China PEO & Employer of Record

Hire in China, without an entity

New Horizons provides global employment solutions for businesses seeking to hire employees in China. Through our China PEO & Employer of Record, we take over your company’s payroll, tax and compliance in China, which means you can begin doing business in China without a local entity.

This not only allows your business to go to market faster, but saves you tens of thousands in expansion costs.  

Our China PEO simplifies your expansion

New Horizons enables your business to expand its operations into China – without setting up a legal subsidiary.

Fast Market Entry

New Horizons will enable you to hire and onboard professionals across China in as little as 48 hours.

Legal & HR Team in China

Our legal team based in Shanghai provides in-country legal guidance through employee acquisition, contract renewals and termination, benefits distribution, and HR compliance; as well as local tax, law, and financial expertise.

Payroll Services

Accurate, on-time salary and payroll processing, individual income tax declaration, expense management, statutory benefits administration, and social benefits contribution.

Employee Onboarding

Utilize the relevant provision for all types of China labor contracts, whether a fixed-term or open-ended contract.

Stay Compliant

We ensure that employment contracts are compliant and meet China labor laws and best practices.

Cost Savings

Without needing to establish a legal entity in China, partnering with our China PEO & Employer of Record can help you benefit from cost savings of up to 85%.

How a China PEO ensures labor law compliance

One of the principal reasons for engaging a PEO in China (also known as a ‘China Employer of Record’ or ‘China EOR’), is to ensure full compliance with China’s employment laws. Here we explain how a China PEO ensures: 

1.  Compliance with China employment contract requirements

2. Compliance with working hours, national holiday provisions, and China social security requirements. 

 

📝 Employment contract types

China requires all employers to provide a compliant employment contract that states the employee’s compensation, benefits, and termination requirements. Employment contracts in China should state the salary and any additional compensation in the local Chinese Yuan Renminbi. 

When you partner with a China PEO & Employer of Record, a team of local experts can provide assistance for drafting strong employment contracts compliant with local regulations. A PEO in China can provide your business with labor contracts in the three different forms set out below. 

Project-based

  • Probationary period: No probationary period.
  • Termination: At completion of the project.
  • Severance: Max. one months per year of employment.

Fixed-term

  • Probationary period: 1-6 months (depending on the contract’s length).
  • Termination: Employer needs to provide a reason plus proof for terminating the contract.
  • Severance: Max. 2 months per year of employment.
  • Important note: For Chinese nationals, after the second renewal, the fixed-term contract will be considered an indefinite contract by law(see below).

Indefinite

  • Probationary period: 1-6 months.
  • Termination: Employer needs to provide a reason plus proof for terminating the contract.
  • Severance: Min. 12 months’ salary.
  • Important note: For Chinese nationals, these employees are entitled by law to receive an indefinite contract after completion of two fixed-term contracts of the same length with the same employer.

⏰ Working hours in China

China operates with a standard five-day working week that should not surpass 8 hours of work per day or 44 hours per week. Companies typically run on an 8am to 6pm schedule with a one-hour lunch break.

There is a strict limit on overtime in China. Overtime is not allowed to exceed 36 hours per month, except where there is an emergency event requiring it. A China EOR ensures that all employment contracts reflect these statutory limits. 

Overtime must be compensated in the following way: 

  • For a regular workday: 150% of the standard hourly rate (also known as ‘time and a half’);
  • For a rest day: 200% of the standard hourly rate, or a day off (also known as ‘double time, or a day in lieu’);
  • For a statutory holiday: 300% of the standard hourly rate (also known as ‘triple time’). 

