Hiring and paying employees in China is a nuanced process that requires a thorough understanding of local employment laws, payroll systems, and cultural expectations. This guide provides a step-by-step overview, helping international businesses navigate the complexities of recruiting and compensating staff in one of the world’s largest economies.
Key considerations for hiring employees in China
Legal entity registration
Before hiring employees in China, businesses must establish a legal entity, such as a Wholly Foreign-Owned Enterprise (WFOE) or a representative office. Without this, hiring directly is illegal unless done through a third-party employer of record (EOR) or professional employer organisation (PEO).
Tip: Setting up a WFOE can take several months, while using an EOR/PEO allows for immediate hiring.
Work permits for foreign employees
Foreign nationals must obtain a work visa (Z visa) and residence permit. The process involves:
- Job qualifications matching local requirements.
- Health checks.
- Employer sponsorship.
Employment contracts
Chinese labour law mandates written employment contracts. Key elements include:
- Job title and duties.
- Contract duration (fixed-term, open-term, or project-based).
- Salary and benefits.
- Working hours and leave entitlements.
Contracts must be written in Mandarin for legal validity.
Payroll and taxes in China
Managing payroll in China involves precise compliance with local regulations, which include salary payments, social security contributions, and taxes.
1. Minimum wages
China’s minimum wages vary by region. For example:
- Shanghai: RMB 2,690/month (as of 2025).
- Beijing: RMB 2,420/month.
- Guangzhou: RMB 2,300/month.
Adjustments are typically made annually.
2. Salary structure
Salaries in China are often split into components such as base salary, performance bonuses, and allowances (e.g., housing or transport).
3. Payroll frequency
Employees are usually paid monthly, with wages due on or before the 15th of the following month.
4. Income tax rates
China employs a progressive tax system for individual income:
| Monthly Taxable Income (RMB) | Tax Rate | Quick Deduction (RMB) |
|---|---|---|
| 0–3,000 | 3% | 0 |
| 3,001–12,000 | 10% | 210 |
| 12,001–25,000 | 20% | 1,410 |
| 25,001–35,000 | 25% | 2,660 |
| 35,001–55,000 | 30% | 4,410 |
| 55,001–80,000 | 35% | 7,160 |
| 80,001+ | 45% | 15,160 |
Employers must calculate and withhold taxes before paying employees.
5. Social insurance and housing fund
Employers and employees are required to contribute to five types of social insurance and a housing fund. Contributions vary by location:
| Insurance Type | Employer Contribution Rate | Employee Contribution Rate |
|---|---|---|
| Pension insurance | 16% | 8% |
| Medical insurance | 6–10% | 2% + fixed fee |
| Unemployment insurance | 0.5–2% | 0.5% |
| Work injury insurance | 0.2–1.9% | 0% |
| Maternity insurance | 0.5–1% | 0% |
| Housing fund | 5–12% | 5–12% |
Rates depend on the city and are subject to annual reviews.
Payroll process in China
Managing payroll in China requires adherence to strict regulatory standards and timely execution of several interdependent steps. Here is a breakdown of the payroll process to ensure compliance and accuracy:
1. Employee onboarding
- Collect personal details: Obtain necessary employee information, such as name, ID number, bank account details, and proof of residence.
- Tax and social insurance registration: Register the employee with local tax authorities and social insurance agencies within 30 days of hiring.
- Sign the employment contract: Ensure the contract specifies salary, benefits, and other terms in compliance with Chinese labour laws.
2. Track working hours and attendance
- Use attendance systems to record working hours, overtime, and leave taken.
- Ensure compliance with China’s labour laws, particularly regarding overtime hours and pay.
3. Calculate gross salary
- Include all salary components such as base pay, bonuses, and allowances (e.g., housing or transport).
- Factor in performance-related bonuses or commissions, if applicable.
4. Deduct social insurance and housing fund contributions
- Calculate both employer and employee contributions based on local rates for:
- Pension insurance
- Medical insurance
- Unemployment insurance
- Work injury insurance
- Maternity insurance
- Housing fund
- Ensure deductions are compliant with the regional thresholds and caps.
5. Withhold individual income tax (IIT)
- Calculate taxable income after deducting social insurance contributions and any applicable tax-free allowances.
- Apply progressive tax rates to determine the IIT to be withheld.
- Submit monthly IIT reports to local tax authorities.
6. Generate payroll reports
- Prepare detailed payroll reports, including gross salary, deductions, and net pay for each employee.
- Ensure reports are accurate and meet local compliance standards.
7. Process salary payments
- Transfer net salaries to employees’ bank accounts through local financial institutions.
- Payments are typically made monthly, no later than the 15th of the following month.
8. File tax and social insurance contributions
- Submit employer and employee contributions for social insurance and housing fund to the relevant authorities by the specified deadlines.
