The Suspension Was Fine. The Payroll Instruction Was Not.

The decision is usually made in a morning meeting, and it is usually the right one.

Something has surfaced. A department head is told the same day that he is relieved of his duties while the matter is looked into.

He is asked to stay contactable, to cooperate with the review, and to keep coming in.

Payroll runs three weeks later. Somewhere between the meeting and the payment run, someone has switched off his bonus, his monthly performance pay and his position allowance.

Nobody in that morning meeting decided to cut his salary. On the record that reaches the tribunal, that is exactly what the company did.

This is one of the most reliable ways for a well-run company in China to lose a case it should never have been in, and the law is not the obscure part. Three people each made a small and defensible decision — to suspend, to require attendance, to adjust the payment run — and the decision that actually created the liability was never made by anyone.

Those three decisions cannot all stand together. That is a problem of how a company decides before it is a problem of what the law says, and it reaches a tribunal disguised as a wage claim.

The one question this article answers: when a PRC employer relieves an employee of his duties pending an internal investigation, does it acquire any corresponding right to reduce what it pays him?

The position in short

It does not. PRC labor law recognizes a broad managerial discretion to decide what an employee does, and no equivalent discretion to decide what an employee is paid. Pay is fixed by the labor contract and by internal rules that satisfy statutory validity conditions, and it changes by agreement, not by instruction. An employer that suspends an employee and continues to require his attendance must keep paying him whatever the contract and the valid rules say he earns for attending — which in practice means fixed salary and fixed allowances continue, monthly performance pay is arguable, and unpaid annual or deferred incentive awards are the only component with a genuinely strong case for being held back.

Two decisions wearing one label

"Suspension" is one word in English and one line in a board minute. In PRC labor law it is two separate legal acts that happen to be taken in the same moment, and they are usually taken by different people.

The first is the decision to stop the employee exercising his functions. This sits within managerial autonomy. It is not a statutory concept — the Labor Contract Law of the People's Republic of China (2012 Amendment, effective July 1, 2013) contains no provision on suspension at all — but tribunals accept that an employer may reorganize duties, and where a genuine investigation exists, removing the person under review from the functions under review is ordinary and proportionate. Documented, time-bounded and factually grounded, it is rarely the losing issue.

The second is the decision about pay, and that one gets no benefit from managerial autonomy. Article 30 of the Labor Contract Law requires remuneration to be paid in full and on time in accordance with the contract; Article 35 requires any change to agreed terms to be made by consensus and in writing; and Article 4 permits internal rules to govern the relationship only where they were made through the statutory democratic procedure and communicated to employees, a condition confirmed by Article 50 of the Interpretation (I) of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Labor Dispute Cases (Fa Shi [2020] No. 26, effective January 1, 2021).

Nothing in that framework attaches to the investigation. The investigation changes what the employee does. It does not change what the employer owes.

In my experience the mistake is almost never a decision to underpay. It is the absence of a decision at all: the suspension is minuted, and the pay consequence is left to whoever administers payroll, working from an instinct that a person under investigation should not be drawing a bonus.

The only rule that lets you pay less

One rule in PRC law permits an employer to pay below the contractual rate without agreement, and employers reach for it because there is nothing else to reach for.

Article 12 of the Interim Provisions on Payment of Wages (Ministry of Labor, Lao Bu Fa [1994] No. 489, effective January 1, 1995) provides that where operations stop for reasons not attributable to the employee, wages continue at the contractual standard for the first pay period, and thereafter — if the employee provides no labor — the employer may pay at a floor set by reference to local minimum wage. Provincial wage payment regulations vary the floor but not the architecture.

Courts test three things together:

• the interruption arises from causes not attributable to the employee;
• the employer has genuinely stopped work or production, which it must prove rather than assert; and
• the employee is in fact not providing labor.

Recent decisions in this line are consistent. Tribunals have set aside "standby" arrangements imposed on individual employees, treating them as disguised demotion and pay reduction where the employer could show no actual operational stoppage and the employee had objected in writing. The provision was written for business interruption, and nothing in it was designed to carry disciplinary weight.

The cooperation paradox

Those two points are all the preparation this next one needs, and it is the point that decides these cases.

Every instinct a general counsel has about running a clean internal investigation pushes the same way: keep the subject available, require him to attend, require him to cooperate, do not let him disappear. Those instincts are correct. They are what preserve the investigation's integrity, and I would not advise anyone to abandon them.

