Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in China might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labor contracts for employees in Malta including local benefits.
When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. In China, benefits are guaranteed by national legislation as well as collective agreements with trade unions or workers’ councils.
Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into China.
What are the Employee Benefits in China?
Foreign companies’ responsibilities when hiring in China stretch beyond complying with contract laws. Workers’ benefits are also strictly applied in China. For example, social insurance alone comprises legally required benefits covering retirement pensions, medical care, unemployment insurance and disability insurance plus maternity entitlements.
Guaranteed benefits in other categories under China’s Labor Law include:
- Minimum wages (set at provincial level)
- Holiday entitlement
- Working hours
- Termination, dismissals, severance, and compensation
China’s Labor Law and Labor Contract Law stipulate that all full-time employees must have written confirmation of all entitlements in their contract.
This illustrates that the responsibilities of foreign companies reach further than simply complying with tax, social security, and payroll regulations. Failure to comply with specific regulations applying to benefits and entitlements runs the risk of fines and sanctions. It is vital that employers have a firm grasp of what is guaranteed for their employees, as this will affect the employer-employee relationship.
It is a complex picture.
This is where Bradford Jacobs steps in to point you in the right direction, drawing on over 20 years’ experience as a Professional Employer Organization (PEO) and Employer of Record (EOR).
What Compensation Laws exist in China?
China’s far-reaching labor laws cover all businesses and economic entities and their employees. Employment legislation is mainly based on the following laws, codes, and statutes:
- The Labor Law is formulated in line with the Chinese Constitution to protect the rights of workers and regulate their relationship with employers. The Labor Law creates the framework for employment relationships, although regulations are not codified under a single piece of legislation.
- The Labor Contract Law details responsibilities and obligations of employers and employees, in addition to the terms for implementing and ending employment relationships. It is supplemented by the statute on Implementing Regulations of the Labor Contract Law, which goes into detail on contract requirements
- The Mediation and Arbitration of Disputes Law covers how workers’ rights and compensation are protected by labor tribunals dealing with employment disputes. Under Article 2 it covers disputes over working hours and breaks, vacations, social insurance, other benefits, workplace health and safety and remuneration for workplace illness or injury
- The Minimum Wage Provisions Act establishes the framework for minimum wages, which vary between provinces, territories and administrative cities and authorities. Under the Labor Law, the relevant authorities must record the minimum rates with the State Council. The Act allows for rates being adjusted according to living costs, average wages, and local economic development. Rates are enforced by local labor authorities
- Paid Annual Leave Regulations apply rules on statutory paid leave for employees
- Other regulations can be imposed by the Ministry of Human Resources and Social Security, other ministries, commissions, and State Councils
The requirement for employers to respect employees’ rights stretches further than simply complying with tax and payroll procedures. Regulations apply to such as minimum wages, maternity allowances and benefits, holidays, sick pay, and severance payments.
Drawing up contracts is tricky enough, but in China it is vital for employers to be up to speed with responsibilities to their staff over benefits, compensation, and minimum requirements. Do not take the risk of paying penalties for ignoring these responsibilities.
Compensation, entitlements, and benefits:
- Minimum Wages: There is no over-riding national minimum, leaving individual provinces, territories, and municipal authorities to set their own rates and record them with the State Council. In August 2021 Beijing, for example, increased the monthly minimum from CNY 2,200 to CNY 2,320 (€313, US$362). Shanghai already had the highest monthly minimum of CNY 2,590 (€350, US$404). Thirteen provinces also increased minimum wages – Heilongjiang, Hubei, Jiangsu, Jiangxi, Ningxia, Shanxi, Shaanxi, Tibet, Xinjiang, Zhejiang, Shandong, Jilin, Hainan, with the prospect that more would follow this trend.
