PAYROLL SERVICES IN CHINA

 

Words provided by PTL Group

What International Companies Need to Know about Payroll and Payroll Services in China:

Even if you assume you understand all the secrets of the Chinese system, payrolls, compensation & benefits are not only a critical aspect of your China business operation, but also a major time and money consuming headache.  As such, a large number of international companies in China hire a payroll service provider to handle their needs. The latter will ensure the company complies with all Chinese laws and regulations to avoid sanctions, and of course, relive your headache. 

Understanding Salary Components & Labor Laws in China


Chinese labor laws are by no means intolerant of discrimination in the labor market. If discrimination found, authorities will not hesitate to impose large fines and even revoke the company’s business license. Therefore, employers must be unbiased and pay all employees at the same corporate level with a comparable salary.

Any company operating in China is obliged to severance payments according to the local laws and regulations. Severance pay in China is complex and is usually due, unless the employer can prove that the employee has violated the regulations detailed in the signed Chinese Labor Agreement or Employee Handbook. If the employee’s contract is about to expire and the company does not wish to renew it, the company is also obligated to pay the employee severance. In most cases the rule is 1-month salary for each worked year.

Bonus and 13th Month Salary


Bonuses are not be legally required by the Chinese government; however, employees in China usually expect to receive a 13th month salary as their bonus before the Chinese New Year holiday. This shows how the payroll process is complicated due not only to laws but also to local culture and customs. Read more about HR services in China.

Taxation


China has a highly complicated tax system. Individual income tax (IIT) paid by employees only, additional itemized deductions, and several social security payments that vary between locations, are just a few components in the entire picture. 

 

The social security insurance rates have maximum and minimum contributions based on the employee’s salary, and they are adjusted yearly. Employers must calculate the appropriate rate of employer contribution in their city for social insurance contributions, including Medical Insurance, Work-Injury Insurance, Unemployment Insurance, Maternity Leave Insurance, Pension Insurance and a Housing Fund. That means, that the employer’s amount of contribution changes per employee, which makes the accurate payment of taxes in China extremely time consuming.

 

Tax rates for foreigners in China must be scrutinized as well. Since 1st January 2019, IIT is calculated based on an annual accumulative basis, making it difficult to estimate. As such, steering through the Chinese tax system is not something you should do without a local experienced professional. 

Here is a visual breakdown of a Chinese salary slip to clarify the taxes, deductions, and contributions that go with payroll:

 PAYROLL SERVICES IN CHINA - PTL GROUP


Annual Leave and Public Holidays in China


Local holidays and leave entitlements are another consideration of payroll. The Chinese government has several mandated public holidays. Often it creates new holiday arrangements at short notice, which may give a hard time to administering time off. 

Further attention should be made for giving employees time off during non-Chinese holidays. Additionally, Chinese employees are given 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 college graduation.

To conclude, payroll processes in China are complicated, also because their related policies are altered quite often. Non-compliance with such regulations can carry strict penalties. Many foreign companies prefer to entrust a specialized company to carry out their payroll services for them, as to reduce risks to the minimum and create a stable foundation to grow their businesses in China.

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