China

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China PEO & Employer of Record

WeHG provides an International PEO and global Employer of Record services in China to companies willing to enter the Chinese market or hire local/expat employees in this country. Traditional approach requires establishing a subsidiary in China.  However our solution allows you to start the operations in China within days hence save time and money.  WeHG would hire candidates on your behalf while you maintain full operational control of their work. So legally they would be our employees, on our local payroll, 100% compliant but will work on your behalf. 

Employment & Labor Laws in China

China employment contract types

A written employment contract must be executed between the employee and the employer when a full-time employee is recruited. The following matters must be included in the employment contract:

  • The name, domicile and legal representative or main person in charge of the employer.
  • The employee’s name, domicile and ID number (or other valid documentary evidence of identity).
  • The term of the employment contract.
  • The job description and the place of work.
  • Working hours, rest and leave.
  • Remuneration.
  • Social insurance.
  • Labour protection, working conditions and protection against occupational hazards.
  • Any other matters that are legally required to be included in employment contracts under applicable laws and regulations.

The contract should be written in the Chinese language. While the employer may choose to have two versions of the contract, eg in Chinese and English and the parties didn`t make the choice of law, Chinese version prevails.

Project-based

A project-based employment contract refers to an employment contract in which the employer and the employee stipulate that the time period of the contract shall be based on the completion of a specific task.

Temporary workers are entitled to the same statutory benefits as permanent employees (for example, social insurance and housing fund), and are entitled to the same statutory severance pay in the case of termination.

Fixed-term 

Under the PRC Employment Contract law, the employer and employee can execute a fixed-term employment contract on mutual agreement.

Indefinite

A permanent (open-ended) employment contract must be offered if either:

  • The employee has been working for the employer for a consecutive period of more than ten years.
  • Before the renewal of the contract, a fixed-term employment contract had been executed on two consecutive occasions on and after 1 January 2008 with the same employer.

Additionally, when the employer fails to conclude a written employment contract with the employee within one year from the employee’s first working day, a permanent employment contract will be implied, beginning on the day following the completion of the one-year period.

Working hours in China

 There are three types of working hours systems applicable to full-time employees:

  • Standard working hours system.
  • Comprehensively calculated working hours system.
  • Flexible working hours system.

Under the standard working hours system, an employee should work no more than eight hours per day and 40 hours per week. The employee is entitled to at least one rest day every week. If the employee is required to work over the above limits, they will be entitled to overtime pay to be calculated as follows:

  • For overtime worked on a working day, the employee is entitled to 150% of their normal salary for the overtime worked.
  • For overtime worked on a rest day (normally Saturday and Sunday), the employee is entitled to alternative rest time, or 200% of their normal salary for the overtime worked if the alternative rest time cannot be arranged by the employer.
  • For overtime worked on a public holiday, the employee is entitled to 300% of their normal salary for the overtime worked.

Part-time employees. An employee who works with an employer for no more than four hours per day on average and no more than 24 hours per week in total is considered to be a part-time employee.

Chinese national holidays

There are 11 public holidays in total, as follows:

  • A one-day holiday for New Year’s Day (1 January).
  • A three-day holiday for the Spring Festival (New Year’s Day of the lunar year, and the second and third days of the first month of the lunar year).
  • A one-day holiday for the Tomb-sweeping Festival (the lunar Tomb-sweeping Day).
  • A one-day holiday for Labour Day (1 May).
  • A one-day holiday for the Dragon Boat Festival (the Dragon Boat Day of the lunar year).
  • A one-day holiday for the Mid-Autumn Festival (the Mid-Autumn Day of the lunar year).
  • A seven-day holiday for National Day (1 to 7 October).

The public holidays are not included in the statutory paid annual leave.

China social security for Foreigners

There are special rules applicable to foreign nationals working within the PRC. Foreign nationals from countries with bilateral or multilateral social insurance treaties with China are exempt from participating in the PRC social insurance scheme (at the time of writing, Germany and Korea are the two countries with such arrangements). Under a Regulation issued on 6 September 2011 by the PRC Ministry of Human Resources and Social Security, other foreign nationals are subject to mandatory participation in the PRC social insurance scheme (although implementation varies across cities and participation in certain cities remains optional). However, foreign nationals do not have to participate in the PRC housing fund scheme.

Paid time off

An employee who has worked continuously for more than 12 months is entitled to statutory paid annual leave. The amount of statutory paid annual leave is determined by the employee’s cumulative working years (which are calculated using the employee’s length of time in work as a whole, not just for the employer with whom the employee is currently working) and is as follows:

  • One year or more but less than ten years’ working time: five working days’ statutory paid annual leave.
  • Ten years or more but less than 20 years’ working time: ten working days’ statutory paid annual leave.
  • 20 years or more working time: 15 working days’ statutory paid annual leave.

