Setting up and managing payroll in China
With the second-largest economy on the planet, 1.4 billion people, and a fast-moving, innovative business sector, China is an enticing country for many businesses looking to expand their operations.
One important aspect of any international expansion is hiring employees in your target country, and these employees need to be paid. But setting up payroll in China requires you to follow the local labor and taxation laws, and can be a very complex, expensive process. Not following the proper procedures can result in significant fines and legal trouble, and rules can change frequently, so it’s important you do your due diligence before embarking on your expansion.
An excellent option for many businesses is to work with a China PEO & Employer of Record, such as New Horizons. We can help you to set up your China payroll outsourcing, acting as the employer of record within China to simplify the whole process and eliminate the need for you to establish a legal entity in China.
If you have an entity
For organizations with a registered entity in China, we can establish and manage your local China payroll outsourcing. In addition, we can handle the associated HR, administration, and compliance work so you don’t have to.
This is a great option for larger businesses and those committed to building a long-term presence in China.
If you don’t have an entity
If you haven’t yet registered an entity in China, we can use our China PEO & Employer of Record to act as employer of record for your hires. We can also set up and manage your China payroll outsourcing to ensure full compliance with the local laws.
This is a flexible, low-risk, and scalable outsourcing option for any businesses looking to explore the Chinese marketplace.
Why choose the New Horizons payroll solution?
What are the rules for withholdings and payroll tax in China?
Paying your China payroll taxes is a legal requirement, so you need to understand and follow the rules closely. As with most countries, China follows a progressive taxation model, with higher earners paying a larger percentage than low earners. These rates vary from 3% to 45%, and corporate tax is set at 25%
Additionally, employers are legally responsible for paying towards a housing fund for employees, which usually constitutes up to 25% of salaries, and the amount is often negotiated by hires.
On top of this, there are five mandatory benefits of health insurance, unemployment insurance, maternity, pension, and worker compensation, which employers must contribute to.
China payroll & tax laws
|Total Employment Cost||22.20%|
|Work Injury||0.2- 1.90%|
|Total Employment Cost||32.30 – 44.50%|
|Total Employer Cost||38.32%|
|Total Employee Cost||17.50%|
|Up to 36,000 CNY||3.0%|
|36,000- 144,000 CNY||10.0%|
|144,000- 300,000 CNY||20.0%|
|300,000- 420,000 CNY||25%|
|420,000- 660,000 CNY||30%|
|660,000- 960,000 CNY||35%|
|960,000 CNY and above||45%|
Contractual rights and termination regulations
Prior to establishing your China payroll outsourcing, you’ll need to create contracts of employment. These contracts must include the rights and entitlements of hirees, such as sick pay, vacation days, maternity allowance, and so on.
Employees are entitled to full sick pay for up to 12 months in relation to work-induced health problems. Sickness not related to work can grant workers anywhere from a few months to two years of paid leave.
The contracts must also specify the terms of termination, which will depend on the type of employment. For example, fixed-term contracts do not need any specified notice period, but other forms of employment will require a 30-day notice period for termination without proper cause.
How to establish China payroll outsourcing
Companies expanding overseas have a number of options when setting up their China payroll outsourcing system. Firstly, you will need a legal entity in China to act as the employer of record.
Then, you’ll need to open a bank account in China and pay employees in Chinese Yuan currency. Beyond this, you are legally required to provide comprehensive contracts of employment with key terms and details like social insurance, contracted hours, and a description of workplace conditions.
The work associated with setting your system for China payroll outsourcing can be managed in several ways:
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.