Comprehensive guide to help you understand all practices about hiring employees in China to ensure your hiring in Chinese are fully compliance under China Employment Law.
- China Labor Contract
- China Employment Law
- Work Rules and Working Hours in China
- Probation Period in China
- Severance Payment
- Overtime Pay
- Bonus in China
- Hiring Cost in China
- China Individual Income Tax
- China Social Security – Social Insurance
- China Social Security – Social Housing Fund
- Salary Payment in China
- China Annual Leave Policy
- China Pension and Retirement Age
- Sick Leave Policy in China
- China Maternity and Child Care Leave
- 2022 China Public Holiday
1. China Labor Contract
China Employment Law is the most important law in China governing the relationship when hiring in Chinese. This China employment Law applies to both foreigners and local Chinese employees, and it applies to both local Chinese companies and Wholly Foreign-Owned Enterprises (China WFOE). This China Employment law was created to protect the rights of employees hired in China and to foster harmonious working relationships.
Only registered company in China are eligible to hiring in Chinese and sign labor contract with employees in China. For foreign companies who has no legal entity in China, hire employee in China through a China PEO is the compliance employment method. Learn more about How to Hire Employees In China Without Legal Entity?
A written labor contract is required. The labor contract must be written in Chinese, with an English translation. In the event of a dispute, courts will only rely on the Chinese version. Employers operating in China without written labor contracts face a number of risks. In particular, if an employer fails to provide a written labor contract for employee more than a month, the employer will be required to pay double the employee’s monthly salary.
If an employer fails to execute a written labor contract for more than a year, the employee will be deemed to have entered into an open-term / permanent employment contract with the employer.
A written employment contract is required by China Employment Law. Some terms must be defined are list below:
- Fixed-term or ad hoc.
- Probation periods vary in length.
- Name, position, term, benefits, social security, and so on must be stated.
Understand more about Employment Contract in China [China Labor Contract Template].
2. China Employment Law
Hiring in Chinese is govern by China Employment Law, and is based on a statutory, civil law system. There is no concept of “at will” employment in China. All employees are protected from unlawful dismissal, regardless of their seniority, and severance payment is generally a requirement under China Employment Law It is critical to follow the procedures for employee termination. Failure to abide by the relevant regulations can lead to expensive settlements and legal costs. In general, it is difficult/difficult to fire an employee in China. As a result, it’s common to have a fixed-term job. An employer has the right to fire an employee at the end of a fixed-term contract, but must compensate the employee financially. Severance can only be avoided if an employee refuses to renew a contract on the same or better terms as before. When terminating employees, it is critical to seek legal counsel.
3. Work Rules and Working Hours in China
The Standard Working Hours System is applicable to the majority of hiring in Chinese. A full-time employee’s working hours are generally limited to 8 hours per day and 40 hours per week under this system (usually from Mondays through Fridays). Some companies use a Flexible Working Hours System, which means that the start time can range from 8:30 to 10:30 in the morning and the end time can range from 5:30 to 7:30 in the afternoon.
There are two exceptions to this system:
• Comprehensive working hours of non-standard working hours
• Irregular working hours
An employee can only be designated under either of the alternative systems if all of the conditions stipulated by China Employment Law are met.
An employer may generally require an employee to work longer hours without overtime pay under the Comprehensive working hours of non-standard working hours if the average working hours in a certain “comprehensive calculation” period (e.g., a quarter) do not exceed the applicable legal maximum on total working hours for that period.
It is not required to keep an employee handbook, but it is recommended in the event of a legal dispute. The employer will bear the burden of proof. Both must register work rules with the government and obtain approval before applying.
Understand more about What is China PEO, and steps to engage a PEO in China.
4. Probation Period in China
According to the China employment law: Probation period in China shall be no more than one month for employment terms of more than three months but less than one year.
Probation period cannot exceed two months for employment terms of one year or more but less than three years.
The probation period cannot be longer than six months for employment terms of three years or more, or for an open-term employment arrangement.
Each employee is only permitted to serve one probationary period with the same employer.
