Human resources in China
Labor Laws in China
Hiring staff is one of the first key decisions a company will come across in China. Before employing significant numbers of employees, a company should first consider the challenges and employer obligations that may arise.
A firm understanding of China’s laws and regulations related to human resources and payroll management is essential for foreign investors who want to establish or are already running foreign-invested entities in China, as well as for local managers and HR professionals who may need to explain complex points of China’s labor policies.
In China, there are a wide range of government institutions involved in HR processes, and while key laws are drafted by the central government – such as the Labor Contract Law – numerous bylaws and regulations are instituted at the local level.
Nevertheless, many HR laws and principles are fairly universal across China.
In China, the company can hire employees in the following three ways:
- Direct Hiring of employees;
- Labor Dispatch;
- Services Outsourcing
It is essential for foreign investors who want to establish, or are already running a foreign-invested entity in China, to obtain a firm understanding of China’s laws and regulations relating to human resources and payroll management.
Our section on labor laws in China covers the fundamentals that all employers should be aware of when considering their options to employ staff in China.
Hiring Employees in China
In principle, any company located anywhere in the world may employ a Chinese person to physically work in China. However, the labor contract will not be regulated by relevant Chinese legislation unless it is entered into via an invested entity on the Chinese mainland.
Hiring staff is one of the first key decisions a company will come across in China. Before employing significant numbers of employees, a company should first take into account all the issues introduced in this section. It may be acceptable, or even sensible, to hire a few employees without investing money in developing handbooks, policies, and complex salary structures, but as a company grows, it needs to protect its interests and define employment relationships in a clear manner. This chapter discusses some options available to companies, introduces a few concepts unique to China, and covers some other critical points that should be addressed.
Read our section on hiring employees in China to gain a proper understanding of the available options for your business.
Terminating employees in China
Terminating an employee in China is more difficult and often more expensive than in many other countries since the Chinese Labor Contract Law offers a high degree of protection to workers’ job security.
The range of legitimate grounds for dismissing an employee is considerably wider during their probation period. The employer may also pay only 80 percent of the employee’s contractual salary during this time.
However, in other circumstances, there are limited grounds for terminating an employee before their contract has come to an end.
During the term of a labor contract, the employment relationship can be terminated either by mutual agreement or by unilateral termination with lawful causes, the latter including immediate termination situations and termination with 30 days’ notice. In certain special circumstances, the employee could also be terminated by mass-layoff, or by automatic termination upon bankruptcy, revocation, or dissolution.
Part-time contracts can be terminated at will by both parties. For job contracts, the same rules for termination apply as for fixed-term contracts.
China Business Visa
Hiring foreign employees in China entails several steps and procedures, just like any other country. As any foreigner who has been through the process will know, obtaining a work visa in China can be a twisting process. A Chinese visa grants the holder the right to enter China and stay in the country for a fixed number of days. There are several visa categories, depending on the reason the foreigner is coming to China.
The administrative procedures for hiring foreign employees are slightly different depending on the intended working period in China and may include the need to apply for a notification letter of foreigner’s work permit, Z-visa, R-visa or a residence permit.
Payroll in China
China welfare system
Under China’s system, whenever hiring new staff, employers need to register him or her with the local social insurance bureau and the housing fund bureau to initiate or reactivate the corresponding accounts. Further, although both employer and employee are obligated to make contributions, it is generally the employer’s responsibility to correctly calculate and withhold the payments for both parties.
China’s social security system is made up of five different kinds of insurance, plus one mandatory housing fund - Pension insurance, Unemployment insurance, Medical insurance, Work-related injury insurance, Maternity insurance.
Social security in China is a mandatory employer obligation and a thorough understanding can help businesses stay compliant. Read this section to know more.
China salary and wages
A minimum wage is the lowest remuneration that employers can legally pay their employees. Generally, minimum wage doesn’t include overtime payment, allowance for special working environment, as well as different forms welfare, such as social security contributions.
Overtime is paid differently depending on the work hour system adopted by the employer, by either standard work hours, comprehensive work hours or non-fixed work hours. The standard work hour system requires that an employee’s normal working day should not exceed eight hours, that the normal working week not exceed 40 hours, and that each employee should be guaranteed at least one rest day per week. The majority of white-collar jobs in China now operate according to this model.
Managing minimum and overtime wages may be complex for some businesses in China, our section covering the same can aid in better understanding the requirements.
Individual income tax
In China, it’s generally the employer’s responsibility to accurately calculate and withhold individual income tax (IIT) on employment income, including wages and salaries, bonuses, stock options, and allowances, before paying a net amount to its employee.
The IIT reforms undertaken by China over the years, including the new IIT law, marks a major change in the country’s taxation policies. Low- and mid-income earners enjoy greater tax relief, while individual taxpayers of all stripes benefit from a broader range of deductibles.
Given the scope of the changes, and the potential for closer regulatory scrutiny from tax authorities, employers need to assess their payroll policies, implement changes to stay compliant, and communicate with their employees about any changes for them.
Annual Leave and Public Holidays
Statutory annual leave in China is generally granted based on an employee’s work tenure and increases with the time spent with a business.
However, employees will be entitled to public holidays as set forth by the the General Office of the State Council. The official holiday schedule is usually released for the next year in December.
For the latest holiday schedule and to know how many statutory holidays an employee should be entitled to, read more.