Sick leave in China

An employee who suffers a work-related injury or occupational disease is entitled to their normal salary and welfare benefits paid each month by the employer during their medical treatment period. The suspension-of-work-with-pay period should normally not exceed 12 months.

If the employee suffers from a disability after receiving medical treatment, the normal salary and welfare benefits will stop being paid once an appraisal has been made of the employee’s disability. The employee will then be entitled to disability payments, including a one-off and/or monthly payments under the Provisions on Work-related Injury Insurance. Different payments are made for varying degrees of disability.

If the illness or injury is not work-related, the employee is entitled to sick pay during the medical treatment period under the employer’s internal policy and the local regulations. A statutory minimum standard applies to sick pay, which varies from region to region.

An employee who needs medical treatment for an illness or non-work related injury can take a medical treatment period of leave, which ranges from three months to 24 months (depending on the employee’s total working years and their years of service with their current employer).

During the medical treatment period, the employer cannot unilaterally dismiss the employee, unless the employee falls within one of the circumstances provided in Article 39 of the PRC Employment Contract Law (for example, the employee has committed severe misconduct).

Maternity leave in China

Female employees are entitled to maternity leave of 98 days (which includes 15 days of antenatal leave). A reward of leave may be granted if a female employee is conforming to the family planning policy, and the standard of entitlement varies from region to region. An extra 15 days’ maternity leave can be granted where there are complications during labour. Female employees who have more than one baby in a single pregnancy will be granted an extra 15 days’ maternity leave for each additional baby born.

For one year after the child is born, the female employee is given a one-hour break each day for breastfeeding. Female employees who bear more than one baby in a single birth are granted an extra one-hour break for each additional baby born.

During the pregnancy, maternity and breastfeeding period, the female employee’s salary must not be changed by the employer. Additionally, the employer cannot unilaterally terminate her employment during these periods, unless one of the circumstances provided in Article 39 of the PRC Employment Contract Law applies (for example, the employee’s severe misconduct).

Termination & severance in China

Notice periods
An employer who unilaterally dismisses an employee for any of the following reasons must give 30 days’ prior written notice or one month’s pay in lieu of notice to the employee:

  • The employee suffers from an illness or a non-work related injury and is unable to take up the original work (or any other work) assigned by the employer to them after the statutory medical treatment period expires.
  • The employee is incompetent in their job duties and remains incompetent after training or a change of job position.
  • A major change to the objective circumstances under which the employment contract was executed has occurred and rendered the contract impossible to perform, and the employer and employee fail to reach an agreement on amending the contract after consultation.

Under the national laws and regulations (excepting the circumstances above), the employer is under no obligation to give prior notice or payment in lieu of notice when dismissing an employee. However, some local regulations (such as those that apply in Beijing) require the employer to give prior notice or payment in lieu of notice when not renewing an employment contract.

Entitlement to severance
Under the Employment Contract Law (effective 1 January 2008), if the employment contract is terminated for any of the following reasons, the employee will be entitled to severance pay:

  • The employee resigns as a result of the employer’s infringement of the employee’s labor rights.
  • The employment contract expires.
  • The dismissal is agreed to between the employer and employee, and the employer initiates the dismissal.
  • The employer unilaterally terminates the employment (unless the termination is for one of the grounds stipulated in Article 39 of the Employment Contract Law, which includes the employee’s severe misconduct
  • The employment is terminated on the employer’s bankruptcy.
  • The employment is terminated because the employer’s business license has been revoked, or the employer has been ordered to close down/deregister or has opted for voluntary liquidation.

China’s tax laws

The rate of taxation on employment income depends on which bracket the employee’s monthly taxable income falls into.

Individual income tax

Under the individual tax law, part of an individual’s employment income can enjoy a tax exemption, which is CNY5000. For those whose employment income does not exceed the above threshold, their income will not be taxed. For those whose employment income is more than the threshold, after deducting the above amount, the rest will be treated as taxable income and will be taxed at the rates prescribed by law. The corresponding tax rates for different portions of monthly taxable income vary from 3% to 45%.

Health insurance

There are three types of governmental basic medical insurance: For the urban employed population, for the urban non-employed population and for rural residents, regardless of employment status. Funding of health coverage comes from the central government, local governments, employers, and the participants.

The dominant players in China’s private health insurance market are large domestic insurers. The three largest health insurers in the medical insurance market in China are Ping An Health Insurance Company and PICC Health Insurance Company and China Life Insurance .

