes monetary wage income such as time-based or piece-rate wages, bonuses, allowances and subsidies.
The employer should apply the following controls:
- Use the employee’s average monthly wages due during the 12 months immediately before the contract is ended.
- Use gross wages due before employee-side deductions rather than the employee’s net take-home pay.
- Review base salary, regular allowances, bonuses, commissions, overtime and other monetary wage items reflected in the relevant payroll period.
- If the employee worked for fewer than 12 months, calculate the average over the actual months worked.
- If the resulting average is below the applicable local minimum-wage standard, use the applicable minimum-wage standard.
- Reconcile the calculation with payroll registers, payslips, bank payments, compensation approvals and the employment contract.
- Review genuine expense reimbursements and non-wage items separately rather than automatically treating every payment as wage income.
The N base and the “+1” base are not necessarily the same. N uses the preceding 12-month average. The additional month paid instead of Article 40 notice is based on the employee’s previous month’s wage under the implementation regulations.
How does the high-income cap work?
Under Article 47, if the employee’s monthly wage exceeds three times the prior-year local employee monthly average published by the relevant municipality or city government, economic compensation uses that three-times wage base and no more than 12 years of counted service. The 12-year ceiling is tied to this high-income rule; it is not a general ceiling for every employee.
Calculate the employee’s preceding 12-month earned-wage average first, then confirm the correct local publication, data year, location and transitional service rules. “Prior year” describes the wage data, not merely the year a notice was published. A social insurance ceiling or a generic private/non-private wage series must not automatically be substituted for the applicable Article 47 benchmark.
Local average wage thresholds for the 3x cap
Data year: 2025; sources reviewed for this update on October 22, 2026. The figures below identify published statistics for checking the benchmark. A mathematical three-times figure is not confirmation that the selected statistical series is the legally applicable severance cap.
| City | Data year / statistical series | Published monthly reference (RMB) | 3× mathematical reference (RMB) / cap status | Official source |
|---|---|---|---|---|
| Shanghai | 2025 full-scope urban-unit employment average | 12,577 | 37,731; source is a social insurance-base notice and does not expressly establish Article 47 applicability. Confirm before use. | Shanghai HRSS notice |
| Beijing | 2025 full-scope average, expressly restricted to social insurance-base limits | 12,116 | 36,348 is a social-insurance reference, not a confirmed severance cap. The applicable Article 47 figure remains to be confirmed. | Beijing HRSS wage series and scope note |
| Shenzhen | 2025 urban non-private employment annual average RMB 191,367 | 15,947.25 (annual ÷ 12) | 47,841.75 from this series; the source also reports a different on-post employee series. Confirm the legally applicable series before using a cap. | Shenzhen Statistics Bureau publication |
Keep the applicable published benchmark and the reason for selecting it in the exit file. If the correct Article 47 series or local application is unresolved, obtain a case-specific confirmation rather than treating a social insurance or tax number as a settled cap.
N, N+1 and 2N: what is the difference?
Current official HR guidance on N, N+1 and 2N confirms that the formulas apply to different legal circumstances and should not be combined as interchangeable options.
N: statutory economic compensation
N is the standard economic-compensation amount calculated under the service-year and monthly-wage rules. It may apply to employer-proposed mutual termination, Article 40 termination, Article 41 layoff, qualifying fixed-term non-renewal, certain employer-fault resignations and specified employer closure events.
N does not by itself determine whether the termination route is lawful. The employer must first establish the legal ground and procedure.
N+1: N plus pay in lieu of Article 40 notice
N+1 applies only when the employer relies on one of the three Article 40 grounds and chooses to pay one additional month’s wage instead of giving 30 days’ prior written notice:
- The statutory medical-treatment period for a non-work-related illness or injury has expired, and the employee cannot perform the original work or other work arranged by the employer.
- The employee remains incompetent after training or adjustment to another position.
- The objective circumstances relied on when the contract was concluded have materially changed, the original contract cannot be performed and the parties cannot agree on a contract modification after consultation.
The “+1” amount is based on the previous month’s wage. It is not automatically calculated from the 12-month average used for N.
N+1 does not automatically apply to:
- every termination without 30 days’ notice;
- fixed-term contract non-renewal;
- Article 41 economic layoffs;
- Article 39 misconduct termination;
- employee resignation; or
- mutual termination, unless the parties separately negotiate an additional payment.
