Hiring in China
The world’s most populous country (with 1.2 billion people), and now it’s second largest economy, has arrived on the world’s stage with a bang since China switched to a liberal market economy from a closed-off Communist state. You’ll struggle to find something in your home not manufactured in China, and Chinese culture and landmarks are instantly recognisable to all of us – from the Great Wall and Forbidden Palace, to the dancing dragons that take to the streets of our cities each Lunar New Year.
China has become one of the most desirable places on earth to invest, but also one of the most difficult to crack. At face value, the world’s largest mobilised workforce, a highly educated emerging middle class and ultra-competitive wages have made companies like Apple dive into China with both feet. However, look a little deeper and tight state control and extensive bureaucracy make investing in China a true challenge.
Hiring in China is straightforward and Chinese workers have gained much more in the way of rights and fair treatment over the last 50 years or so, but there are lots of hurdles for foreign organisations. The economy and its regulations are geared firmly towards Chinese gains, and any organisation that operates within China’s borders must play to the rules, no matter what they say. Get this right, however, and China becomes a huge opportunity for any international business.
Guide to becoming an Employer in China
As an opportunity for doing international business, China needs no introduction. Officially, it has the second-largest economy in the world according to GDP, but it soars past the United States when Purchasing Power Parity (PPP) is taken into account.
The Chinese economy has boomed over the first two decades of the 21st century, and even the onset of the COVID-19 pandemic couldn’t stem its rise. China enjoyed growth of 2.3% in 2021, while all of the other top-ten economies around the world contracted.
Manufacturing is the cornerstone of China’s economic prosperity, but it’s also a leader in energy and commodities. Its position as a global superpower means that incoming businesses should tread with caution though – recent trade friction with the United States ably demonstrated that doing business in China is not without its challenges.
That applies to payroll, too, where compliance requirements, employment laws and tax regulations can be complex. This guide clears up some of that uncertainty so you can get started on the front foot.
Establishing your business in China
Doing business in China begins with securing some business premises, as proof of a lease is required for the registration process. Nonetheless, registering a business in China is far less complicated than it once was.
For wholly-owned foreign enterprises, companies can complete an online ‘Five-In-One Business Licence’ application that combines five different parts of registration: the main certificate of registration, the organization code, and certificates of registration for tax, social security and for providing employment data to the government. There are also other registrations required on top of this, such as VAT and import/export, depending on the nature of the business.
The Chinese tax and financial year is aligned with the Western calendar year; i.e. starting on January 1st.
Employment Law in China
Chinese employment law is largely aligned with the principles found in most Western markets. That is to say that employers must not discriminate according to gender or race and that employees have the right to collectively bargain with employers.
Most employment contracts must be written and include essential details such as employee ID number, remuneration, social insurance details and health and safety information. The social insurance paperwork for a new employee must be filed on the day employment starts. Employing foreign workers requires the granting of an employment certificate and permission from local labour authorities.
China’s legal working hours are standardized at eight per day and 40 per week, although adherence to these rules is inconsistent across the country. Notice periods in China generally run to 30 days. Probation periods can run up to six months for contracts that don’t have a fixed term, although three-month probation periods are commonplace.
What is the Minimum Wage in China?
China has 31 mainland provinces, plus two Special Administrative Regions: Hong Kong and Macau. Minimum wage rates vary considerably between the Chinese provinces and regions, and further vary from city to city within individual provinces. As of the end of 2021, Shanghai has the highest rate at RMB 2590 per month, and the lowest is in the Loudi area of Hunan province at RMB 1220 per month.
Overtime in China is governed by a trade union with consultation required. Even with their trade union backing, it’s limited to a maximum of one hour per day or 36 hours per month, and must be paid at 1.5 times the normal rate (double at weekends and triple on holiday days). Instead of overtime, senior managers can be employed under a more flexible system that allows them to work more than 40 hours a week at normal rates of pay.
The payment of a ‘13th-month’ bonus is customary in China, normally around the Chinese (Lunar) New Year, which falls in late January or early February. Severance pay is one month’s salary per year of service, plus an extra month if employers want to cut the 30-day notice period short, up to a maximum of three times the average wage for the area.
What are the Social Taxes in China?
Income tax in China is levied progressively, with a rate of just 3% applicable to the first RMB 36,000 earned each year. Earnings beyond this are subject to six more bands of taxation, reaching a peak of 45% for earnings beyond RMB 960,000. These taxes should be withheld by employers and remitted to the tax bureau monthly (usually before the 15th of each month).
Social security contributions are numerous and vary substantially between provinces and cities, so be sure to check these rates for any provinces you intend to do business in. Look out for insurances (medical, pension, unemployment, maternity and industrial injury) and the housing fund. Employer contributions are likely to be required for all of these, and as with income tax, withholdings should be remitted by the 15th of each month.
Maternity Leave in China
Paid maternity leave lasts for 14 weeks, is covered by the Social Security Bureau, and is the greater of the average wage for the area or three times the minimum wage for the area. Paternity leave entitlement is ten paid days in most provinces. Paid leave is also available for a family bereavement (generally three days) or a marriage (between three and ten days, depending on the province).
Chinese National Holidays & Annual Leave
China has seven periods of public holidays each year, to which employees are entitled to time off. These are:
- New Year (1-3 January)
- Spring Festival (a week during Chinese New Year, late January or early February)
- Ching Ming Festival (3-5 April)
- Labor Day Holiday (five days at the beginning of May)
- Dragon Boat Festival (three days in early June)
- Mid-Autumn Festival (three days in September)
- National Day Holiday (1-7 October)
You should also watch out for other provincial holiday days, which vary across the country.
The large number of public holidays is counterbalanced by a relatively small paid annual leave entitlement. It starts at five days after one year of service, increasing to ten days after ten years’ service and 15 days after 20 years’ service.
Sick leave and pay also varies depending on experience. Leave ranges from three months for employees with less than five years’ service up to two years for those with 20 years’ service, with three intermediate bands in between. Sick pay ranges from 60% of regular wages for those with less than two years’ service up to 100% for those with at least eight years’ service, again with three intermediate bands in between. Sick pay rates for leave of more than six months in duration are lower, ranging between 40% and 60%.
Why become an Employer in China
As this guide demonstrates, there’s lots of complexity to deal with when establishing an effective and compliant payroll operation in China. Many factors differ across different provinces, the rules and figures are liable to change regularly and there is a fair helping of administrative red tape that has to be dealt with. However, as one of the largest markets in the world, ignoring the Chinese market could be to the detriment of your business growth objectives.
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