China HR and Payroll Services

Successfully managing human resources is a key factor for a business to survive and thrive in China. It is extremely important that investors have a clear understanding of their rights and obligations as an employer in China. China has unique employer obligations related to hiring workers, managing work hours and paid time off, and terminating employees among many others. Failing to understand and comply with this complex set of regulations can result in substantial financial and legal liabilities.

Employment of local staff in China brings challenges. Staffing issues such as hiring, termination and payroll calculation can often be problematic, especially when companies are unfamiliar with local regulations. Working closely with local specialists, Acadia offers a comprehensive range of human resource services including:

  • Employment Contract Drafting
  • Monthly Payroll Services
  • Individual Income Tax Advisory
  • Compensation and Benefits Consulting
  • Salary Benchmark Study
  • Employment Background Check
  • Employment Handbook Drafting
  • Staff Benefits
  • Staff Termination
  • HR and Payroll Audit
  • Recruitment Assistance
  • KPI Setting and Bonus Calculation

How Payroll Works in China

China adopted a new tax policy in 2019, the taxable amount and tax rate is calculated from monthly to annually. The employer as “withholding tax agent” has the responsibility to declare the employees’ Individual Income Tax on the monthly with the accumulative withholding method.

Employers are required to contribute towards the Social Security of their employees, as well as ensure that the correct withholding tax and deductions are made from employees. Due to the complexity and changing policies in China, many companies today are choosing to outsource payroll to a professional agency to ensure the legal compliance and better focus on their core business and revenue-generating activities.

China Social Security System includes the following contributions

Pension

Pension contributions are made by both employer and employee, with the employer contributing considerably more than the employee

Unemployment insurance

This contribution is made to provide employees with short-term relief during periods in which they are unable to work

Occupational Injury Insurance

Also known as workers’ compensation insurance, this provides coverage for any injuries or fatalities in the workplace

Medical insurance

Medical insurance is implemented to cover the medical expenses incurred by employees. In China, medical now also encompasses maternity contributions for female employees. Employees are not required to contribute towards the maternity contribution

Housing fund Contribution

This contribution is not considered to be a direct part of Social Welfare, but it can be included under Social Security. This contribution is made by both employer and employee and is used to make put a down payment on a house or to pay back a loan taken for the purchasing of a property

China Individual Income Tax

Individual Income Tax (IIT) China is applicable to all individuals in the PRC, including Chinese nationals and foreigners who reside or derive income from China. For tax purposes an individual is considered to be a resident if they reside in China habitually be means of a registered address, economic ties or family connections. An individual with a Chinese hukou (documents involving the Chinese Household Registration System) or passport is generally regarded as a Chinese resident.

A foreign national is generally deemed as not being domiciled in China and, as such, are generally taxed based on their length of residence in the PRC. A foreign national will be deemed to reside in China if they have been living in China for 183 days or more in a calendar year,
according to the revised IIT laws (effective from January 1st  2019).

(A) Taxable income   (B) Taxable income subject to gross up   Tax rate Quick deduction
In excess of RMB To RMB In excess of RMB To RMB Percent RMB
0 36,000 0 34,920 3 0
36,000.01 144,000 34,920.01 132,120 10 2,520
114,000.01 300,000 132,120.01 256,920 20 16,920
300,000.01 420,000 256,920.01 346,920 25 31,920
420,000.01 660,000 346,920.01 514,920 30 52,920
660,000.01 960,000 514,920.01 709,920 35 85,920
960,000.01 Over 709,920.01 Over 45 181,920

If tax is borne by the employee, figures in Column A should be applied to calculate the tax as follows:

Monthly Tax = Monthly taxable income x applicable tax rate – quick deduction.

If tax is borne by the employer, tax should be calculated on a gross-up basis as follows:

Grossed-up monthly taxable income = (Monthly taxable income subject to gross up – quick deduction B) / (100 percent – applicable tax rate B)

Monthly tax = Grossed-up monthly taxable income x applicable tax rate A – quick deduction A.

Non-residents

For comprehensive income, the rates applicable for monthly taxable income are as follows:

(A) Taxable income   (B) Taxable income subject to gross up   Tax rate Quick deduction
In excess of RMB To RMB In excess of RMB To RMB Percent RMB
0 3,000 0 2,910 3 0
3,000.01 12,000 2,910.01 11,010 10 210
12,000.01 25,000 11,010.01 21,410 20 1,410
25,000.01 35,000 21,410.01 28,910 25 2,660
35,000.01 55,000 28,910.01 42,910 30 4,410
55,000.01 80,000 42,910.01 59,160 35 7,160
80,000.01 Over 59,160.01 Over 45 15,160

If tax is borne by the employee, figures in Column A should be applied to calculate the tax as follows:

Monthly Tax = Monthly taxable income x applicable tax rate – quick deduction.

If tax is borne by the employer, tax should be calculated on a gross-up basis as follows:

Grossed-up monthly taxable income = (Monthly taxable income subject to gross up – quick deduction B) / (100 percent – applicable tax rate B)

Monthly tax = Grossed-up monthly taxable income x applicable tax rate A – quick deduction A.

Schedule a China HR and Payroll Consultation

Schedule a China HR & payroll services consultation with Acadia Advisory to discuss our China HR services and learn more about how we can assist your company in China.