The 30-day consultation period used for an Article 41 layoff is not the same as the Article 40 individual notice-or-pay-in-lieu rule.
The wage base for the additional month is expressly the previous month’s wage under Implementing Regulations Article 20. It is separate from the preceding 12-month average for N and from Article 41 collective consultation. Paying the additional month does not create an Article 40 ground.
2N: compensation for unlawful termination
If the employer unlawfully ends the labor contract, the employee may seek continued performance. If the employee does not request reinstatement, or continued performance is impossible, the employer may be required to pay compensation at twice the Article 47 economic-compensation standard.
Where 2N compensation is paid under the unlawful-termination rule, statutory N is not paid again as a separate additional amount. There is also no general statutory “2N+1” formula because 2N and the Article 40 notice payment arise from inconsistent legal premises.
Other unpaid items remain separate. A 2N payment does not erase outstanding salary, overtime, annual leave, bonus, commission, reimbursement or statutory-contribution obligations.
What do N+2 or N+3 mean?
N+2 or N+3 commonly describe an additional negotiated amount on top of a service-based compensation figure. In an Article 36 mutual termination, the parties may agree to extra settlement payments, but these labels are not separate statutory severance formulas. Specify what the extra amount covers and its payment date; do not use a negotiated label as proof that unilateral dismissal is lawful.
China severance calculation examples
The examples below are simplified and exclude IIT, unused leave, bonus, commission, pre-2008 service and other final-settlement items.
| Example | Facts | Calculation | Result |
|---|---|---|---|
| Short service N | 5 months of service; 12-month or actual-period average salary base of RMB 20,000 | 0.5 × RMB 20,000 | RMB 10,000 |
| Partial-year N | 3 years and 4 months of service; average salary base of RMB 15,000 | 3.5 × RMB 15,000 | RMB 52,500 |
| N+1 with different bases | 3 years and 4 months; N base of RMB 15,000; previous month’s wage of RMB 17,000 | RMB 52,500 + RMB 17,000 | RMB 69,500 |
| 2N | N amount is RMB 52,500 and unlawful-termination compensation applies | 2 × RMB 52,500 | RMB 105,000 |
| Employer non-renewal | 4 years and 8 months; average salary base of RMB 18,000 | 5 × RMB 18,000 | RMB 90,000 |
| High-income cap | 15 years; actual average RMB 50,000; hypothetical local average RMB 12,000 | 12 × RMB 36,000 capped base | RMB 432,000 |
Fixed-term contract non-renewal and severance
Contract expiry does not automatically mean that the employer owes nothing. The renewal decision and the terms offered determine whether N is generally required.
| Renewal scenario | Severance position | Evidence the employer should keep |
|---|---|---|
| The employer decides not to renew | N is usually required | Contract, expiry date, non-renewal decision, notice and severance calculation. |
| The employer offers renewal on worse terms and the employee refuses | N is usually required | Current contract, proposed contract, comparison of terms and employee response. |
| The employer maintains or improves the terms and the employee refuses | N is generally not required | Written renewal offer, evidence of equal or better terms and written refusal. |
| The employee has protected status when the contract expires | The contract may need to continue until the protected circumstance ends | Protected-status review, medical or maternity records, work-injury status and legal analysis. |
The employer should start renewal review well before the expiry date. If the employee continues working after expiry without updated documents, the company may create a separate contract-compliance problem.
Protected employees: severance does not cure an invalid termination
Some employees are protected from Article 40 no-fault termination and Article 41 economic layoff while the protected circumstance exists. These can include:
- employees exposed to occupational-disease hazards who have not received the required occupational health examination;
- employees suspected of having an occupational disease who are undergoing diagnosis or medical observation;
- employees with an occupational disease or work-related injury and a confirmed loss or partial loss of working capacity;
- employees within the statutory medical-treatment period for illness or a non-work-related injury;
- employees during pregnancy, maternity leave or the breastfeeding period;
- employees who have worked continuously for the employer for at least 15 years and are within five years of statutory retirement age; and
- other employees protected by law or regulation.
