China Payroll Services

Enquire Now

China Payroll Services

Successful global expansion depends on making the right moves from day one. This is essential for foreign companies establishing a presence and operating payroll in China. Paying staff in China, either locals or foreigners, requires comprehensive knowledge of laws and regulations applying nationwide, in over 20 provinces, five autonomous regions plus municipalities and special administrative regions.

Bradford Jacobs’ Professional Employer Organization (PEO) and Employer of Record (EOR) platforms provide complete answers to every question you will face before your move into the Chinese economy.

We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the Chinese payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.

When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for China.

What China Payroll Options are available for Companies?

  • Remote payroll: This option allows businesses to operate under a single payroll system, by adding employees in China to your parent company’s payroll. However, these employees must operate under different regulations, which is likely to cause problems.
  • Internal payroll: You may operate payroll for your subsidiary, especially if you are committed to growing your company’s presence in China. However, this does require hiring dedicated HR staff who understand Chinese employment and compliance laws.
  • China payroll processing company: If you are considering outsourcing, then working with a Chinese payroll company will help in processing your payroll – but not when it comes to compliance.
  • China payroll outsourcing: However, there is another option available that solves both concerns – by working with Bradford Jacobs. We can handle payroll and compliance for all your employees in China. We take the administrative stress off your shoulders so you can focus on what you do best.

China Payroll Services

Companies expanding their operations into China open up a wealth of opportunities for expansion throughout Asia and further into the Pacific Rim nations – but challenges come alongside the potential benefits. Payroll management is among those challenges, whether your company is considering moving employees abroad or hiring new staff in-country. Employment laws, payroll regulations and income tax regulations are areas where you cannot afford mistakes.

Running payroll in China requires an in-depth knowledge of employment, payroll, and taxation laws – and keeping up to date with frequent changes. As part of our service, we file returns and associated payments for wages tax and social security contributions directly from our payroll system to the relevant authorities.

Paying staff in China, either locals or foreigners, requires comprehensive knowledge of laws and regulations applying in over 20 provinces, five autonomous regions plus municipalities and special administrative regions.

Outsourcing your payroll in China to Bradford Jacobs will see us dealing with the following:

  • Registering with the State Taxation Administration (STA)
  • Registering with the local Social Insurance Bureau and Housing Fund Bureau to activate accounts for your employees
  • Advise on creating employment contracts
  • Investigating for special expatriate status and researching any tax-free allowances or double tax treaties
  • Reconciling federal, provincial, territorial, and municipal taxes to assess for refunds or extra payments
  • Calculating employees’ monthly salary payments
  • Creating payment schedules for wages, issuing pay slips, and remitting taxes and social security payments to the authorities
  • Filing annual employee tax returns between March 1 and June 30 of the following year, in Chinese and with accounts in local currency, the yuan
  • Completing personal income tax returns for employees, if required
  • Creating and submitting your company’s annual accounts and year-end statements

The above checklist highlights why the vast percentage of foreign companies expanding into China’s strictly regulated business environment hand their payroll to EOR providers such as Bradford Jacobs. By outsourcing payroll your company complies with tax and employment regulations without risking sanctions or financial penalties for late or incomplete filing. You focus on your goals and expansion, free of any concerns over payroll. Questions? We have the answers.

What is required to set up China Payroll?

Foreign companies intending to run payroll by establishing a subsidiary or branch in China face stringent regulations covering employment, tax filing, social insurance contributions and much more.

Filing accounts is complicated as they must be presented in yuan (CNY) as used in the financial and international economic system, as well as in renminbi (RMB), which has been the unit of exchange within China since 1949.

Requirements include:

  • Before registering, select a unique company name and designate a finance officer
  • Decide on a business structure, with Wholly Foreign-Owned Enterprises being the typical choice
  • Obtain approval from the Ministry of Commerce and State Administration of Industry and Commerce, to receive a business license. Branch offices, which remain wholly owned by the parent company, need not register with the Ministry of Commerce
  • Registering with the State Taxation Administration (STA)
  • Registering with the relevant local Social Insurance Bureau and Housing Fund Bureau
  • Registering employees’ contracts with the tax and social security authorities
  • Open a business bank account
  • If employing foreigners, accounts need to be registered with the Services System for Foreigners Working in China along with applications for Foreigner’s Work Permit and the Notification Letter prior to employees applying for their work visa

What Entitlement / Termination Terms apply to Payroll in China?

