China’s dynamic economy presents significant opportunities for global businesses. Payroll management here involves navigating complex local regulations and tax laws. Gloroots simplifies these processes, ensuring compliance. Employers hiring in China or managing payroll through an Employer of Record (EOR) need to be well-versed in these regulations for effective operations.

How is payroll calculated in China?

A standard payroll in China includes the gross salary and social security contributions. The gross salary is determined by combining the net salary with the income tax. The net salary represents the amount an employee receives monthly through their chosen payment method.

The general formula used is:

• Monthly Gross Salary + Social Security Contribution = Employment Cost

How to set up payroll in China  

Setting up payroll in China involves several critical steps to ensure compliance and efficiency:

Establish a Subsidiary and Open Bank Accounts

Before initiating payroll, it's essential to create a subsidiary and open multiple bank accounts. All employee payments must be made in the local currency, the Chinese yuan.

Draft a Comprehensive Employment Contract

A robust written employment contract is a legal necessity in China. This contract must include:

Social insurance details

Working hour limits

Working conditions

Remuneration specifics

Workplace protection measures

Legal Recognition of Contracts

Only written contracts are legally recognized in China, safeguarding the interests of both employers and employees.

Payroll Process in China

Processing payroll in China involves several key steps to ensure accuracy and compliance. Here is a structured approach facilitated by Gloroots:

Employee Registration in the Payroll System

The first step is to register employees in the payroll system, which serves as a record for the government. Required information includes:

• Number of employees
• Payroll Software used
• Payroll Schedule
• Basic employee details (name, date of birth, etc.)

Determining Gross Pay

Gross pay consists of employees' earnings before taxes and excludes retirement contributions. It can be measured hourly, per pay period, or annually. Taxable fringe benefits, such as cell phone reimbursements or parking fees, should be included in the gross salary calculation.

Calculating Deductions

After determining the gross pay, all deductions must be factored in. These deductions include taxes and employee benefits as part of the salary structure.

Delivering Payslips

Before finalizing payroll, perform a payroll reconciliation to identify any errors. Review tax records, the general ledger, and the payroll register. Most payroll software allows employees to access their payslips. Employers processing payroll manually should also provide payslips as proof of income.

Maintaining Payroll Records

After disbursing payslips, record every transaction in the payroll records. These records must be maintained for about five years, serving as proof of employee salary payments.

Payroll Cycle

In China, the payroll cycle typically runs on a monthly basis, with payments issued on the last working day of the month.

Payroll Processing

Efficient payroll processing in China requires advanced tools to ensure compliance and streamline operations. Managing payroll schedules is crucial for timely salary disbursements, while accurate calculations minimize errors and legal issues. Proper handling of deductions, tax contributions, and benefits like health insurance enhances employee welfare and retention. Partnering with Gloroots simplifies payroll complexities, ensuring compliance and allowing businesses to focus on growth.

Payroll Management

To manage payroll effectively in China, leveraging advanced payroll software can streamline calculations and disbursements, enhancing accuracy and efficiency. Keeping detailed records and staying updated with local labor laws is crucial for compliance and smooth operations. 

Challenges like payroll errors can be mitigated with robust auditing procedures, and cloud-based systems can efficiently manage payroll for remote employees. Outsourcing payroll offers reliability and compliance, though internal management and local processing companies present alternative options with unique benefits. 

Discover the latest insights on Global Payroll Trends for 2024.

Payroll Components

Minimum Wage

In China, the national minimum wage varies by region. Notable examples include Beijing, where the minimum wage is 2,320 CNY, and Shanghai, where it is set at 2,590 CNY. Gloroots ensures that your payroll processes accommodate these regional differences, maintaining compliance and fairness across all areas of operation.

Working Hours

In China, standard working hours are set at 8 hours per day and 40 hours per week, with a maximum allowable limit of 45 working hours per week.

Overtime

• Overtime Classification: Any work beyond standard weekly hours.
• Regulation: Governed by employment contracts or collective agreements.

Daily Overtime Limits:

• Generally, up to one hour per day.
• In exceptional cases, up to three hours per day.
• Monthly cap of 36 hours.