- Sickness Benefit: Benefits range from 60% to 100% of salary with paid sickness leave up to 24 months covering illness and non-work-related injuries. For under six months’ sick leave an employee with less than two years’ unbroken service receives 60% of salary, climbing to 100% for employees with more than eight years’ continuous service. For sick leave exceeding six months, employees with less than 12 months’ service receive 40% of their salary, between one and three years 50% and between three and six years 60%. Illness or injury must be certified by a doctor or hospital.
- Working Hours and Breaks: Under the Labor Law and Employee Working Time Regulation the standard working week comprises 40 hours and eight daily, typically from Monday to Friday. Working days are usually between 8am and 6pm with up to two hours for lunch. There are regional variations. There is no statutory legislation covering rest breaks during the working day or minimum free hours between working days although employees are entitled to at least one free day.
- Overtime: Working hours exceeding eight a day are overtime and employees receive 150% of their normal pay. Saturday or Sunday work is paid at twice the normal salary, while work on public holidays earns three times the usual pay. Maximum overtime is three hours per day and 36 a month. The Comprehensive Working Hours System allows employers to contract workers to 10 hours day before overtime begins but requires official approval from employment authorities. The Flexible Working Hours System, with Labor Council approval, precludes high-earning managerial and executive staff from overtime pay.
- Paid Vacations: Paid leave is mandatory, strictly limited to the total number of years employed, not necessarily with the same employer. Holidays must be taken in the current year and unused vacation cannot be carried forward. Holiday benefits begin after employees have worked continuously for 12 months. The entitlement is five days’ paid leave for between one- and 10-years’ total employment: 10 days for between 10 and 20 years and 15 days for over 20 years.
- Maternity Benefit: Funded by the Maternity Insurance Fund and administered by the relevant Social Security Bureau for the province, territory, or municipal authority. Benefit is calculated from the employee’s average monthly salary and those of all employees over the previous year. The higher amount is taken, but usually capped at three times the average salary in that Bureau’s jurisdiction, excluding Beijing or Shanghai where there is no limit. Employers who fail to contribute to the fund must pay the employee themselves.
- Maternity / Paternity and Parental Leave: As there is no mandatory national minimum for maternity leave, the International Labor Organization standard applies of 98 days with 15 days pre-natal and 83 days after the birth. Provinces may allow for more. Guangdong allows an extra 80 days: Henan and Hainan a total of 190 days and Heilongjiang and Gansu 180. Extra allowances can apply in the case of difficult births or miscarriages. Similarly, paternity leave may vary between regions with the mandated national minimum being 14 days paid leave. There is no national policy on childcare / parental leave.
- Termination and Severance: All employees are covered by laws on termination. Employers can summarily dismiss an employee for misconduct as defined by law or may be allowed in some circumstances to terminate with 30 days’ notice or payment in lieu. However, if the employer has not displayed a disciplinary policy, it can be problematic to dismiss for misconduct. Trade unions must be informed of unilateral dismissals. Termination is prohibited or restricted in the case of pregnancy, work-related illness or injury and cumulative sick leave depending on seniority. Employees who have worked for the same employer for more than 15 years and are within five years of statutory retirement age cannot have their employment terminated.
- Notice Periods: Terminating employment is covered by China’s Labor Law and Contract Law and should be written into the employment contract. However. Under certain circumstances, the employer can give 30 days’ written notice (or one month’s salary) prior to termination. Notice is not required in cases of misconduct, but union consultation may be involved.
Social Security in China
Social security contributions are mandatory in China and apply to foreign workers as well as Chinese nationals, who pay into five main funds covering medical insurance, pensions, industrial injury, unemployment, and maternity benefits. Contributions vary between provinces, territories and autonomous regions with employers’ contributions ranging between 27%-29%, and employees around 10%. Additionally, employers and employees (not mandatory for foreigners) contribute to the housing fund.