Various regulations affect benefits and entitlements in China, whether employees are local or foreign. Also, different minimum allowances and benefits may apply throughout China’s provinces, regions, autonomous territories, and local and municipal authorities.

Termination, benefit, and entitlements include:

  • Minimum Wages: In August 2021, 13 provinces increased minimum wages – Heilongjiang, Hubei, Jiangsu, Jiangxi, Ningxia, Shanxi, Shaanxi, Tibet, Xinjiang, Zhejiang, Shandong, Jilin, Hainan – as well as the cities of Beijing and Tianjin. More provinces, territories and cities were expected to raise their minimum rates during the year.

    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). Provinces and territories regularly adjust minimum levels to reflect changes in the cost of living and other economic factors.

  • Sickness Benefit: Paid sick leave covers illness and non-work-related injuries and is based on employees’ length of service. Benefits range from 60% to 100% of salary with paid sickness leave up to 24 months. For example, for under six months’ sick leave an employee with less than two years’ unbroken service receives 60% of salary.

    Benefit climbs 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. Regulations are set by the Social Security Administrative Department of the State Council.

  • Working Hours and Breaks: Under the Labor Law and Employee Working Time Regulation the standard working week comprises 40 hours a week and eight daily, typically from Monday to Friday. The working day is usually between 8am and 6pm with up to two hours break for lunch.

    As with most aspects of Chinese employment, 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: Hours worked over the normally contracted 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 hours a month.

    The Comprehensive Hours Working Hour System allows employers to contract workers to 10 hours day, after which limit overtime begins, but each case needs official approval from employment authorities.

    The Flexible Working Hours System allows high-earning managerial and executive staff to be precluded from overtime, but this needs Labor Council approval.

  • Paid Vacations: Paid holiday leave is mandatory, but entitlement is 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.

    The amount of leave given depends on the length of the employees' service:

    - 0-1 years: 0 days
    - 1-10 years: 5 days
    - 10-20 years: 10 days
    - Over 20 years: 15 days

  • Maternity Benefit: This is managed by the relevant Social Security Bureau for the province or region and is funded by the Maternity Insurance Fund.

    Benefit is calculated from the employee’s average monthly salary and the salaries of all employees over the previous 12 months. The high amount is taken, but usually capped at three times the average salary in that Bureau’s region, although this does not apply in Beijing or Shanghai where there is no limit.

    If an employer fails to pay insurance to finance the Maternity Fund, they must pay the employee themselves.

  • Maternity / Paternity / Parental Leave: The State Council governs these nationally, while each regional or territorial People’s Congress may apply different limits to allowances.

    As there is no mandatory national minimum, the international standard applies of 98 days with 15 days pre-natal and 83 days after the birth. Provinces may allow for more. Guangdong, for example, 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 against the mandated national minimum of 14 paid days. There is no national policy on childcare / parental leave.

  • Termination and Severance: All employees are covered by laws on termination. The statutory permitted reasons are by mutual agreement, by either the employer or employee or automatically at the end of a fixed-term contract. 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, cumulative sick leave depending on seniority and for employees who have worked for the same employer for more than 15 years and are within five years from statutory retirement age.

    Strict laws on trade union consultation apply to simultaneous redundancies applying to 20 or more individuals or 10% of the workforce.

    Under the Labor Contract Law, severance is based on one month’s average salary for each year of service, with more than six months service in any year counted as a full year and less than six months as a half-year. Severance is capped at three times the average for the relevant province or city if the individual’s salary exceeds that average. Severance is limited to 12 months’ salary regardless of how many years’ employment. Payments are taxed as income.

  • Notice Periods: Terminating employment is covered by China’s Labor Law and Contract Law and should be written into the employment contract. However, employee and employer can agree notice periods. 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, or for failure to fulfill terms of employment during a probationary period.

