A payroll service in China handles payroll, tax, and compliance, ensuring businesses meet China labor laws and superannuation requirements. It simplifies expansion by managing payroll operations, allowing companies to focus on growth.
Managing payroll in China can be challenging due to the complex regulations surrounding salary payments, social insurance, housing fund contributions, and tax obligations. Employers must comply with these rules to avoid penalties and ensure their workforce is compensated correctly and on time. This guide will walk you through the essential aspects of payroll management in China, helping you navigate the intricacies of Chinese labor laws and ensure compliance with local requirements.
Payroll regulations in China are governed by several national laws, including the Labor Contract Law, Social Insurance Law, and tax regulations. These laws ensure employees are fairly compensated, and employers meet their statutory obligations regarding wages, social insurance, and taxes.
In China, employers are required to pay employees at least once a month. The exact payment schedule should be outlined in the employment contract, and salaries must be paid in full and on time. It is mandatory for employers to provide detailed payslips to employees, outlining gross salary, deductions for taxes, social insurance, and the housing fund, as well as the net salary.
Wages must be paid in Chinese Yuan (CNY), unless otherwise agreed upon, and any changes to payment schedules or amounts must comply with Chinese labor laws. Failure to pay salaries on time can result in penalties and disputes with employees, which can escalate to legal actions.
Chinese labor law strictly regulates overtime pay. Employees are entitled to overtime wages if they work beyond the standard working hours of 40 hours per week. The standard overtime rate is 150% of the employee’s regular hourly wage for hours worked on normal workdays, 200% on rest days (if no compensatory time off is provided), and 300% on public holidays.
Bonuses are not required by law in China but are commonly provided as part of the compensation package. The most common is the annual bonus, often referred to as the “13th-month salary,” which is typically paid at the end of the year or during the Chinese New Year. Employers must ensure that any bonuses promised in the employment contract are paid in full and on time.
One of the key components of payroll compliance in China is the mandatory social insurance and housing fund contributions. These contributions are crucial for employee benefits, including healthcare, pensions, unemployment benefits, and housing loans. Both employers and employees are required to contribute to these funds.
Social insurance in China consists of five types of insurance: pension, medical, unemployment, work-related injury, and maternity insurance. Employers and employees contribute different percentages of the employee’s salary, with rates varying depending on the city or region where the company operates.
As a general guideline:
In addition to social insurance, employers and employees are required to contribute to the Housing Provident Fund (HPF), which helps employees save for housing expenses. The contribution rates for the housing fund also vary by city but generally range from 5% to 12% of the employee’s gross salary for both the employer and the employee.
Employers must remit social insurance and housing fund contributions by the 15th of the following month. Late payments can result in penalties, including fines and interest charges. It is critical for employers to establish reliable payroll systems to ensure contributions are calculated accurately and submitted on time.
China follows a progressive individual income tax system. Employers are required to withhold income tax from employees' wages and remit it to the tax authorities. Proper tax withholding is a key aspect of payroll compliance in China, and errors can result in penalties from the tax authorities.
Employers must calculate and withhold the appropriate amount of personal income tax (PIT) based on the employee’s gross salary. The withholding is done on a monthly basis and must be submitted to the local tax authorities by the 15th of the following month. In addition to monthly submissions, employers must file an annual tax reconciliation by March 31 of the following year.
China’s individual income tax system is progressive, meaning the tax rate increases with higher income levels. The current tax brackets for employees (as of 2024) are:
Employers must ensure they are withholding the correct amount of tax based on the employee’s total income and any allowable deductions or exemptions. Failure to withhold the correct amount can lead to penalties and audits from the tax authorities.
In addition to salaries, employees in China are entitled to various benefits, including statutory leave, social insurance, and housing fund deductions. Employers must ensure that these benefits are provided in compliance with Chinese labor laws.
Employees in China are entitled to paid statutory holidays and annual leave, depending on their length of service:
Employers must ensure that employees receive the appropriate amount of leave and that it is recorded accurately in payroll records.
As mentioned earlier, employers are required to deduct employee contributions for social insurance and the housing fund from their salaries. These deductions must be calculated accurately and clearly stated on the employee’s payslip. Failure to comply with these requirements can lead to penalties and disputes with employees.
Failure to comply with payroll regulations in China can result in serious consequences for employers. Below are some common areas where non-compliance may occur and how to avoid them:
Employers who fail to meet payroll deadlines can face fines and employee disputes. To avoid this, businesses should ensure that salaries are paid on time according to the agreed-upon schedule and that all required deductions are made.
Delays in making social insurance or housing fund contributions can lead to penalties and interest charges. Employers must ensure that contributions are submitted to the appropriate authorities by the required deadlines.
Misreporting income tax or failing to withhold the correct amount can result in audits and penalties from Chinese tax authorities. Employers must ensure that they understand the tax brackets and reporting requirements and that taxes are accurately calculated and remitted on time.
Employers who do not adhere to statutory benefits, such as paid leave and social insurance, can face legal claims from employees. It is essential for businesses to understand the benefits they are required to provide and ensure that these are properly implemented in their payroll systems.
Managing payroll in China can be complex, but AYP is here to help. Our Professional Employer Organisation (PEO), Employer of Record (EOR), and Payroll Outsourcing Management (POM) services are designed to simplify payroll management while ensuring full compliance with Chinese laws.
