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Country Spotlight

What You Need to Know About Payroll in the People's Republic of China

PeoplesRepChina

By Mary Holland, CPP

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The People’s Republic of China (PRC) is the most populated country in the world at approximately 1.4 billion people. The PRC is home to one of the oldest civilizations, tracing its history back from at least 1200 BC. The PRC is currently the world’s fastest growing major economy, the second-wealthiest nation, and the largest manufacturer and exporter in the world. It is a member of global organizations such as the World Trade Organization (WTO), the United Nations Security Council, and more.

 

Hiring in China

Employers hiring even one employee in China are legally required to set up a representative office or branch in China prior to hiring the first employee. The registration process takes time, money, and local support in-country and requires collaboration with HR, payroll, corporate tax, and legal teams.

Employers are required to register new hires with the local social tax bureau and housing fund bureau. Registration must be done by the 15th of the month for all employees hired before the 15th of the current month.

Employees are paid monthly and must be paid by the end of the month.

Foreign employers can register the following entities in China:

  • Representative Office (RO)—Approximate registration time is two months.

     

  • Wholly Foreign-Owned Enterprise (WFOE)—A limited liability company in China. Approximate registration time is four months.

 

China allows three types of employment contracts:

  1. Fixed term contract—The contract creates an employer-employee relationship for a fixed period. The contract can be renewed once, and on the second renewal, it is necessary to provide a non-fixed contract. The employer can stipulate a probation period and must follow the maximum probation period per the contract term (see Table 1). The employer may dismiss the employee during the probationary period if they do not meet the requirements of the position.

     

  2. Non-fixed term contract—The employment contract has unrestricted terms. The maximum probation period is six months. After probation the non-fixed term contract can only be terminated on grounds eligible for dismissal or as part of a mass layoff with a 30-day notice.

     

  3. Job contract—These employment contracts in China are not as popular due to the employment protection available with the other contract types. The employee is hired to complete a specific task or project. Once the task or project is completed, the employment contract comes to an end. No probation periods are permitted.

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An employment contract must be given to the employee within the first month of employment and will be provided in the region's local language. Multi-national employers typically provide the employment contract with one side in the local language and the other side in English.

The below items are included in the employment contract:

  • Employer’s name and address, and the name of its “legal representative” or chief person
  • Employee’s name, address
  • Length of the employment contract
  • Probation period
  • Employee title and job duties
  • Workplace
  • Working hours
  • Leave and holiday entitlement

Per China's cybersecurity law, employers are required to obtain express consent from employees when collecting, using, processing, retaining, and transferring their personal information outside of the employing entity. This includes cross-border transfer of the personal data of employees. This is typically a separate form that is signed that explains what is being transferred, where, and the business reason.

The employer must set up a bank account in China and all payments must be paid in local currency. Banks are typically open from 0900-1100 and 1300-1500 and closed on Saturday, Sunday, and holidays.

 

Employee Benefits

The standard workweek should be no more than 40 hours per week and any one day should not exceed eight hours. The employee should receive at least one day that is declared a rest day a week—usually this is Saturday or Sunday.

The employer can adopt a comprehensive working hours system, per the collective bargaining arrangement. This working hour arrangement allows greater flexibility and allows the employer to measure the working hours on a monthly schedule. The arrangement does require the employer to get approval from the local labor bureau. The employer is required to pay overtime to employees for any work exceeding 40 hours, according to the working arrangement. The employer can also request that senior managers who work over 40 hours in a week are not eligible for overtime.

Overtime—The law mandates a compulsory overtime premium. Overtime for office workers and employees with a comprehensive working hours system is as follows:

  • A maximum of three hours in any one workday
  • A maximum of 36 hours in any one month

 

The average worker works 174 hours per month. Adding the maximum 36 hours of overtime means an employer cannot legally require an employee to work for more than 210 hours during a month.