- File monthly tax returns and make payments through the designated local tax bureau.
9. Distribute pay slips
- Provide employees with detailed pay slips showing:
- Gross salary
- Deductions (tax and social contributions)
- Net pay
- Pay slips should be in Mandarin and clearly itemised.
10. Maintain payroll records
- Keep payroll documentation for at least 10 years, as required by Chinese regulations.
- Records should include employment contracts, tax filings, social insurance payments, and salary details.
11. Annual compliance review
- Conduct an annual review of payroll processes to ensure ongoing compliance with updated laws and regulations.
- Adjust for any changes in tax brackets, social insurance rates, or regional requirements.
Employment laws in China
1. Working hours and overtime
Standard working hours are 8 hours per day and 40 hours per week. Overtime pay is:
- 150% of the base salary for extra hours on a workday.
- 200% for work on rest days if no compensatory leave is provided.
- 300% for work on public holidays.
2. Paid leave
Employees are entitled to the following leave types:
- Annual leave: 5–15 days based on years of service.
- Public holidays: 11 days annually.
- Sick leave: Varies by location, with reduced pay during illness.
- Maternity leave: At least 98 days, with extensions in some regions.
- Paternity leave: Typically 7–15 days, depending on local policies.
3. Termination and severance
Terminations must comply with strict legal requirements. Severance pay is typically calculated as one month’s salary for each year of service, capped at three times the local average monthly wage.
Benefits and cultural expectations
1. Mandatory benefits
These include social insurance and housing fund contributions. Employers may also provide:
- Supplementary medical insurance.
- Transportation or meal allowances.
2. Supplementary benefits
Competitive employers offer perks such as:
- Annual bonuses (e.g., the 13th-month salary).
- Festival allowances (e.g., during Chinese New Year).
- Health and wellness programmes.
3. Cultural considerations
- Building trust and relationships is crucial in Chinese business culture.
- Recognise the importance of traditional festivals and consider offering relevant bonuses or time off.
- Transparent communication about job expectations and growth opportunities is valued.
Choosing a payroll solution in China
Businesses can manage payroll in-house, partner with a local payroll provider, or engage an EOR/PEO.
1. In-house payroll
Ideal for large businesses with established operations in China. Requires:
- Dedicated HR staff familiar with Chinese regulations.
- Payroll software for compliance and tax calculations.
2. Outsourced payroll
Outsourcing to a local payroll provider simplifies compliance but still requires an established legal entity.
3. EOR/PEO
Best for businesses without a Chinese entity, as the EOR/PEO legally employs staff on behalf of the company.
Popular providers: Deel, Papaya Global, and Globalization Partners.
Final thoughts
Hiring and paying employees in China requires careful attention to local regulations and cultural practices.
By understanding payroll requirements, employment laws, and employee benefits, international businesses can effectively build and manage a compliant and motivated workforce.
Working with local experts or providers ensures smooth operations, reducing risk and enabling business growth in this dynamic market.
FAQ
The probation period depends on the duration of the employment contract. For example, it can last up to one month for contracts shorter than a year, two months for contracts between one and three years, and six months for contracts longer than three years. No probation period is allowed for part-time or project-based contracts.
While not legally mandated in most cases, certain industries, such as manufacturing or engineering, may require specific training to comply with safety or technical regulations. Many employers also offer training as part of employee development programmes to enhance retention.
Part-time employees can work up to 24 hours per week and no more than four hours per day. They are not entitled to benefits like social insurance or paid leave, but their hourly wage must meet local minimum wage standards.
No, salaries must be paid in Chinese yuan (RMB) through a local bank account. Employers are required to handle all payroll transactions domestically to comply with local regulations.
If an employee works for more than one month without signing a written contract, they automatically gain open-term (permanent) employment status. Employers may also face penalties for non-compliance with contract requirements.
Labour disputes are resolved through mediation, arbitration, or litigation. Arbitration is a common first step, and employers are encouraged to seek legal counsel to ensure compliance with local labour laws during the process.
Termination notice is required unless the employee has committed serious misconduct, violated company rules, or failed to meet job performance standards during probation. In most cases, a 30-day notice period or one month’s salary in lieu of notice is standard.
In addition to a minimum of 98 days of leave, employees may receive extended leave depending on local regulations. Maternity benefits are funded through social insurance, and employers must ensure the employee retains their job during the leave period.
Bonuses are not legally required but are commonly offered, particularly as annual bonuses or “13th-month salaries.” These are often tied to company performance or individual achievements and are considered an important aspect of competitive compensation packages.
Employers must comply with China’s Personal Information Protection Law (PIPL), which mandates the secure collection, storage, and usage of employees’ personal data. Employers should seek employee consent for data collection and ensure data is not shared without permission.