Calculating N: One month’s salary per full year of service; half a month for periods under six months

When a layoff occurs, the employer must pay severance compensation calculated as follows: one month’s salary for each full year of service; periods of six months or more but less than a full year count as a full year; periods of less than six months result in half a month’s salary. The monthly salary figure is the average over the 12 months prior to termination, including bonuses, allowances, and other benefits. If an employee’s monthly salary exceeds three times the local average monthly wage from the previous year, the cap is set at three times that average, and the maximum eligible service period is 12 years.

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This is the statutory severance payment mandated by labor law when an employee is laid off — commonly referred to as “N.” The calculation rules are: “One month’s salary per full year of service… for periods of six months or more but less than a full year, the period counts as a full year; for periods under six months, half a month’s salary is paid.” Monthly salaries exceeding three times the local average are capped at three times that figure, and the maximum service duration considered is 12 years.

The monthly salary referenced here is the average over the 12 months preceding termination, incorporating bonuses, allowances, and other benefits — not just base pay. This is precisely where employers often attempt to undervalue compensation.

全国人大常委会 (2007). 中华人民共和国劳动合同法（2008 年 1 月 1 日施行）（第四十七条）. http://www.gov.cn/gongbao/content/2007/content_711013.htm