A fixed-term contract may also have to be extended until the relevant protected circumstance ends. Work-injury cases may be subject to separate work-injury insurance rules.
Protected status does not make every possible exit impossible. A voluntary resignation, mutual termination or valid Article 39 dismissal may require separate analysis. However, paying N or offering a settlement does not by itself make an otherwise prohibited unilateral termination lawful.
Layoffs and restructuring require a separate process
A qualifying Article 41 layoff requires its own grounds, headcount test, consultation, reporting and employee-protection review; severance is generally N and the consultation period does not automatically add an Article 40 notice payment. Follow the layoffs in China process before approving individual calculations. Also review severance when closing an entity where the employer is being wound down.
Final-settlement checklist
Severance is only one line in the final settlement. HR, payroll, finance and legal reviewers should reconcile every amount and document before payment.
| Settlement item | What the employer should check |
|---|---|
| Final salary | Salary through the final working day, attendance, unpaid leave, overtime and payment date. |
| Statutory N | Legal trigger, service period, 12-month average, partial-year rule and high-income cap. |
| Pay in lieu of notice | Whether Article 40 applies, whether notice was provided and the employee’s previous month’s wage. |
| 2N or negotiated settlement | Legal or settlement basis, calculation, release terms and whether reinstatement risk has been addressed. |
| Unused annual leave | Statutory entitlement, leave taken, current-year proration and required compensation. |
| Bonus and commission | Plan wording, eligibility, performance, approval, historical practice and payment timing. |
| Reimbursements | Approved expenses and supporting documents. |
| IIT withholding | Tax characterization of salary, severance, notice pay, settlement, bonus and other amounts. |
| Social insurance and housing fund | Final contribution month, employee deductions, employer contributions and local transfer or closure process. |
| Termination certificate | Issue when the contract ends and ensure the dates and service information match payroll and contract records. |
| Personnel and social insurance transfer | Complete the applicable transfer formalities within the statutory timeline. |
| Handover and system closure | Work handover, property return, access closure and retention of required employment records. |
Do not confuse the severance cap with the IIT threshold
The Article 47 employment-law cap concerns a monthly wage comparison and may limit counted service to 12 years. The tax rule concerns the qualifying one-time compensation amount and a reference to three times the local prior-year annual employee average wage. Do not multiply, divide or substitute the two thresholds without confirming their respective definitions.
Part V(1) of Cai Shui [2018] No. 164 exempts qualifying one-time compensation received upon termination, including economic compensation and specified subsidies, within three times the local prior-year employee average wage. The excess is calculated separately using the comprehensive-income rate table and is not combined with that year’s comprehensive income. This clause itself states no fixed expiry date; it should not be confused with the dated bonus provisions elsewhere in the notice.
Confirm the payment’s legal character, applicable local tax benchmark and rules at payment, including treatment of expiry, non-renewal and separately negotiated items. See China individual income tax and retain the tax authority’s termination-compensation explanation for context.
Common severance calculation mistakes
| Mistake | Why it creates risk | Better control |
|---|---|---|
| Using N+1 for every employer-initiated exit | The additional month is limited to Article 40 notice substitution. | Confirm the statutory route before selecting N+1. |
| Using the same salary base for N and “+1” | N uses the preceding 12-month average; “+1” uses the previous month’s wage. | Show the two bases separately in the worksheet. |
| Using contractual base salary only | Bonuses, allowances, subsidies and other monetary wage items may affect the statutory average. | Review the complete payroll record for the preceding 12 months. |
| Capping every employee at 12 years | The 12-year cap is tied to the three-times-local-average high-income threshold. | Compare the employee’s actual average with the local threshold first. |
| Assuming contract expiry means no N | Employer non-renewal and worse-term renewal offers generally trigger severance. | Document the renewal offer and employee response before expiry. |
| Paying N to cure a prohibited termination | Severance does not replace a lawful ground, required procedure or protected-status review. | Complete legal review before communicating the exit. |
| Treating Article 41 consultation as Article 40 notice | The two provisions have different purposes and do not automatically produce the same payment. | Separate layoff procedure from individual N+1 analysis. |
| Ignoring final payroll and IIT | A correct N amount can still leave wage, leave, bonus, tax or contribution disputes. | Run a complete final-settlement review. |
Employer workflow before approving severance
Use one approval file inside the wider China HR compliance framework. The owners below are suggested internal roles, not a statement of HROne’s contractual allocation; assign actual named owners for the case.