They are also what destroys the pay position. The one element that would have opened the door to sub-contractual pay is the employee not providing labor, and an instruction requiring him to keep attending closes that door in writing, on the employer's own letterhead. The suspension notice becomes the employee's best exhibit.

The tension is structural rather than accidental. The more carefully an employer preserves its investigation, the more completely it forfeits its argument for paying less — and an employer that wants both has to buy the second one, by written agreement, before the payroll run.

What makes this so hard to catch is that the conflict never appears inside anyone's job. The investigation team optimizes for evidence. Payroll executes what it is told. Neither is doing anything wrong, and neither is looking at the document that undoes the other's work, because the suspension notice and the payroll change live in different systems and are read together for the first time by the employee's lawyer. I have not seen a company arrive at this trade-off on its own, and the reason is not that the point is difficult. It is that no single role is accountable for noticing it.

Everything that follows in this article is a consequence of that one misalignment.

Which part of the pay package survives it

Once the work-stoppage route is closed, the question stops being whether to withhold and becomes which components can be withheld on some other basis. A pay package is not one thing, and the three tiers have very different defensibility.

Fixed salary and fixed allowances     -> tied to attendance and status
  (base pay, position allowance,         Continues. Withholding reads as a
   transport/communications                deduction from wages.
   allowances paid monthly)               Weakest position for the employer.

Monthly performance-based pay          -> tied to assessment
  (variable element assessed              Arguable, and entirely dependent on
   month to month)                        documents: contract wording plus a
                                          valid assessment rule.

Annual, deferred and long-term         -> tied to conditions not yet satisfied
  incentive awards                        Strongest position. Not yet due,
  (unpaid bonus, deferred                 conditional on outcomes, and in
   incentive tranches)                    regulated sectors expressly
                                          suspendable.

The bottom tier is where a defense is real, because an unpaid annual award is usually conditional on assessment results that do not exist yet. Declining to crystallize an entitlement is a different act from withholding one that has already accrued.

The top tier is where employers lose, and they lose over small sums. A position allowance or transport allowance paid at a constant figure to an employee who is attending looks to a tribunal exactly like a component of wages, which brings it inside Article 30 and inside the labor inspection regime. Relative to the bonus the amounts are usually trivial, but they change what the case is about: an argument over incentive compensation becomes an argument over unpaid wages, and those are fought on very different terrain.

The middle tier turns on documents created long before anybody was suspended. If the contract ties the variable element to assessment, and the assessment rule went through the democratic procedure and was published, there is something to argue. Without the meeting records, the publication evidence and the acknowledgment, Article 50 of Interpretation (I) means the rule simply does not bind. Foreign-invested companies consistently underestimate this, because their handbooks are professionally drafted and substantively sound, and they are being tested on procedure rather than on content.

What I tell clients: the withholding argument is won or lost in the document archive, not in the investigation file.

The same gap, one floor up: regulated institutions

Banking and insurance institutions hold something other employers do not, and it fails in a familiar way.

The Guiding Opinions on Establishing and Improving the Performance-Based Remuneration Clawback Mechanism of Banking and Insurance Institutions (Yin Bao Jian Ban Fa [2021] No. 17, issued January 28, 2021) provide for recovery of performance-based remuneration where misconduct, negligence or misstatement is established, and Article 14 confirms that the mechanism covers both recovering amounts already paid and suspending amounts not yet paid. Insurance companies have had remuneration-management guidance to similar effect since the Guidelines for the Regulation of Remuneration Management of Insurance Companies (Trial) (Bao Jian Fa [2012] No. 63). This is the strongest card a regulated employer holds, and it reaches performance-based remuneration only.

It is also not self-executing against an individual. A supervisory instrument tells an institution what to build; the employee's entitlement still runs through his contract and through rules meeting the Article 4 conditions. The regulation sits with compliance, the labor documents sit with HR, and the two are drafted by people who do not review each other's work — which is the same gap as before, one floor up. An institution holding the regulatory instrument but no implementing rule the employee ever saw has a compliance answer to a labor question.

Why open-ended suspensions collapse both decisions

No PRC statute caps the duration of a suspension, which employers occasionally read as permission to leave one running. It is the opposite.

Indefiniteness is the fact that most reliably persuades a tribunal to look behind the label. A suspension with a stated end date, a stated scope and periodic written updates reads as a proportionate management measure; the same suspension with no end date, no updates and a reduced payment every month reads as a demotion and pay cut that someone chose not to negotiate. Once a tribunal reaches that reading, both decisions fail together, and the evidence of a real investigation — which would comfortably have carried the first — stops helping with the second.