📅 Chinese national holidays 2022

China has a range of national public holidays that are celebrated annually. In 2022 these holidays are:

Date
Description
1-3 Jan
New Year’s Day
31 Jan-4 Feb
Spring Festival Holiday
8 Mar
International Women’s Day
3-5 Apr
Ching Ming Festival Holiday
1-4 May
Labour Day Holiday
25 Jun
Dragon Boat Festival
3 Jun
Dragon Boat Festival Holiday
Sep 10, Sep 12
Mid Autumn Festival, Chinese National Day
5-7 Oct
Chinese National Day Holiday

⌛ Paid time off

The amount of paid time off employees are eligible to receive is based on how long they have been employed at their current company:

  • Under 1 year of employment  | no leave entitlement
  • 1-10 years of employment | 5 days of paid leave annually
  • 10-20 years of employment | 10 days of paid leave annually
  • 20+ years of employment | 15 days of paid leave annually

😷 Sick leave in China

Employees are entitled to between 3 and 24 months paid leave to address medical ailments and treatment. The exact amount of time off will be based on how long the employee has been with the company. Sick pay should never drop below 80% of the local minimum wage.

Workers compensation for injuries or illnesses incurred while working cover employees with legal entitlements of up to one year’s leave at full pay to receive medical treatment.

Take a look at the chart below to learn more about the specifics of sick leave standards in China:

Less than 6 months of sick leave

(percentage of regular wages owed to the employee)

  • Under 2 years of employment — 60%
  • 2-4 years of employment — 70%
  • 4-6 years of employment — 80%
  • 6-8 years of employment — 90%
  • 8+ years of employment — 100%

Over 6 months of sick leave

  • Under 1 year of employment — 40% 
  • 1-3 years of employment — 50%
  • 3+ years of employment — 60%

In order for employees to receive the full wages due to them, workers must present a valid medical certificate from a certified doctor to their employer. 

👶 Maternity leave in China

China provides all female employees with 98 days paid maternity leave. They have the option to begin this leave within 15 days prior to child birth. Depending on the city, women over the age of 24 are generally provided with an additional 30 days for their “late maternity leave.”

Women are traditionally granted full pay during their leave, which is either paid through social security or by their employers. China has laws in place that legally protect women from being terminated while pregnant or breastfeeding a newborn child.

The laws for paternity leave differ greatly by location, but typically do not exceed 14 days. Men in Shanghai usually receive 3 days of paternity leave while men in Shenzhen are typically granted 10 days.

An EOR in China will ensure that all maternity leave obligations are fully complied with.  

💰 Termination & severance in China

In order to terminate an employee in China, there must be strong cause for dismissal and clearly documented grievances leading up to the termination. The initial employment contract must contain an agreed upon probationary period that can last up to six months in length.

Specific time requirements for submitting a notice of termination vary widely by industry. Any employer terminating an employee of between one month and two year’s tenure must provide at least one week’s notice. Employees working for a company for over two years require notice of one week for each year of completed service up to 12 weeks of notice.

Employers have the option of including “payment in lieu of notice” in employee contracts which permit employers to pay employees instead of providing them with a notice of termination. This is common in Chinese business practice.

Navigating employee terminations and handling severance packages can be complicated for companies expanding overseas for the first time. 

Setting up a PEO in China can mitigate risk for foreign companies and provide guidance through this process. 

🏦 China's compulsory social security contributions

Chinese employees are provided with statutory benefits through the “five insurances” practice in China. These include health insurance, pension, worker’s compensation, maternity benefits, and unemployment insurance. However, additional benefits, such as housing, are predicated by the income tax bracket of the individual employee.

These benefits are paid out of social contributions paid by both the employee and employer. More on this below. 

🔑 China social security for foreigners

Different rules are applied to social security contributions from foreigners and Chinese nationals. 

Foreign employees in Shanghai are not yet required to pay the Chinese social security for foreign nationals. In other cities in China, foreigners must pay the full amount of Chinese social insurance.

A PEO in China will ensure that all employees are paying the correct contributions. 

💰 Individual income tax

China’s New Individual Income Tax Law

Effective as of January 1st 2019, China has adjusted tax brackets and changed residency rules in order to reduce the tax burden on low income earners, with new special additional deductions available for resident tax payers.

The Individual Income Tax is calculated on an annual basis. The China EOR will automatically withhold taxes in advance on a monthly basis on the accumulated income and deductions. Individuals may have additional taxes or tax returns to claim through the annual settlement process.

🏥 Health insurance

Standard health and pension insurance is provided through the national system, although supplementary health insurance can be provided to the employees. 