Western insurance companies are also present in China.

China compensation & benefits

The minimum wage in China varies based on what is set by each local government. This is changed annually or every two years based on the following:

  • Cost of living;
  • Average wage levels; and,
  • The particular region’s economic development level.

     

     

This minimum wage normally consists of a monthly and an hourly minimum wage for full-time and part-time employees, respectively.
For example, Shanghai has the highest monthly minimum wage at 2,480 yuan, while Shenzhen outlines a minimum wage of 2,200 yuan per month.

Compensation is typically divided into four elements: base pay, incentives/bonuses, allowances and benefits.

  • Base Salary is paid monthly and varies from 12-14 months. Due to the shortage of managerial talent, competitive salaries are required to attract and retain good employees.
  • Incentive Pay, tied to individual performance, can be paid monthly, quarterly, or annually. The concept of performance-based variable pay is now welcomed by many companies and Chinese employees, especially within China’s first tier cities – Shanghai, Beijing, and Guangzhou. Current incentives include: individual performance plans, team performance plans, cash profit sharing plans (payouts based on organizational profitability), comprehensive performance plans (awards based on the performance of the company, team and individuals), sales bonus plans, sales commissions, and special recognition awards.
  • Employee Allowances are a somewhat unique and very important form of compensation in China. Although foreign invested companies are not obliged to provide them, cash allowances are often valued higher than salaries by employees, and include transportation, meals, clothing, and child care allowances.
  • Benefits fall into two categories: mandatory and supplemental. Mandatory benefits contributions by both employers and employees are stipulated by the China Labor Law and comprise a significant portion of the total compensation. The chart below details the mandatory benefits plan designed for Shanghai residents in 2018, using a gross salary minimum base of RMB 4279 and maximum cap of RMB 21396. Note that each city has its own contribution base and percentage, updated annually.

13 month salary in China

A 13-months pay scheme is common in China, with the additional month’s pay issued during the Spring Festival month

Chinese nationals social benefits

 

Mandatory Social Benefits By Employer By Employee
Pension Insurance 20% 8%
Unemployment Insurance .5% .5%
Medical Insurance 9.5% 2%
Workplace Insurance .2-1.9%
Maternity Insurance 1%
Public Housing Fund 7% 7%
Total 38.2%-39.9% 17.5%

China social contributions & housing fund

Both employers and employees must make regular contributions into the Housing Fund. The employer has to contribute between 5 percent and 25 percent of the employee’s average monthly salary of the previous year (i.e. from 1 January to 31 December). The actual percentage differs per city or province. The employee generally has to deduct from his wage an equal contribution, although again, this may differ per city. The monthly premium is determined by the employee’s average wage in the previous year and the statutory contribution ratio. The statutory maximum contribution amount is calculated based on the average monthly wage in the city or province for the previous year.

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.

FAQ China

  • Working hours in China

    There are three types of working hours systems applicable to full-time employees:

    • Standard working hours system.
    • Comprehensively calculated working hours system.
    • Flexible working hours system.
    Under the standard working hours system, an employee should work no more than eight hours per day and 40 hours per week.  
  • What are the main holidays in China?

    There are 11 public holidays in total, as follows:

    • A one-day holiday for New Year’s Day (1 January).
    • A three-day holiday for the Spring Festival (New Year’s Day of the lunar year, and the second and third days of the first month of the lunar year).
    • A one-day holiday for the Tomb-sweeping Festival (the lunar Tomb-sweeping Day).
    • A one-day holiday for Labour Day (1 May).
    • A one-day holiday for the Dragon Boat Festival (the Dragon Boat Day of the lunar year).
    • A one-day holiday for the Mid-Autumn Festival (the Mid-Autumn Day of the lunar year).
    • A seven-day holiday for National Day (1 to 7 October). The public holidays are not included in the statutory paid annual leave.

    Source: https://wehireglobally.com/china/

  • What is social contribution & housing fund in China

    Both employers and employees must make regular contributions into the Housing Fund. The employer has to contribute between 5 percent and 25 percent of the employee’s average monthly salary of the previous year (i.e. from 1 January to 31 December). The actual percentage differs per city or province. The employee generally has to deduct from his wage an equal contribution, although again, this may differ per city. The monthly premium is determined by the employee’s average wage in the previous year and the statutory contribution ratio. The statutory maximum contribution amount is calculated based on the average monthly wage in the city or province for the previous year.

     

  • Hannah Kohl
    Author:
    Hannah Kohl. Head of Customer Success. Has extensive experience in the HR and IT industries. Helped 100+ international clients to achieve their global goals.

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