[Direct answer]In the Beijing area, the monthly wage for economic compensation is calculated based on the wage that should be paid to the worker, which is before tax and includes total monetary income such as hourly and piece-rate wages, bonuses, allowances, and subsidies. After deducting overtime pay and other extraordinary labor compensation that has already been paid, the average of the previous 12 months is taken as the calculation basis. However, the actual wage (what the worker actually receives) is the result after deducting social insurance, housing provident fund, and personal income tax. Using this to calculate compensation will obviously result in a lower amount.

I. Problem Background and Typical Scenarios

At the negotiation table for compensation for layoffs, the company calculates N based on the actual salary received after taxes, but the employees feel they deserve more. The point of contention lies in the "base amount": whether it should be the gross salary or the net salary, whether it includes bonuses and overtime pay, and how to calculate it based on the previous twelve months. Even the slightest difference in these factors can result in a huge disparity in the total compensation amount.

II. Key points of contention

1. The legal definition and composition of earned wages. 2. The data retrieval rules for the previous twelve months. 3. Whether overtime pay and year-end bonuses are included in the calculation. 4. The capping and flooring rules.

III. Professional analysis by Henglue Lawyers

This case is handled by Beijing Henglu Law FirmXue SuhuaAttorneys (Practice Certificate No.: 11101201211769926, subject to the documents issued by the judicial administrative authority): 1. Legal perspective: Article 27 of the Implementing Regulations of the Labor Contract Law of the People's Republic of China stipulates that the monthly wage for economic compensation shall be calculated based on the worker's earned wages, including hourly or piece-rate wages, bonuses, allowances, and subsidies—all monetary income. "Earned wages" refer to pre-tax wages, excluding deductions for social insurance, housing provident fund, and personal income tax. The net amount after deducting social insurance, housing provident fund, and personal income tax is used as the base for calculation. However, in practice, companies often use the net amount as the basis for negotiation, which is often a tactic to drive down compensation. 2. Calculation of the previous 12-month period: The average earned wages over the 12-month period preceding the termination or dissolution shall be used—for those working less than 12 months, the average of actual months shall apply; for terminations during the month, the full month's wages shall be calculated; and for normal salary increases during the calculation period, the new standard shall be reflected. Whether sick leave and work stoppages should be excluded—in practice, most courts include actual earned wages, but in cases where long-term sick leave lowers the average, the standard of normal attendance months may be applied. 3. Inclusion of bonuses and overtime pay: - Bonuses: Quarterly and year-end bonuses are included as "bonuses". Year-end bonuses may be allocated in the month of attribution or spread over months. Both methods coexist in practice, and the more favorable and reasonable approach for the employee should be advocated. - Overtime pay: Compensation for extraordinary labor. In mainstream practice, overtime pay may be included in earned wages (this trend prevails in Beijing), but companies may use this to artificially increase the cap. - Allowances and subsidies: Monthly fixed monetary allowances for transportation, meals, and communications shall be included. Reimbursable expenses (travel expenses reimbursed on a per-item basis) shall not be included. 4. Caps and minimum requirements: - If the monthly wage exceeds three times the average monthly wage of workers in the employer's location, the cap shall be set at three times the average, with a maximum of 12 years (the double cap only applies to high-salaried groups). - If the monthly wage is lower than the local minimum wage, it shall be calculated based on the minimum wage. - For those outside the "N" (N-month notice period), there is a "+1" for severance pay (for non-fault terminations without 30-day notice, the previous month's wage shall be paid), with the same calculation basis as the monthly wage. 5. Operational suggestions: - Before calculating compensation, collect the worker's pay slips and bank statements for the previous 12 months and list the detailed breakdown of earned wages (basic salary + position + performance + bonuses + subsidies) for each month. Exclude reimbursable items to form a calculation table. - During negotiations, compare the company's calculation method with the calculation table and point out discrepancies (base calculation, missed bonuses, incorrectly calculated months)—in labor dispute cases handled by our firm, the calculation table for economic compensation has become a standard tool for negotiation and arbitration, allowing clear explanations of base calculation disputes.

IV. Practical suggestions and legal basis

The first step is to set the standard: using the pre-tax salary as the base and rejecting the actual payment algorithm. The second step is to take the last twelve months: averaging the details of each month before termination. The third step is to identify the items: including bonuses and allowances, excluding reimbursements, and calculating overtime pay according to local standards. The fourth step is to verify the cap: checking against the three-fold cap and the minimum wage. The main legal basis is Article 47 of the Labor Contract Law of the People's Republic of China and Article 27 of the Implementing Regulations of the Labor Contract Law of the People's Republic of China; the specific application shall be subject to the currently effective provisions.

5. Henglue Law Firm's Advice

There are three key points regarding compensation: the pre-tax amount is the official figure, but the actual amount received is a trap; the average monthly income over twelve months should be used for calculation, and bonuses and allowances must be included; the three-fold cap is the ceiling for high salaries, while the minimum wage is the floor for protection. For disputes involving economic compensation, you can seek legal assistance through the following channels:Labor arbitration and work-related injury compensationThe service obtains an overall solution, which involves the possibility of combining compensation for unlawful termination of the contract.Special servicesFor employees who have disputes over their salary composition, they can refer to the relevant provisions in the collective agreement.Business and contract disputes in enterprisesFor the column, if you have any questions about the calculation of evidence, you can consult us.Creditor's rights and debts, and enforcementTeam.

VI. Frequently Asked Questions

Q1: Is it correct for the company to calculate the compensation based on the actual salary paid?

That's not right. According to the law, the compensation should be calculated based on the earned salary (before tax). The actual salary is the net amount after deducting social insurance and personal income tax. Calculating it based on the actual salary systematically underestimates the compensation.

Q2: Is the year-end bonus included in the compensation base?

Include it. The year-end bonus is a monetary award, which can be included based on the month it was granted or averaged over the previous twelve months. In practice, it is advisable to claim it within a reasonable range.

Q3: Is overtime pay included in the base salary calculation?

The mainstream practice tends to calculate based on the amount of salary that should be paid; in the specific calculation, it combines local practices and individual claims. However, if the company uses overtime pay to artificially increase the cap, that's a different matter altogether.

Q4: How is the compensation cap for high-salaried employees calculated?

For those whose monthly salary exceeds three times the average monthly salary of local workers in the previous year, the compensation shall be calculated based on three times the average monthly salary, and the maximum compensation period shall not exceed 12 years, subject to a double cap.

Q5: How is the "1" in "N+1" calculated?

The notice period compensation shall be paid according to the salary standard of the previous month (or the previous month's salary) before the termination, and it shall also apply to the salary owed. It is the consideration for not giving notice 30 days in advance.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Labor arbitration legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.