Nor does time cure the absence of agreement. Article 43 of Interpretation (I) recognizes an orally varied labor contract performed for more than a month, but only where the parties reached consensus in the first place, and an employee who has objected in writing does not begin consenting by obeying an instruction to attend. Employers working from a translated summary routinely take from that provision a one-month cure it does not contain.

What it costs to get this wrong

The withheld amount is the floor of the exposure rather than its measure.

An employee who is not paid in full and on time may resign for cause under Article 38 and claim statutory severance under Articles 46 and 47, calculated on his average wage over the preceding twelve months — which puts the pre-reduction figure back in issue and leaves the employer arguing against its own earlier decision. A labor inspection complaint engages Article 85, under which an employer ordered to pay and failing to do so within the period set faces additional compensation of between 50 and 100 percent of the amount due. And under Article 27 of the Law of the People's Republic of China on Mediation and Arbitration of Labor Disputes (effective May 1, 2008), the one-year arbitration limitation does not run against a claim for arrears of remuneration while the employment relationship subsists, so the position does not improve by being left alone.

In regulated sectors there is a further cost that rarely appears in the legal analysis: a senior officer's remuneration dispute reaching a public tribunal is a governance datapoint, read by people who never saw the investigation file.

Practitioner's Note

By this point the legal answer has been available for several pages, which is the useful part. Almost every case of this kind I have seen was decided before anyone reached the law.

Suspension decisions are made by people thinking about evidence, containment and the integrity of a review. Pay decisions are executed by people thinking about a payroll cycle, as an administrative consequence of the first decision rather than as a decision in its own right. Nobody owns the sentence "we are reducing his pay, and here is our basis," so nobody tests whether a basis exists — and a company can run a careful investigation and a compliant payroll function and still produce an unlawful outcome between them.

The companies that get this right are not the ones with better arguments. They are the ones where a suspension memo cannot be issued without a line stating what will be paid during the suspension and under which contractual or rule-based authority. That single line forces the question into the room while it is still cheap to answer, and it usually produces the correct answer — that the salary keeps running and only the unvested incentive is held.

Pay the fixed elements. Hold only what you can point to a document for. Put an end date on the suspension.

Frequently asked

Can we suspend someone in China at all? Yes. There is no statutory suspension procedure to comply with, and where a genuine investigation exists, relieving the subject of the functions under review is an ordinary exercise of managerial discretion. Document the basis, define the scope, and set an end date.

We are still paying base salary. Isn't that enough? Not on its own. If fixed monthly allowances stopped as well, those are likely to be treated as wage components, and a shortfall is a shortfall regardless of how much was paid. The test is what the contract and valid internal rules say the employee earns, not whether the remaining figure looks reasonable.

If the investigation confirms misconduct, can we recover what we paid? Recovery of performance-based remuneration is available to regulated financial institutions under the 2021 clawback framework, and to other employers where the contract or a valid internal rule provides for it. Base salary already paid for a period the employee attended is a much harder recovery, and I would not build a strategy on it.

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Legal authorities

• Labor Contract Law of the People's Republic of China (2012 Amendment, effective July 1, 2013), Articles 4, 30, 35, 38, 46, 47 and 85
• Interim Provisions on Payment of Wages (Ministry of Labor, Lao Bu Fa [1994] No. 489, effective January 1, 1995), Article 12
• Interpretation (I) of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Labor Dispute Cases (Fa Shi [2020] No. 26, effective January 1, 2021), Articles 43 and 50
• Law of the People's Republic of China on Mediation and Arbitration of Labor Disputes (effective May 1, 2008), Article 27
• Guiding Opinions on Establishing and Improving the Performance-Based Remuneration Clawback Mechanism of Banking and Insurance Institutions (Yin Bao Jian Ban Fa [2021] No. 17, issued January 28, 2021), Article 14
• Guidelines for the Regulation of Remuneration Management of Insurance Companies (Trial) (Bao Jian Fa [2012] No. 63)

Provincial wage payment regulations supplement Article 12 of the Interim Provisions and differ on the applicable floor; check the rules of the place of performance before relying on any figure.

Related Reading

• The Board Had the Votes to Remove the General Manager. Ten Missing Days Undid the Decision.

More on this area of practice: Corporate & Commercial.

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This article discusses general principles of PRC law and is not legal advice on any particular matter. Outcomes in labor disputes depend heavily on the documentary record and on the practice of the tribunal with jurisdiction.

Last reviewed: August 5, 2026