Overtime Compensation:

• 150% of the standard salary rate for weekday overtime.
• 200% of the standard salary rate for weekend overtime.
• 300% of the standard salary rate for public holidays.

Applicability: Applies to all employees, including management.

Social Security 

Understanding social security contributions in China involves navigating regional differences. For instance, employer contributions in Beijing include a 16% pension rate and a 9.80% medical insurance rate, whereas Shanghai's rates are slightly different, with a 16% pension rate and 9% for medical insurance. Guangzhou's contributions also vary, with a 14% pension rate and 6.85% for medical insurance. Employee contributions similarly differ across regions.

For detailed information on the specific rates and additional details for Beijing, Shanghai, and Guangzhou, contact us. 

Sick Days

Duration of Paid Sick Leave Entitlement

Employees with less than five years of service are entitled to three months of sick leave. Those with five to ten years of service can receive between six to nine months of sick leave, depending on the region. Employees who have worked for ten to fifteen years are entitled to twelve to eighteen months of sick leave, varying by region. For fifteen to twenty years of service, the entitlement is eighteen months of sick leave. Employees with more than twenty years of service are entitled to up to twenty-four months of sick leave.

Sick Pay for Leave Less Than Six Months

Employees with less than two years of employment receive 60% of their regular wages during sick leave. Those with two to four years of service receive 70% of their regular wages, while employees with four to six years of employment receive 80% of their regular wages. For six to eight years of service, the sick pay entitlement is 90% of regular wages. Employees with more than eight years of service receive 100% of their regular wages.

Sick Pay for Leave Longer Than Six Months

Employees with less than one year of employment receive 40% of their regular wages during extended sick leave. Those with one to three years of service receive 50% of their regular wages, while employees with more than three years of service receive 60% of their regular wages.

Explore our  A Complete Guide to Payroll Management | Gloroots for in-depth insights

Parental Leave

Childcare leave in China varies by province, offering different entitlements to parents:

Beijing & Shanghai

• Parents are entitled to five days of childcare leave each year until their child reaches three years old.

Fujian, Guangxi, Inner Mongolia, Heilongjiang, Liaoning, Hebei, Jiangxi, Jiangsu, Sichuan, Guizhou, Zhejiang, Tianjin, Ningxia, Henan, Hubei, Hunan, Hainan, Xinjiang, Shandong, and Guangdong

• Parents receive ten days of childcare leave each year if they have children under the age of three.

Anhui

• Parents are entitled to ten days of childcare leave each year until their child reaches six years old.

Yunnan

• Each parent can take ten days of leave per year for children under three. An additional five days of leave per year are available for parents with more than two children under three.
  

Shanxi, Qinghai, & Gansu

• Parents are entitled to fifteen days of childcare leave each year for children under the age of three.

Chongqing

Parents have two options:

• After maternity/paternity leave expires, either parent can take childcare leave until the child reaches one year old.
• Both parents can take five to ten days of leave each year until the child reaches six years old.
  

Employee Income Tax Rates

• An income tax rate of 3.00% applies to earnings up to 36,000 CNY.
• For earnings between 36,001 and 144,000 CNY, the tax rate is 10.00%.
• Earnings ranging from 144,001 to 300,000 CNY are taxed at 20.00%.
• A 25.00% tax rate is applied to earnings between 300,001 and 420,000 CNY.
• For earnings from 420,001 to 660,000 CNY, the tax rate is 30.00%.
• Earnings between 660,001 and 960,000 CNY are taxed at 35.00%.
• Any income above 960,001 CNY is taxed at the highest rate of 45.00%.

Find the Best Talent for Your Business Today

To find the best Chinese talent, focus on areas where China excels, such as technology, engineering, and manufacturing. Gloroots simplifies this process by ensuring compliance with local labor laws and offering comprehensive payroll management services. Our expertise in risk mitigation, streamlined onboarding, and payroll integration allows businesses to concentrate on growth while we handle the complexities of payroll and talent acquisition seamlessly. Trust Gloroots to expertly manage these processes, ensuring a smooth and effective operation in China.