Expanding into the Chinese market is a promising venture for many international companies, yet navigating the complexities of setting up a legal entity and managing payroll can be daunting. Fortunately, there’s a solution that streamlines this process: China Employer of Record (China EOR) services. This article explores how China Employer of Record services enable foreign companies to hire and pay employees in China efficiently and compliantly, without the need for establishing a legal entity in China.

Contents:

  1. Steps to Engaging a China Employer of Record
  2. Benefits of Using China Employer of Record Services to pay employees in China
  3. Risk of paying employees in China directly through overseas entity
  4. Understanding the Costs of paying employees in China through China Employer of Record
  5. Frequency of Paying Employees in China
  6. Salary Tax in China
  7. Frequently Asked Questions of paying employees in China

1. Steps to Engaging a China Employer of Record

Here are the key steps involved in utilizing a China Employer of Record service to pay employees in China:

  • Find a Licensed Provider: Seek out a reputable China EOR service provider with a Talent Dispatch license, ensuring compliance with local regulations.
  • Signing Employment Contracts: China Employer of Record provider signs employment contracts with hired employees on behalf of the foreign company.
  • Enrollment in China Social Security: China Employer of Record provider shall enroll employees in China social security system based on their working city, ensuring compliance with Chinese labor laws.
  • Pay employees in China timely: China Employer of Record provider handles China payroll, ensuring employees are paid accurately and on schedule.
  • China Income Tax Contributions: China Employer of Record provider manages individual income tax contributions for employees, adhering to local tax regulations in China.

Understand more about China Employer of Record.

2. Benefits of Using China Employer of Record Services to pay employees in China

Engaging a China EOR service provider offers several advantages:

  • Speed: Companies can hire and begin paying employees in China within one week, facilitating rapid market entry.
  • Ease of China Market Entry and Exit: Avoid the complexities of setting up and closing a legal entity in China. Terminating employees and exiting the market is streamlined through China Employer of Record.
  • Cost Savings: Save on costs associated with China company registration, finance outsourcing, and ongoing corporate maintenance in China.
  • Compliance Assurance: Navigate China’s intricate payroll policies and local variations with confidence, ensuring payroll accuracy and compliance.
  • Mitigated Risks: Delegate labor dispute handling to the China Employer of Record service provider, reducing potential legal and operational risks.

3. Risk of paying employees in China directly through overseas entity

When overseas entities pay employees directly in China, they face critical risks related to permanent establishment (PE) and tax compliance. Establishing a PE can trigger legal obligations and tax liabilities in China, potentially leading to complex regulatory issues and financial penalties.

4. Understanding the Costs of paying employees in China through China Employer of Record

To understand the costs associated with paying employees in China, refer to resources like this guide on calculating employee salaries in China.

Hiring cost in China 2024

5. Frequency of Paying Employees in China

Full time employees in China are paid on a monthly basis, with the specific payment date determined by the employer.

6. Salary Tax in China

There are differet kinds of taxes involved in employee’s payroll in China.

China Individual Income Tax: Individual Income Tax in China is progressive, with rates varying based on income levels and residency status. Employers are responsible for deducting and remitting individual income tax from employees’ salaries each month.

Annual Tax Return in China: All China tax residents, must file their annual tax returns to report income earned. The process involves declaring all sources of income, including salaries, bonuses, investments, and other taxable earnings. Deductions and allowances permitted by Chinese tax laws, such as those for education, medical expenses, and housing loans, can also be claimed to reduce taxable income.

Although it is mandatory for all employees in China to file annual tax returns, employers share the responsibility to ensure that their employees complete this process in a timely manner.

China Mandatory Social Insurance Tax: encompass five types of social insurance (pension, medical insurance, unemployment insurance, work injury insurance, and maternity insurance) and a housing fund. These contributions are mandatory for both employers and employees, calculated as a percentage of employees’ salaries, and must be paid to local authorities monthly.

Social insurance contribution bases and rates vary from city to city across China. Employees’ contributions are typically withheld from their gross monthly salary, with employers also responsible for contributing to various social insurance funds.

China Social Security System 2024

Frequently Asked Questions of paying employees in China:

a) How to manage employees in China under China Employer of Record?

China employer of record service provider assumes responsibility for paying employees in China in accordance with local laws, managing payroll intricacies, and ensuring compliance with mandatory social security contributions. Meanwhile, the foreign company retains direct managerial oversight of its employees’ daily activities and performance in China.

b) Can I pay employees in USD or other foreign currency in China?

No, employees in China must be paid in RMB (Renminbi). Salaries must also be calculated and disbursed in RMB, as the tax thresholds and social insurance contribution bases are specified in the local currency.

c) Can I pay contractors or part-time employees through China employer of record?

Yes, using a China Employer of Record (China EOR) allows companies to engage contractors or part-time employees legally in China. The China EOR manages the necessary legal and administrative tasks, including contract signing and payroll processing, ensuring compliance with local regulations for non-permanent staff.

Contractors in China are subject to different individual income tax regulations compared to full-time employees. Unlike full-time employees, there is no mandatory social insurance contribution requirement when hiring contractors in China.

Understand more about Complete Guide on Hire Independent Contractor in China 2024.

d) Is there a specific deadline for paying employees in China?

Yes, in China, there is typically a fixed date each month by which employees are expected to be paid. This date is agreed upon by the employer. In practice, employer normally pay employee on the last working day of each month.

e) How should business trip expenses be paid to employees in China? Are these payments subject to taxation?

For employees hired through a China Employer of Record (China EOR), their business trip expenses are covered by the EOR agency. Employees must provide tax receipts (Fapiao) issued under the corporate name of the China EOR agency. These business trip expenses are not subject to individual income tax.

f) Do I need to pay additional fees to terminate employees hired through a China Employer of Record?

Yes, severance payments are the responsibility of the employer. The severance payment is calculated based on the employee’s years of service, typically equivalent to one month’s salary per year of service. Termination procedures are generally managed by the China EOR service provider as part of their contractual obligations.

g) Do I have to pay any additional fees to employees in case they resign?

No, typically there are no additional fees that employers need to pay to employees when they resign.

For international companies eyeing expansion into China, leveraging a China Employer of Record service is a strategic move. It simplifies the complexities of payroll management, ensures compliance with local regulations, and accelerates market entry and exit processes. By partnering with a trusted EOR service provider, businesses can focus on growth and innovation while navigating the intricacies of the Chinese market with ease.

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/China EOR.

Info@jscgroups.com

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