Labor laws and labor rights are very important in China. The Chinese government enforces labor laws, while also adjusting them from time to time. These laws are complemented by many provincial laws and supplementary regulations.
PTL Group’s vast expertise includes employment services in China and payroll services in China. We want to share our important knowledge with you. The following article discusses Chinese payroll management.
Read more about PTL Group’s HR management and recruitment services in China.
HR managers around the world are well aware of the complexities – and the importance – of effective payroll management. In China the situation gets more complicated not only due to the lack of familiarity with tax regulations and labor laws, but also because of specific local regulations in different provinces. Needless to say, noncompliance with Chinese laws leads to serious consequences.
Many international companies prefer outsourcing payroll management to a reliable and proficient service provider (employer of record). At PTL Group, we want to provide you with a short summary of Chinese payroll components.
Taxation & social benefits
These are the major deductions from employees’ salaries. The employer is obligated to contribute a certain amount of money (based on the insurance and locality) to five different social insurances. The employee is also required to allocate a smaller percentage of his or her salary to the same insurances, and to pay individual income tax (IIT).
Learn more about taxes employers and employees in China pay in the comprehensive financial guide for foreign companies in China
Salary in China is usually paid on a fixed range of dates as decided by company rules. For example: between the 2nd and the 5th of the following month. Employers must pay all employees at the same corporate level with a comparable salary, regardless of their demographics.
Read more about labor laws in China
Here is a visual breakdown of a Chinese salary slip, which demonstrates the salary calculation:
(This diagram is only for the purposes of presenting the different items in the salary slip. The calculation may be different from city to city for the same amount)
Please note that a new tax reform that will be enacted in 2022 is expected to affect foreign employees’ salaries, as well as the hiring costs of foreigners in China. Read more in our in-depth analysis: Hiring Employees in China? You Better Start Preparing for 2022’s Tax Reform.
Termination of employment
Severance payment is required when the ground for employment termination is reasonable, proven, and complies with several conditions. Severance payment is also due when the employee’s contract comes to an end, and the company does not wish to renew it.
The calculation of severance payment is based on the accumulated years of service with a certain employer.
Read more about termination of employment by the employer.
Annual leave & public holidays
The Chinese government has declared eleven mandate public holidays, in which employees are on vacation. The longest holidays are during the Chinese New Year (in January-February) and the Chinese National Holiday (in October). Sometimes, the government can extend or adjust holiday arrangements, as exemplified during the coronavirus crisis.
The government often suggests companies to connect weekend days to the official national days to create longer vacations. This requires that employees compensate for those days by working on a Saturday or a Sunday or both before or after the holidays.
Employees are also entitled to an annual leave, which lasts 5-15 days, based on accumulated work years.
Bonus and 13th month salary
Bonuses are not mandatory in China. However, it is customary to give an annual bonus before the Chinese New Year, which is usually considered a 13th salary.
This is an example of how local culture affects payroll management, in addition to the official and legal requirements.
Last updated: July 2021
Regulations in China change relatively frequently. For the most up-to-date regulations, please check in with us.