  • Public Holidays: Being paid for public holidays is usually written into the employment contract. Public holidays in 2022 are:

    - New Year’s Day - January 1
    - Chinese New Year - February 1
    - Lunar New Year - February 1
    - Qingming Festival - April 5
    - Labor Day - May 1
    - Dragon Boat Festival - June 3 – 5*
    - Mid-Autumn Festival - Sept 10*
    - National Day - Oct 1*
    - Golden Week - Oct 1 – 7

    (* likely dates)

  • Health and Social Insurance: 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.

13th Month Salary

A 13th month’s salary is commonly paid before the Chinese New Year, though employers have no statutory need to do so. It is taxed as per normal salary.

What Taxation Rules exist for China Payroll?

  • Tax laws are implemented by the State Administration of Taxation and the Ministry of Finance
  • Chinese and foreign workers pay Individual Income Tax (IIT) on their earnings
  • Payroll must comply with contributions to China’s compulsory social insurance programs, covering pensions, maternity leave, medical and industrial illness insurance, and unemployment benefit, in addition to the housing fund
  • Withheld taxes must be paid prior to the 15th of the following month to the Employee Pension Board, the National Health Insurance Council, and the Bureau of Labor Insurance
  • Individual Income Tax (IIT) has nine categories
  • Salaries, labor services, author’s remuneration and royalties are grouped as ‘comprehensive income’ on tax returns
  • Other passive categories cover dividend interest, property leases or transfers and ‘incidentals’
  • Employees can make their own returns, with deductions to the authorities or leave it to their employer
  • Employees making their own IIT return take full responsibility for errors or omissions
  • Withheld tax for remittance to the authorities is applied on a cumulative basis, increasing with income during the year
  • IIT returns must be submitted between March 1 and June 30 of the following year
  • Married couples are taxed individually and must each file returns
  • Since January 2019, foreign workers domiciled for more than 183 days in a year pay tax on worldwide income
  • Individuals are classified as a tax resident if they live in China for 183 days in a calendar year
  • From January 2022 expats lost the right to claim certain deductions, therefore increasing the percentage of their taxable income

Income Tax: Chinese nationals or foreign employees based in China must pay Individual Income Tax (IIT). Foreigners or companies living in China for more than 183 days in a calendar year are taxed on their worldwide income. Further complications arise from taxable income being divided into nine categories and different classes of income can attract different percentage rates. China does not have joint tax returns for married couples, each being taxed individually.

Social Insurance Tax: 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 nationally with employers’ contributions ranging between 27%-29%, and employees around 10%. Additionally, employers and employees contribute to the housing fund.

Rules on other taxes:

Corporate Income Tax (CIT): Corporation Tax 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 can attract reductions or exemptions, as can small, low-profit enterprises. Corporate tax is administered by regional authorities of the State Taxation Administration.

Withholding Tax (WHT): This applies at 10% from income sourced in China from dividends, royalties, leases, interest, and other categories of passive income.

Indirect Taxes: Value-added and consumption taxes apply to companies and individuals at rates between 3% and 16%. Luxury goods, alcohol, cigarettes, and petroleum attract customs duties, while levies on property, land value and customs duties range from 1% up to 56%. 

Unusually, VAT applies to financial services, banking, and insurance. Non-resident companies cannot register for VAT, but their local representative is responsible for VAT accounting. 

The registration threshold is CNY 100,000 (€13,495, US$15,636), but in a typically complex system other limits can apply to different categories across China’s provinces and territories. This complex framework is due for amendments through 2021 into 2022.

Stress Free Global Expansion

Bradford Jacobs’ Employer of Record (EOR) solutions smooth your route into China and every new territory targeted for worldwide expansion. Registration procedures, tax laws and dealing with relevant authorities in the different provinces are potentially hazardous barriers to your expansion, risking severe fines for non-compliance or late returns. 

Bradford Jacobs is on call every step of the way to ensure your company clears all the hurdles to establishing a successful presence in China. Contact us today for more information!