In daily operations, many business managers often have the idea of "it's okay for an employee to sign a contract later when they just start working, let's see if the person is capable first", "the company is small, it's too troublesome to follow the formal process", and even mistakenly believe that "there is no need to sign a contract during the probation period, it's not appropriate to let him leave directly". These ideas may seem pragmatic, but in reality, they have planted a powerful 'time bomb' at the feet of the enterprise. The cost of not signing a labor contract is far from simply signing a new contract afterwards, but may actually result in far greater economic and management costs for the company than expected.

1、 Double salary compensation

This is the most direct legal consequence of not signing a labor contract. According to Article 82 of the Labor Contract Law, if an employer fails to enter into a written labor contract with an employee for more than one month but less than one year from the date of employment, the employer shall pay the employee twice the monthly salary.

Simply put, in addition to paying regular wages, companies also have to pay an additional "fine" of equal amount. The law provides a one month grace period for companies, meaning that those who fail to sign a contract within the first month of employment will not be held responsible, but from the second month onwards, the obligation to compensate will officially arise. If an employee has worked for the company for one year without signing a contract, the company may have to pay an additional compensation of up to 11 months' salary - this amount is by no means a small sum for many small and medium-sized enterprises.

Typical cases:  A certain hospital was ultimately ordered by the court to pay double the salary difference for 11 months of unsigned labor contracts due to continued employment for more than one month after the expiration of the contract without renewing it with the employee. In such cases, as long as the facts are clear, companies have almost no chance of winning.

2、 Loss of initiative in employment

If a company believes that paying double wages is already the entire risk, then it is completely wrong. According to Article 14, Paragraph 3 of the Labor Contract Law, if an employer fails to enter into a written labor contract with an employee within one year from the date of employment, it shall be deemed that both parties have entered into an open-ended labor contract. This is a mandatory legal recognition - regardless of the company's intention, the law recognizes that both parties have formed an open-ended employment relationship. This will bring the following challenges to enterprises:

Firstly, the cost of layoffs has increased dramatically. Enterprises can no longer terminate labor relationships naturally through the low-cost method of "labor contract expiration". Any unilateral termination thereafter must strictly comply with legal conditions, such as serious disciplinary violations or incompetence of employees. If any improper operation is deemed as illegal termination, the enterprise shall pay double the economic compensation, which is much more expensive than the normal termination of the contract.

Secondly, the difficulty of management has increased. After obtaining legal protection for open-ended labor contracts, employees' employment stability is enhanced, and the risk of objections and disputes raised by employees during job adjustments, performance evaluations, and salary changes is significantly increased.

Typical cases: A certain company was not only ordered to pay double the salary difference for not renewing the contract, but also ordered by the court to pay compensation for illegal termination of the labor contract due to the illegal termination of the labor relationship in a state where the contract was deemed to have no fixed term. A missing contract directly resulted in a dual loss of "wage difference+compensation" for the enterprise.

3、 Systemic risk outbreak

In addition to the direct compensation mentioned above, not signing a labor contract will also trigger a series of chain reactions, dragging the enterprise into more complex difficulties.

On the one hand, in reality, many companies do not sign labor contracts, often accompanied by failure to pay social insurance in accordance with the law. Once an employee suffers a work-related injury accident, even without a written contract, as long as the factual labor relationship can be proven, the enterprise must bear all the work-related injury benefits and expenses stipulated in the Work Injury Insurance Regulations, including medical expenses, disability subsidies, etc. This expense is often several times higher than the normal payment of social insurance. At the same time, employees can file complaints with the social security department at any time, demanding that the company make up for all social security contributions and bear high late fees.

On the other hand, for enterprises with development ambitions, labor and employment compliance is the core focus of due diligence and listing review for investors. If investors or regulatory agencies discover a significant history of unsigned labor contracts in a company, they will directly determine that the company has serious internal control deficiencies. This may lead to three consequences: investors significantly lower the valuation of the company; Request to reserve a large amount of funds in investment funds as potential dispute reserves; The process of enterprise listing has been hindered, and years of efforts have been in vain.

4、 Eliminate risks at the starting point

Enterprise management focuses on risk control rather than post remediation. A thin labor contract is the legal cornerstone that regulates the rights and obligations of both parties and safeguards the autonomy of the enterprise in employment. We suggest:

Firstly, strictly adhere to the "one month" red line. It is essential to complete the signing and stamping process of the written labor contract within one month from the date of the employee's employment, which is the most basic and critical point.

Secondly, establish a contract expiration warning mechanism. Set up early warning for fixed-term labor contracts, with dedicated personnel following up to ensure timely renewal and avoid a vacuum period of "contract expiration without renewal, employees continuing to work".

Finally, embed compliance into the onboarding process. Make signing labor contracts and handling social security registration a necessary step for new employees to join. Employees who fail to complete these processes will not be arranged for formal employment, in order to eliminate risks from the source.

Conclusion

Disregarding the mandatory provisions of the law and seeking temporary "convenience" and "convenience" will ultimately be repaid at several times or even dozens of times the cost. For enterprises, compliant employment is never an additional cost, but the most fundamental and necessary investment for the healthy and long-term development of the enterprise. A small labor contract can hold the bottom line of a company's employment and avoid unnecessary losses. This' deal 'is much more cost-effective than remedying afterwards.