💳 How a China PEO manages compensation and employee benefits

China compensation laws

The minimum wage in China varies greatly between provinces and cities. In Shenzhen, the minimum wage is 1,808 yuan per month. This is only slightly less than Shanghai, which has a monthly minimum wage of 1,820 yuan. However, in Guizhou, the monthly minimum drops significantly to 1,030 yuan. In nearly all circumstances, employers pay employees via cash or bank transfers. 

A PEO in China can provide expert guidance on complying with national compensation laws. 

 

13 month salary in China

The 13th month salary is the standard type of bonus provided to employees working in China at the end of the year. Rewarding employees with the 13th month salary is extremely common in China. As such, we recommend being clear with the employee during the employment contract phase so the employee is aware of the bonus stipulations regarding their annual salary and bonus structure.

Social security for Chinese nationals

As mentioned above, Chinese employees are provided with statutory benefits through the “five insurances” practice in China. These include health insurance, pension, worker’s compensation, maternity benefits, and unemployment insurance. 

They are all funded through ‘social pooling’, formed from payments made by the state, employer and employee, to varying degrees. Entitlements are then acquired through contribution.

However, additional benefits, such as housing, are predicated by the income tax bracket of the individual employee. China’s housing fund system allows Chinese employees to save money towards purchasing their own house, thus providing a way for local employees to have the means to ensure social security and stability in the country. The Housing Fund has no social pool, since the entire amount goes directly to employees’ personal Housing Fund accounts.

An EOR in China will always ensure that social security obligations are fully complied with. 

China housing fund

In China, companies are responsible for withholding social insurances and housing fund contributions from their employees’ salaries.

Employees in China receive a housing fund from their employers as part of their employment benefits. Chinese employers are mandated to contribute between 5% and 25% of an employee’s annual salary to this fund. The purpose of this fund is to provide a subsidy to the employee’s rent or housing purchasing expenses. It is common for employees to negotiate a higher housing fund percentage than is federally required. 

The calculation basis of the corresponding social insurance and housing fund contributions are subject to annual changes by the Chinese Labor Bureau.

Annual leave in China

As well as standard Chinese compensation laws, there are a host of guaranteed benefits and supplemental options available to employees. As China celebrates seven national holidays, the statutory minimum notes that employees be paid leave for each holiday. And while this is the statutory minimum, there are a number of employers that elect to provide employees with greater flexibility around holidays like the Chinese New Year. 

In addition to national holidays, annual vacation leave is another important employee benefit in China. Depending on how long an employee has been with an organization, there will be a set number of vacation days each year. In China, vacation days follow the following criteria:

  • For employees that have been with a company less than a year, there are no mandatory vacation days. 
  • For employees that have been with a company between one and 10 years, there are five vacation days each year. 
  • Employees that have worked for a company between 10 and 20 years receive 10 days annual vacation. 
  • If an employee has been with an organization for at least 20 years, they are entitled to 15 days vacation each year. 

 

For foreign employers that are looking to hire either mid-level or senior executives, more vacation days are generally offered. In fact, it is common for such offers to come with up to four weeks vacation time per year. 

Chinese benefits administration outsourcing

In relation to benefits management in China, there are two options that employers can choose from:

  • In-house benefits management
  • Some employers will elect to disperse benefits themselves. To do this, employers will need to have a thorough knowledge of compensation and benefits laws. They will also need to maintain a commitment to their subsidiary in China. Employers must ensure that their employees receive all benefits that they are entitled to. 
  • Benefits management through a PEO in China
  • Many companies choose to work with a PEO or EOR in China, like New Horizons. As a leader in outsourced benefits administration, New Horizons can assist your business to source benefits and comply with Chinese employment regulations.

A China PEO for hiring employees in China

For foreign businesses, while there are many business advantages of expanding into China, it is paramount that all businesses moving into that market understand the laws in China that will apply to them. Some of these laws will be laws that apply to companies generally, such as the China social credit system. Other important laws relate specifically to employment in China (read more about this at The Ultimate Guide to China Labor Law & Employment Regulations)

When you set up your PEO in China with New Horizons, we ensure your business stays fully compliant with all employment regulations, and ensure that your employees receive their full entitlements.

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