A Brief on Payroll Services in China

May 6, 2023
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China’s payroll system differs greatly from other payroll systems in the world. For this reason, many international companies that hire local teams in China outsource their payroll management to a local service provider. The service provider’s local knowledge and experience save the foreign-owned companies time and money, help them avoid fines or worse, and make sure the company is in compliance with all Chinese laws and regulations.

Labor laws in China in a nutshell

Generally speaking, China is claimed to be no different from other countries in terms of local employment laws. China has a strict zero-tolerance policy toward discrimination in the labor market, and authorities have been known to impose large fines and in some cases, even revocation of a company’s business license in China. Therefore, regardless of gender, race, and religion, employers must pay all employees at the same corporate level with a comparable salary.

Any company that hires teams in China must pay employees severance according to the local laws and regulations. Severance pay in China is complicated and is typically due unless the employer can show that the employee has violated the laws and regulations, as explained in the Chinese Labor Contract or the Chinese Employee Handbook. If the employee’s contract comes to an end and the company does not wish to renew it, the company is also obligated to pay the employee severance typically of one month’s salary for each year that the employee has completed.

What is between bonuses & the Chinese culture?

While bonuses may not be legally required by the Chinese government, it is largely expected by employees in China that they will receive a 13th month’s salary as a bonus before the Chinese New Year holiday. This shows how the payroll process can be complicated due not only to laws but also to local culture and customs.

Read more about HR services in China.

China’s taxation system

China has an extremely complicated tax system, including individual income tax (IIT) paid by employees only, additional itemized deductions, and several social security payments, that diversify from city to city. These social security insurance rates have maximum and minimum contributions based on the employee’s salary and change yearly. The employer’s responsibility varies on an individual case basis, and the laws change each year, making the accurate payment of taxes in China extremely time-consuming. Employers must calculate the appropriate rate of employer contribution in their city for social insurance contributions, including Pension Insurance, Medical Insurance, Unemployment Insurance, Work-Injury Insurance, Maternity Leave Insurance, and a Housing Fund (applicable for Chinese employees only). Further attention must be paid to tax rates for foreigners in China. Since 1st January 2019, individual income tax is calculated based on an annual accumulative basis, making it difficult to estimate. As such, navigating the Chinese tax system is not something you should do without an experienced professional who has local expertise.

Read more about Financial services in China.

We have provided a visual breakdown of a Chinese salary slip to assist you in better understanding the taxes, deductions, and contributions that go with payroll:

Leaves and holidays in China

Another consideration of payroll is the local holidays and leave entitlement. The Chinese government has seven mandated public holidays, and they often create new holiday arrangements at short notice, which can create a complicated process for administering time off. Further consideration should be made to giving employees time off during non-Chinese holidays. Additionally, Chinese workers are provided with anywhere from 5 to 15 days off every year as paid annual leave, based on a sliding scale of the employee’s length of time employed by the company since they graduated from their studies. Additional types of leaves are maternity leaves, marriage leaves, etc.

Gain from payroll services in China

Payroll processes in China are highly complicated, where related policies change often and non-compliance with such regulations can result in strict penalties. Many foreign companies entrust a specialized company to carry out their payroll needs in order to minimize risk and create a stable foundation to grow their businesses in China.

Outsourcing payroll operation is a suitable solution for companies of all sizes in China, but it is highly beneficial for SMEs. Other than saving time and cutting risks, the expenditures related to payroll processing are considerably lower when working with a payroll provider. And above all, companies can rest at ease knowing that trained experts handle all payroll tasks, so the company is covered in terms of legal regulatory compliance and data security.

PTL Group provides comprehensive HR management services throughout the entire employee lifecycle process, in order to establish both the employee and employer’s confidence as a starting-point for sustainable success.

  • If you have a business entity in China – we will provide you with all the necessary HR functions to manage your staffing needs.
  • If you don’t have an entity – we can provide complete employee management support and supervision, in accordance with your specific needs.

For more information, contact us today!

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