As a guide, the rates for Shanghai in 2021 are:
- Pension - 8.0% (employee), 16.0% (employer)
- Medical and Maternity - 2.0% (employee), 10.5% (employer)
- Unemployment - 0.5% (employee), 0.5% (employer)
- Work-related injury - 0% (employee), 0.16% to 1.52% (employer)
Capped at monthly salary of CNY 28,017 (€3,780, US$4,377)
Statutory Employer Costs in China
Employer Payroll Taxes:
Statutory employer costs for employers in China include social security contributions. These are mandatory and apply to foreign workers as well as Chinese nationals, who pay into five main funds covering medical insurance, pensions, industrial injury, unemployment, and maternity benefits. Additionally, employers (and employees) contribute to the Housing Fund at varying rates according to the location, but foreign employees do not pay into this fund.
- Pension: 16.0%
- Medical and Maternity: 10.5%
- Unemployment: 0.5%
- Work-related injury: 0.16% to 1.52%
Capped at monthly salary of CNY 28,017 (€3,780, US$4,377)
- Corporate Income Tax (CIT): Employers must comply with CIT payments. This is 25% and returns must be filed by May 31 of the following year. Some sectors, such as agriculture, high-end technology and infrastructure development may be eligible for reductions or exemptions, as can small, low-profit enterprises. Corporate tax is administered by regional authorities of the State Taxation Administration.
- Minimum Wages: Complying with minimum wage rates is another statutory cost for employers operating in China. There is no over-riding national minimum, leaving individual provinces, territories, and municipal authorities to set their own rates and record them with the State Council.
A number of municipal authorities and provinces increased their rates in August 2021. Beijing, for example, increased the monthly minimum from CNY 2,200 to CNY 2,320 (€313, US$362). Shanghai already had the highest monthly minimum of CNY 2,590 (€350, US$404).
What Benefits are guaranteed in China?
Guaranteed employee benefits in China include:
- Maternity Leave: Some provinces and authorities apply their own rules, but the minimum complies with the International Labor Organization requirement of 14 weeks, with 15 days pre-natal and the remainder after the birth.
- Maternity Benefit: Benefit is calculated from the employee’s average monthly salary and those of all employees over the previous year. The higher amount is taken, but usually capped at three times the average salary in that Social Security Bureau’s jurisdiction, excluding Beijing or Shanghai where there is no limit.
- Sick Benefit: Benefits range from 60% to 100% of salary with paid sickness leave up to 24 months covering illness and non-work-related injuries, depending on length of service and whether the leave is for more or less than six months.
- Working Hours: Under the Labor Law and Employee Working Time Regulation the standard working week comprises 40 hours and eight daily, typically from Monday to Friday.
- Holiday Entitlement: Mandatory paid leave begins after employees have worked continuously for 12 months. The entitlement is five days’ paid leave for between one- and 10-years’ total employment: 10 days for between 10 and 20 years and 15 days for over 20 years.
What Restrictions exist for Benefits and Compensation in China?
- Maternity Leave and Benefit: The unemployed, flexibly employed, and agricultural workers are not entitled to maternity leave. Benefit is paid by the Social Security Bureau or the employer if they have failed to pay into the maternity fund. Benefit is capped at three times the average salary for the jurisdiction in which the employee works, although there is no limit in Beijing or Shanghai.
- Unemployment Benefit: To be eligible, applicants must have paid into the relevant fund for at least 12 months. Their unemployment cannot be voluntary; they must have applied for a new role as required by the Social Insurance Law.
Health Insurance in China
Social security contributions are mandatory in China and apply to foreign workers as well as Chinese nationals, who pay into five main funds covering medical insurance, pensions, industrial injury, unemployment, and maternity benefits.
Contributions vary between provinces, territories and autonomous regions with employers’ contributions ranging between 27%-29%, and employees around 10%. Additionally, employers and employees contribute to the housing fund.
Benefit from our advice!
Legally protected compensation and benefits are an essential factor in ensuring contracts comply with China’s various labor regulations which can be set by federal, provincial, or territorial authorities. Bradford Jacobs ensures compliance with these crucial requirements to avoid delays in becoming operational.
Contact us today to find out how our benefits packages can help your global expansion efforts!