5. Severance Payment
Employers must pay severance (severance payment = one month’s salary for each year of service; for more than six months service but less than one year, it shall be calculated as one year; for less than six months service, shall pay half a month’s salary) unless the employee failed to satisfy the Conditions of Recruitment under the probation or seriously violated Company Regulations or committed a Civil Crime, and the employer has clear evidence to prove so. Otherwise, the employer must provide the employee with a 30-day written notice and part ways with mutual consent. If the employer does not want to serve a 30-day advance notice period, he or she may pay one month’s salary in addition to the severance pay.
6. Overtime Pay
Overtime pay in China is required in the following amounts during hiring in Chinese:
Weekday overtime: Overtime at 150% of the hourly rate on weekends or days off: Overtime at 200% of the hourly rate on a public holiday: 300% of the hourly rate
Overtime hours are also limited by China Employment Law, with no more than 3 hours per regular work day and no more than 36 hours per month.
According to the PRC Labor Law, every employee of a company, from the top management down to the lowest hourly-paid employee, is eligible for overtime pay.
7. Bonus in China
In many parts of China, a 13th month’s salary is customary, and it is usually paid out before the Chinese New Year. Because this is not required, the conditions for earning this bonus month’s salary must be specified clearly and in writing. Annual discretionary bonuses are more common in MNCs. Some multinational corporations may offer both the 13th month pay and the discretionary annual bonus. The employer is required to pay the 13th month pay if it is stated in the employment contract.
Many foreign companies doing business in China have generously added this 13th month, despite the fact that their expenditures were calculated using a 12-month system. If the employer intends to implement a bonus system for employees, the parameters should be clearly defined in the employment contracts. Instead of paying a higher salary but no annual bonus, an employer may choose to pay a lower salary with an annual bonus, which is usually paid early the following year. The employee will incur no additional costs as a result of this, but they will benefit from deferring their individual income tax payments.
8. Hiring Cost in China
The Employer pays statutory benefit contributions in the following ways for hiring in Chinese:
Opening of a company, a social contribution account, and a housing fund account
When a new employee is hired, the company will enter the employee information into the company account. Each month, the company will generate the monthly billing for social security and housing fund, and the payment will be made from the employer’s bank account to the social contribution and housing fund accounts, respectively.
Contributions to the five social insurances (pension, medical, unemployment, maternity, and injury) are grouped together in one bill, while contributions to the housing fund are separate.
After signing the employment contract, the employer must enter the employee’s information into the company account (social contribution & housing fund). It will take between one and two working days. If the employee does not have individual social contribution and housing fund accounts, the employer must first apply for and open the employee’s account before filing the employee information.
The contribution to the employment security fund for disabled people is levied monthly by the competent local tax bureau, but it can be paid together with the social insurance contributions for employees either monthly or annually.
Understand more about How to Calculate Employee Salary in China? [China Payroll Guide]
9. China Individual Income Tax
Individual Income Tax (IIT) is levied at a progressive rate, ranging from 3% for monthly taxable incomes of RMB 1,500 to 45% for monthly taxable incomes of RMB 80,000. The IIT is deducted from employees’ monthly salaries and paid directly to the Chinese government by employers. This IIT is then withheld and paid to the tax authorities on a monthly basis.
Each month, the employer should withhold the IIT and file the IIT. Through the e-tax system, the IIT payable will be deducted directly from the employer’s bank account.
10. China Social Security – Social Insurance
Hire employees in China are typically required to contribute to social insurance (which usually includes pension, medical, work-related injury, maternity and unemployment insurance) and the housing fund for all employees. The exact type of required social insurance is determined by local rules. Expatriates and Hong Kong, Macau and Taiwan ID Card holders must be enrolled in statutory social insurance as well. If you are required by law to make the payments, you cannot contract out of your obligations by agreement with an employee. Any such agreement will be disregarded by the authorities.
Contributions to mandatory benefits are made by both the employer and the employee, and they apply to both expat and hiring in Chinese. Contributions to Mandatory Benefits include five mandatory insurance schemes (pension fund, medical insurance, industrial injury insurance, unemployment insurance, and maternity insurance) as well as a housing fund (only applicable to Chinese employees).
Understand more on Complete Guide on China Social Security System.
