Payroll in China

What does the payroll process in China involve?

If you’re running a startup or SME, you likely haven’t encountered international payroll processes yet. While many components of the payroll process are similar no matter which country you’re operating in, China does have some unique and complex aspects. 

When processing payroll in China, you need to keep the following in mind:

• Compensation: Gross pay, net pay, plus any employee benefits you’re offering workers in China.
• Taxes and deductions: Payments for the Bureau of Labor Insurance, National Health Insurance Council, and the Employee Pension Board, for example.
• Payroll cycles: When in the month you’ll pay your workers and how frequently.
• Working hours: New regulations have recently changed Chinese work culture for the better, which we’ll go on to explain.
• Holidays: Paid time off and public holidays.
• Leave: Maternity leave and sick leave, for example.
• Termination and severance.

As with many other countries, the laws surrounding payroll in China are woven through multiple pieces of legislation. These laws are subject to local variations in areas such as Hong Kong and Macau and foreign workers are taxed separately from Chinese citizens for income taxes.

Don’t leave getting your payroll right up to chance. Contact the Skuad team today to find out what you’ll need to do to build a team in China.

What you need to know about payroll in China

China offers a huge range of talent, at a comparably lower cost versus other global regions. Because of this, the country has long been a popular choice for foreign businesses. 

Salaries and wages in China

Employees and contractors in China will expect to be paid in Yuan Renminbi/CNY/¥.

There is no state-mandated minimum wage in China. However, regional governments in China are required to update their minimum wages on a regular basis. For example, provinces such as Chongqing, Sichuan, and Yunnan — which have not adjusted their minimum wage rates over the past two years.

The minimum wage can also vary within provinces. While the province is responsible for setting the minimum wage, there isn’t a set wage across the entire province. Each is broken down into districts of different levels and those districts have their own minimum wage rates.

With such a complex system for deciding minimum wage, businesses looking to hire Chinese workers should consult with the experts to ensure they provide the correct wage based on the worker’s location.

Many companies offer their employees a 13th-month salary payment, however, this is not required by law.

Working hours and overtime

China is world-renowned for its hard work ethic, but despite what you may assume, they enforce strict guidelines when it comes to how much an employee can be made to work.

No more “996”

Some businesses in China have been criticized for promoting the “996 work culture”, where employees are required to work from 9am to 9pm, six days a week. 

And, in fact, China’s top court and labor ministry have recently detailed 10 court decisions related to labor disputes relating to this practice. These cases covered a wide range of sectors, from tech to construction, and each case had the same result, the employers lost their case.

This has provided businesses operating in China with a stark and clear warning. The “996 work culture” is not only poor practice, it is actually illegal. 

As such, businesses looking to hire Chinese workers should respect the maximum working hours as stated in China’s labor laws.

New regulations for the standard working week

The standard working week is around 40 hours per week, with employees working 8 hours per day.

Navigate the changing workplace regulations in China with Skuad by your side. Book a demo today.

Overtime payments

Overtime pay is capped at 36 hours on top of the employee’s contracted hours in a single month. Overtime rates vary depending on when the overtime is performed. 

• Weekdays - 150% of hourly rate
• Weekends - 200% of hourly rate
• Holidays - 300% of hourly rate

Severance pay

Severance rules are similar to most other countries. Severance payments are required for employees terminated without cause, while employees terminated with cause should be given 30 days’ notice and are entitled to severance pay.

Employee leave entitlement in China

Chinese leave is quite different from how other countries manage PTO (paid time off). 

Public holidays and PTO

Instead of giving employees a single day off for key holidays, China has two week-long holidays for Chinese New Year and National Day. Saturdays and Sundays are designated as additional workdays to compensate for these long breaks. 

As employees are already given 2 weeks' leave for national holidays, paid annual leave is limited. After an employee has worked for a company for one year, they are entitled to 5 days paid leave per year. After they have been with the company for 10 years, this entitlement rises to 10 days per year.

Sick pay in China

Generally, employers are required to give paid sick leave to all employees. Sick pay can vary depending on how long an employee has been with the company, ranging between 60% to 100% of their base wage.

For employees taking 6 months (or less) sick leave, rates are as follows:

• Under 2 years of employment - 60% regular wages
• 2-4 years – 70% regular wages
• 4-6 years – 80% regular wages
• 6-8 years – 90% regular wages
• 8+ years – 100% regular wages

When you sign up to Skuad, we manage all the details for you. Book a demo and see how effortless running payroll in China can be.

Chinese payroll taxes and deductions

Foreign businesses looking to hire Chinese workers must abide by China’s tax laws, which include (but are not limited to) Individual Income Tax (IIT), social security, and payroll tax.  

Individual Income Tax (IIT)

On December 31, 2021, the Ministry of Finance and the State Taxation Authority released an announcement confirming that they are extending the following key IIT preferential policies that were scheduled to be abolished at the end of 2021:

• Policy on tax-exempt benefits for expatriates extended to the end of 2023
• Preferential tax treatment for annual bonus extended to the end of 2023
• Preferential tax treatment for equity-based incentives of listed companies extended to the end of 2022
• Tax-exempt policy for the situations where resident taxpayers’ annual comprehensive income is up to RMB 120,000 with the additional tax to be paid through the annual self-declaration and where additional tax to be paid through the annual self-declaration is up to RMB 400, extended to the end of 2023

Social security and payroll tax

• Social security consists of a 10.5% contribution from employees and a 28.52% contribution from the employer. 
• The standard rate for corporate and income tax is 25%, though that rate can be reduced to 15% for businesses operating within specific industries. 

Employers are responsible for handling all tax deductions. 

Now, this is only scratching the surface of Chinese payroll laws. For a full understanding, you will need to consult with local lawyers and experts, or simply contact Skuad and we can tell you everything you need to know in terms that make sense.

Payroll providers in China: How to start building your team?

Now that you have your Chinese employee or team ready to work, it’s time for you to focus on managing their payroll. 

Going it alone may seem like a solid move, as you can save money you would pay out to payroll management services or a PEO. However, it requires a completely different set of processes to domestic payroll management. 

Not only is this confusing and time-consuming, if you’re trying to handle both on your own, but the lines can also easily blur leaving you open to accidental non-compliance.

As is the case across the globe, penalties for non-compliance can be devastating to a small business, ranging from heavy fines to jail time in extreme cases. For those who accidentally break Chinese labor laws, the small savings they gained from manually processing their Chinese payroll is immediately wiped out.

Choosing to outsource your payroll can help your business avoid accidental non-compliance, especially overseas. A global payroll service like Skuad puts your business’s payroll in the hands of real experts. This means you can easily navigate the major international payroll challenges and reap the following benefits:

One partner for global payroll

With Skuad as their partner, companies no longer need to have multiple payroll partners.

Skuad gives payment and withdrawal flexibility to companies and their teams, provides optimal exchange rates, takes care of remote talent by providing statutory benefits, and consolidates all payroll data on a single dashboard for easy viewing and analysis.

Total compliance

Skuad is compliant with all relevant Chinese employment laws, which means you can hire the best talent China can offer, without the stress.

Improved employee experience

On top of our expert powered global payroll service, we can take care of your team with brilliant benefits packages that will help your business attract the best talent before the big companies get a chance. 

If you’re looking to hire in China, or anywhere else in the world, Skuad is here to help. Request a demo to get started today.