Minimum Wage—The minimum wage depends on the provinces. It is important to note that the minimum wage in each province changes at different times during the year. For 2021, Shanghai has the highest monthly minimum wage of RMB 2,590/ US $400.00 per month.

13th Salary—It is very common practice in China for the employer to provide a bonus payment equal to one month’s salary before the Chinese New Year. This means the annual salary is divided by 13.

CountrySpot_3Social Insurance (or social welfare or mandatory benefits)—China has five different social insurance programs that the employer is required to withhold from the employee and the employer is required to contribute (see Table 2). Once again, it is important to check the location’s (city/province) regulation for the required withholding. The government agency responsible for social insurance is the Ministry of Human Resources and Social Security. The payment is due by the 15th of the following month.

Types of Leave

CountrySpot_4Employers are required to provide employees with a set amount of annual leave, which is commensurate with how long they’ve been employed with the company (see Table 3).

Paternity Leave—There is no national entitlement for this type of leave, but local legislation provides the number of days fathers are entitled to be paid by the employer. For example, Beijing provides 15 days of paid leave while the entitlement is 10 days for employees in Shanghai.

Parental Leave—Nursing mothers are entitled to one hour off per day for children under the age of 12 months.

Marriage Leave—Each city in China has its own laws regarding marriage leave and the range is 3-10 days. For example, Beijing extends marriage leave to seven days.

Bereavement Leave—Bereavement leave is generally one to three days, subject to certain circumstances per local province, and must be approved by the employer.

Holidays—Table 4 shows the holidays for 2021. It is important to note the Chinese government set working weekends that employees work in advance, so the holiday period provides an extended period.

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Income Tax—Employers are required to withhold income tax from an employee’s salary and remit it to the local tax bureau (see Table 5). The payment must include an individual income tax (IIT) return, which in some provinces may be filed online while others may require it to be completed in person.

Monthly taxable income includes all gross salary, cash allowances, fringe benefits, employer contributions to non-mandatory insurance policies, and contributions to corporate retirement funds.

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Unique Culture

China is very formal, and it is very important to understand the culture if you are doing business with anyone from this country. Below are some unique aspects on Chinese culture:

  • Greetings are formal and the oldest person present is greeted first.
  • A handshake is the most common form of greeting, but note many Chinese look toward the ground when making a greeting.
  • The Chinese people are often superstitious—four is the unluckiest number and eight is the luckiest number.
  • Business card exchange is common and expected. Make sure you have plenty so as not to leave anyone out. Business cards have one side in the local language and the other side in English. When presenting a business card, it should be received with two hands and the recipient should take a minute to review and place the card.
  • Trust is extremely important. It is important to build the relationship at the beginning of employment or the business partnership. It does require spending time to get to know each other, which involves engaging in small talk or having conversations about issues that are not work-related. It is important to have a good start with your teams in China.
  • Concept of Face—The Chinese refer to this as Mianzi, which is translated as “Honour, Good Reputation, or Respect.” It is extremely important to Chinese individuals not to lose face. There are four types of “face:”

 

  1. Diu-mian-zi—This is when one's actions or deeds have been exposed to people.
  2. Gei-mian-zi—Involves the giving of face to others through showing respect.
  3. Liu-mian-zi—This is developed by avoiding mistakes and showing wisdom in action.
  4. Jiang-mian-zi—This is when face is increased through others (i.e., someone complimenting you to an associate).

 

  • Company Chop—An official seal that is stamped on documents to confirm the legality of documents. The company chop must be registered with local Public Security Bureau. By attaching the seal to a document, it makes the document legally binding. Companies have different seals for different business purposes. The company chop is included on employment contracts and the invoice (fapiao) chop would be placed on all tax documents. Since the chop is an official seal the use of chops and security should be strictly controlled.



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MaryHolland

Mary Holland, CPP, is Chief Customer Officer at Payslip. She is a member of the American Payroll Association’s (APA) Strategic Payroll Leadership Task Force (SPLTF) Global Issues Subcommittee, the National Speakers Bureau, and CHAMPS Committee.