11. China Social Security – Social Housing Fund
Employers must register their employees with this separate agency because the Housing Fund is regulated by a different department than the Chinese taxes and social insurances when hiring in Chinese. Within 30 days of incorporation, newly formed companies must register with the Housing Fund Bureau. The company must then work with a bank to automate their Housing Fund contribution payments within 20 days of registration. In addition, the employer must register a new employee within 30 days of their first day on the job.
12. Salary Payment in China
Hiring in Chinese are required to pay at least once a month, according to the China Employment Law, and normally within five days of the end of the payroll cycle. Normally paid to the employee through bank transfer.
Your monthly employment cost consist of:
- Employee monthly net salary
- Employer contribution of social insurance and housing fund
- Employee contribution of social insurance and housing fund
- Allowances, bonus, commissions
- Individual income tax
- Other benefits offered.
13. China Annual Leave Policy
Minimum statutory annual leave standard in China:
1 year or more with less than 10 years of cumulative service: 5 days of vacation;
10 years or more with less than 20 years of cumulative service: 10 days of vacation;
20 years or more with more than 20 years of cumulative service: 15 days of vacation.
It is common practice to provide more annual leave to key personnel in order to incentive them. Allowances for paid leave, sick leave, and other benefits are based on total working life, not just time with the company.
Understand more on Public Holidays and Annual Leaves in China.
14. China Pension and Retirement Age
Retirement age in China:
Male Employee: on the age of 60
Female white-collar employee: at the age of 55
Female blue-collar employee: at the age of 50.
There have been discussions about extending the retirement age beginning in 2020. Female employees born in 1965 should have their pensions delayed for one year, while those born in 1966 should have their pensions delayed for two years, and so on. Female employees and residents should receive pensions at the age of 65 by 2030; male employees born in 1960 will be delayed for six months, and so on, and male employees and residents will receive pensions at the age of 65 by 2030.
15. Sick Leave Policy in China
Sick leave is available in the event of illness or an injury that is not related to work. The employee must provide documentation issued by a certified practitioner or a recognized medical organization that has been approved by the employer. The number of annual (paid) sick days permitted shall be predetermined and stated in the employee’s employment contract, with no carrier over suggested. Employees in their first year of employment are entitled to a maximum of three months of sick leave; one month of sick leave is increased for every full year after that, but not more than 24 months total.
This leave must be used separately from annual leave.
16. China Maternity and Child Care Leave
Maternity leave is available for prenatal care, childbirth, breastfeeding, late pregnancy, and delivery.
Prenatal care includes doctor visits during the first 12 weeks of pregnancy. Working time includes prenatal examination time.
Natural childbirth: The majority of Chinese provinces have increased maternity leave from 128 to 158 days. However, this may differ depending on the city. The provinces that do not adhere to the 158-day rule are as follows:
- 178 days: Chongqing, Guangdong,
- 128 days: Tianjin,
- 190 days: Henan (pending to be extended), Hainan (at most),
- 188 days: Jiangxi, Hebei (for the third child), Zhejiang (for the third child)
- 180 days: Gansu, Heilongjiang, Fujian (at most)
- 148 days: Guangxi
- 128 days: Jiangsu (no less than)
Difficult delivery – leave natural delivery days + 15 days
Multiple births – leave days for natural birth + 15 days + 15 days extra per baby
Abortion or miscarriage within the first four months of pregnancy – 15 days
Abortion or miscarriage after the first four months of pregnancy – 42 days
Prenatal leave: After the seventh month of pregnancy, you can take a one-hour day break. Upon employer approval, you may also take 2.5 months of prenatal leave.
17. 2022 China Public Holiday
Employees are entitled to have holidays in the below list. Each year, local government will announce the actual holiday days.
- New Year’s day: 1 day
- Spring Festival/Chinese New Year: 3 days
- Qing Ming Festival: 1 day
- Labor Day: 1 day
- Dragon Boat Festival: 1 day
- Mid-Autumn Festival: 1 day
- China National Holiday: 3 days
See latest 2022 China Public Holidays.
About JSC – China PEO & Employment Expert.
JSC is a professional service company that assists foreign-invested companies in doing businesses in China.
Our core services China PEO and employment solution enables foreign investors to hire employees in China without setting up any company which allow them to expand into China market in days, not months. Our in-country local experts are also experienced in assisting businesses to compliantly establish their own legal entity in China.
Please contact us if you require any other information on China PEO.