| Approval check | Evidence | Suggested owner | Check timing |
|---|---|---|---|
| Confirm legal employer and route | Contract, amendments, exit-basis memo and ground-specific records. | HR and legal employer / legal adviser | Before any employee announcement. |
| Check protected status and procedure | Medical, maternity, work-injury, retirement, union, consultation and reporting records. | HR / legal adviser | Before choosing unilateral termination. |
| Determine whether N is due | Route analysis; renewal offer / response where relevant. | Legal employer / legal adviser | Before offering a payment. |
| Verify service | Actual start date, transfer / merger records, prior compensation and pre-2008 history. | HR | Before calculating counted years. |
| Reconcile the N wage base | Preceding 12-month earned-pay records, bonuses, commissions and allowances. | Payroll with HR / finance | Before approving the worksheet. |
| Confirm local cap and service limit | Applicable published wage series, data year and documented local interpretation. | Legal adviser and payroll | Before applying a cap or 12-year limit. |
| Separate notice pay / 2N exposure | Previous-month payroll, Article 40 notice choice or unlawful-exit assessment. | Legal adviser and payroll | Before final approval. |
| Reconcile other exit payments and tax | Salary, leave, bonus, commissions, expenses, contributions and IIT calculations. | Payroll / tax / finance | Before issuing the settlement statement. |
| Approve and document the exit | Approved notice or agreement, delivery proof, final date and payment terms. | Authorized employer signatory | Before communication and execution. |
| Complete payment and documents | Payslip, bank proof, termination certificate, handover and statutory transfer records. | Payroll / finance / HR | At the applicable exit and payment deadlines; archive afterward. |
Severance for employees hired through an EOR
With HROne’s China EOR service, the local employing entity is the legal employer. It assesses the lawful exit route, calculates and pays the employee’s applicable statutory compensation and final payroll, and issues the employer’s exit documents through its authorized process. The client supplies accurate service, pay, performance and business records and approves the commercial instructions.
Client funding and reimbursement of compensation or other costs depend on the signed service agreement. This guide does not assign unverified HROne contractual fees or dispute costs. The employing entity should issue the termination certificate and arrange social insurance / personnel transfer and housing fund exit administration as applicable; the client coordinates operational handover.
Read how terminations work under an EOR before announcing an employee exit. Hire and exit staff compliantly through HROne’s China EOR.
How HROne supports termination payroll and compliance
For companies with a mainland China entity, HROne’s China payroll outsourcing service can support final payroll calculation, payslips, IIT coordination, social insurance, housing fund and employee exit payroll records.
Payroll support should begin only after the employer and its legal adviser have confirmed the exit basis, final working day and approved settlement instructions. HROne can then help align the calculation with payroll records and the required payment documentation.
Speak with HROne about a China severance calculation.
FAQ: China severance pay
What is severance pay in China, and when is it required?
Severance pay in China usually means statutory economic compensation owed when employment ends under specified circumstances, including employer-proposed mutual termination, Article 40 termination, Article 41 layoff, certain fixed-term non-renewals, qualifying employer-fault resignation and specified employer closure events.
How is China severance pay calculated?
China severance pay is generally calculated as the employee’s severance service years multiplied by the average monthly wages due during the 12 months before termination. Each full year counts as one month, six months or more but less than one year counts as one year, and less than six months counts as half a month.
What do N, N+1 and 2N mean in China?
N is statutory economic compensation. N+1 is N plus the employee’s previous month’s wage in lieu of 30 days’ written notice in the three Article 40 scenarios. 2N is compensation at twice the N standard for unlawful termination where continued performance is not requested or cannot continue.
Is severance required when a fixed-term contract expires?
Severance is usually required if the employer does not renew the contract or offers worse renewal terms that the employee refuses. It is generally not required if the employer offers renewal on the same or better terms and the employee refuses.
How does the high-income severance cap work?
If the employee’s average monthly wage exceeds three times the applicable local prior-year average monthly wage, the severance base is capped at that three-times amount and the counted service period is capped at 12 years. The 12-year cap does not automatically apply to employees below the salary threshold.
