How To Hire And Pay Employees In China

China is developing at an incredibly fast rate and receiving heavy investment. Salaries are competitive within most industries and Chinese citizens are typically well educated, highly motivated, and ambitious. However, there can often be culture clashes with other countries. Companies need to ensure they are complying with strict local laws when considering employing a Chinese national.  

Employees who have worked at a company for one continuous year are entitled to five days’ annual leave. Where an employee has not taken all of their paid annual leave in a given year, they are permitted to carry over the untaken leave to the next year. If they decline to do this, the employer must compensate this employee with 200% of the employee’s average daily wage for each day of unused annual leave, in addition to their regular daily wage. 

The maximum probation period is dependent on the term of the employment contract, as follows: 

• Fixed term employment contract up to 1 year: 1 month
• Fixed term employment contract of 1-3 years: 2 months
• Fixed term employment contract of 3+ years, or indefinite contract: 6 months

The amount of notice for termination varies with length of service, according to the following schedule: 

• 1 month-2 years' service: 1 week's notice
• 2+ years' service: 1 week per year of completed service, up to a maximum of 12 weeks' notice

In China, severance pay amounts to 1 month's pay per year of service. Employees who have worked for less than 6 months are entitled to half a month's pay. If an employee’s monthly salary exceeds 3x the average monthly wages of employees in the municipality where the employer is located, severance will be paid at the rate of 3x the local average monthly wages and cannot be for more than 12 years of work. 

Reasonable restrictive covenants that protect the employer's legitimate business interests are allowed. Non-compete clauses should last no longer than 2 years and compensation is required in accordance with local rules. Customer and employee non-solicitation agreements are permissible by law but relatively difficult to enforce in practice. 

In China, it is a legal requirement to implement a strong employment contract which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in China should always state the salary and any compensation amounts in Chinese Yuan Renminbi rather than a foreign currency. 

Pregnant employees are entitled to 98 days of maternity leave, including 15 days of prenatal leave. For multiple births, 15 days' additional maternity leave will be granted for each additional child. Extended maternity leave is subject to local regulations, but an additional 30 days can usually be granted. Statutory paternity leave in China is 14 days. 

Employees are entitled to a period of medical treatment for illness or non-work related injuries that can vary from 3 to 24 months, depending on cumulative working years and length of service with their current employer. Employees are usually paid 60-100% of their normal wage during their sick leave period, depending on their seniority. 

Basic health and pension insurance is provided through the national system; however, supplementary health insurance is often supplied by the employer. 

Depending on the status and type of passport held by a foreign national, a diplomatic, courtesy, business or ordinary visa may be issued. Ordinary visas are designated by letters that correspond to the purposes of the individuals’ visits - ordinary visa Z is issued to a person who will work in China and is valid for three months (one entry). Business visa M is issued to those who intend to go to China for commercial and trade activities – it can be single, double or multiple entry and can be issued for up to 10 days, with the duration of each visit typically being 30-60 days. Foreign nationals may obtain residence permits from the local Public Security Bureau for terms of between 3 months and 5 years, depending on the purpose of residence.  

Minimum wages are determined by provincial governments, factoring in elements such as the minimum living costs of local employees and their dependents, the urban residents’ consumption price index, the social insurance premiums and the housing funds paid by the employees themselves, the average salary of the employees, the level of local economic development, and the local employment status. Minimum wages in China vary greatly between different provinces, and even between different cities and areas within each province. The highest rates are in Shanghai at 2480 yuan per month / 22 yuan per hour. The lowest are less than half of the highest: the minimum rate in the Huludao and Tieling areas of Liaoning province is 1120 yuan per month / 10.6 yuan per hour. These figures can vary on a monthly basis.

As of 2019, China taxes individuals who reside in the country for more than 183 days on their worldwide earned income. Income Tax is administered on a progressive tax system with tax rates as follows:

Tax rates for residents:

Tax rates for non-residents

Though not mandatory, in many parts of China, it is customary to pay the salary on a 13-month basis, by incorporating an additional final month that is paid just prior to the Chinese New Year (typically in early February). Many employees expect to receive it and problems may arise if it isn’t offered. This extra month is taxed in the same way as regular earnings. Some companies also provide 14th- and 15th-month bonuses, adjusted according to performance reviews. 

Social security contributions to pension funds, medical funds, etc. are mandatory for Chinese employees. Foreign individuals who hold a China work permit are also required to make social security contributions in relation to pension, medical, unemployment, maternity, and work-related injury. Monthly employer and employee social security contribution rates, and applicable caps, are governed by local jurisdictions and vary quite broadly. For example, contribution rates and caps applicable to Chinese employees in Shanghai and Beijing are as follows: