Each employee is made to eat four live mealworms followed by a shot of strong Chinese liquor, said the GB Times.
Adding insult to injury, the punishment is meted out in public, added the report.
Photos of the unusual punishment went viral on the internet when witnesses said around 60 employees were made to gather at the town square to accept their punishment.
Witnesses also said that while most employees seemed willing to do the punishment, one pregnant employee refused.
One employee, who wished to remain anonymous, added that they had been forced to eat raw squid and ants in the past.
Bosses at the firm insist that the workers knew what they were getting into beforehand and all had agreed to the unusual punishment prior to being hired.
They also said it is not a punishment but an ‘encouragement’ for employees to do well on the job and to push themselves to the limit.
Employment lawyers in the area said that incentives and penalties are legal so long as they don’t cause harm, however, “insults, high fines or corporal punishment, such as eating raw insects, is a violation and can be reported,” they said.
An official from the city’s labour inspection department agreed and said they are investigating the matter as this was not a simple incentive mechanism, said the report.
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A local construction supply and furniture company in Hanzhong, China force their sales employees who fail to meet targets to eat live mealworms as punishment, said a recent report.