Reject lower base pay renewal? Under Article 46(5), you get severance (1 month/year). Example: 7,400→5,600+bonus worse. Shanghai exception. File arbitration in 1 year.
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Here's a scenario many foreigners in China face.
Your fixed-term contract is about to expire. The company says: "We want to renew, but we're adjusting your salary structure. Your base pay will be lower, but you'll have a chance to earn bonuses."
You look at the numbers. Your guaranteed monthly income is dropping. You don’t want to accept a dropped income, but if you refuse to sign, does it mean that you walk away with nothing? Don’t worry, your refusal to renew does not automatically cost you your severance.
Under Article 46(5) of the PRC Labor Contract Law, when a fixed‑term contract expires, the employer is generally required to pay you statutory severance (one month’s salary for each full year of service) unless the employer offers to renew on terms that are at least as favorable as your original contract and you turn that offer down.
In other words, if the renewal conditions are worse – and reducing your fixed base pay, even with a theoretical bonus upside, is usually considered worse – then the law treats the non‑renewal as the employer’s responsibility, not yours.
A recent case from a Guangzhou court illustrates this clearly: An employee had a fixed salary of 7,400 RMB plus 600RMB allowance. The company offered to renew with a new structure: 5,600 RMB base + 2,400 RMB performance bonus (subject to performance assesment). Total was the same on paper.
But the court said no — converting 30% of fixed pay into uncertain performance pay increased the employee's income risk. That counts as reducing the contract conditions. The employee was entitled to severance after refusing to renew.
That said, there is an important exception to keep in mind if you work in Shanghai. Courts in Shanghai tend to take a different view, they usually solve the issue based on your labor contract. If your contract does not provide for severance pay or compensation upon termination, Shanghai courts will not award it—even if the Labor Contract Law would otherwise require it, which means you might not be able to claim severance if you refuse to renew on that basis. Local practice in Shanghai therefore requires extra caution.
If you find yourself in this situation, the most important step is to document everything. Keep your original contract and old payslips that clearly show your original pay structure. Do not sign the new contract if you disagree with the terms. Instead, put your objection in writing – an email is perfectly sufficient – stating that you are willing to renew only on terms that maintain your guaranteed base salary, and that the proposed reduction amounts to a worsening of conditions. If the employer goes ahead and terminates your contract upon expiry without paying severance, you have one year from the date of termination to file for labour arbitration.
The key takeaway is simple: a renewal offer that lowers your guaranteed pay is not a genuine offer to continue on the same terms, and the law generally recognizes that. You have the right to say no without losing your severance, except in Shanghai where the rules are more nuanced. Always look at the guaranteed number, not the promise of future bonuses, and act accordingly.
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