What N, N+1 and 2N mean

1. N: severance counted in months of service

Article 47 of the PRC Labor Contract Law provides one month of wage per full year of service; six months or more but less than a year counts as a full year; less than six months pays half a month. N is that rounded figure: 3 years 8 months gives N = 4, while 3 years 2 months gives N = 3.5.

Service runs day to day from the first day of employment to the termination date. Whether the termination day itself counts can differ between arbitration commissions and courts, so this site shows the method it used in the calculation steps.

2. The calculation base and the two caps

The base is average gross pay over the last twelve months, including time or piece rates, bonuses, allowances and subsidies; with less than twelve months of service the actual months worked are averaged.

Where the monthly wage exceeds three times the local average monthly wage published by the municipal government, the base is capped at three times that figure and counted service is limited to twelve years. The cap affects the severance calculation; it does not change the recognition of actual pay.

3. N+1: pay in lieu of notice under Article 40

Only the three Article 40 situations allow an employer to terminate on 30 days written notice or, instead, on payment of one extra month: incapacity after the medical period for the original or reassigned work; incompetence persisting after training or reassignment; and a fundamental change in the objective circumstances with no agreement on variation.

The extra month follows the employee’s previous month wage under Article 20 of the Implementing Rules. Local practice differs on whether bonuses are included, so this site approximates it with the twelve-month average and labels that approximation in the result.

4. 2N: unlawful termination

Article 87 requires twice the Article 47 severance where the employer terminates unlawfully. Under Article 25 of the Implementing Rules, a payment under Article 87 replaces severance, and service counts from the first day of employment.

A claim for the payment and a claim for reinstatement are normally alternatives. Where reinstatement is ordered, the employer must also pay wages for the arbitration and litigation period.

5. Common misunderstandings

These statements are frequently mixed up in practice:

• "Dismissal always means N+1": no. The +1 applies only to Article 40 cases where no 30 days written notice was given.
• "Mutual termination never pays": where the employer proposes termination and the parties agree, severance is still due under Article 46(2).
• "Fixed-term expiry always pays": on expiry severance is due unless the employer offered to renew on the same or better terms and the employee declined (Article 46(5)).
• "Voluntary resignation always pays": generally no, but where the employer is at fault under Article 38 the employee may terminate and claim severance.
• "The cap only limits the base": once the three-times cap applies, counted service is also limited to twelve years.

6. Service before 2008

For employment that began before 1 January 2008, Article 97 splits service: severance is generally counted from the date the Labor Contract Law took effect, and earlier service must be assessed separately under the rules that applied at the time. This site flags the issue but does not compute the pre-2008 part.