Human Resources and Payroll in China 2023 – New Publication from Dezan Shira & Associates

Human Resources and Payroll in China 2023, the latest publication from China Briefing and Dezan Shira & Associates, is out now and available for download through the Asia Briefing Publication Store.

What’s in this guide

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, numerous bylaws and regulations are instituted at the local level. The topic is too complex to be covered in complete detail in one book, so the term ’guide’ is quite appropriate for the nature of this publication. Companies should still seek professional advice to deal with any specific situation they face relating to HR.

This guide was created in June 2023 with the latest information available at the time. It was written in consultation with Dezan Shira & Associates, a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence, and financial review services to multinationals investing in emerging Asia.

Human Resources & Payroll in China 2023 (10th Edition) covers the following:

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• Hiring Staff
• Staff Administration and Payroll
• Terminating Employees
• Employing Foreign Workers
• Privacy and Data Protection

Within these chapters, we discuss a range of different topics that affect HR and payroll in China, including labor contracts, labor dispatch and outsourcing, mandatory leaves, social insurances and housing fund, payroll processing and tax calculation, termination and severance.

We have also added a new section introducing the latest privacy and personal information protection requirements in human resources management, which is becoming increasingly important in China.

Human Resources and Payroll in China at a glance

Hiring options: An enterprise can hire staff through three basic options – direct hiring, labor dispatch, and outsourcing.

Representative offices: The simplest of foreign investment vehicles in China, the representative office (RO), is not permitted to directly hire staff in China; instead, they need to use dispatch agencies. The agencies must hold a government issued special license that allow them to hire employees on behalf of their clients (for example, Dezan Shira & Associates has dispatch licenses).

Dispatch limits: Labor dispatch can only apply to three types of positions – temporary position, auxiliary position, and replaceable position. The number of total dispatched employees used by an employer should not exceed 10 percent of its total number of employees.

Mandatory written contracts: All directly hired employees must be given a written contract within one month of hiring; if not, the employee is entitled to double salary. Electronic labor contracts are regarded as written contract as well by satisfying certain conditions.

Probation period: 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.

Working hour system: In China, there are three main work hour systems – the standard work hour system, the comprehensive work hour system, and the nonfixed (flexible) work hour system. The latter two systems are considered ‘special work hour systems’, which require special approval and compliance requirements.

Payment and tax: An employee’s salary package could include base salary, allowances, bonuses, non-monetary pension plans, and employer’s portion of social security contribution. The base salary should be stipulated in the labor contract. Employers are required to file individual income tax (IIT ) for their employees on a monthly basis. The IIT system was reformed substantially in 2018.

Mandatory social security: China’s social security system is made up of five different kinds of insurance-pension, medical, maternity, work-related injury, and unemployment, plus one housing fund. 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. Employer’s obligation to make adequate and timely contributions cannot be alleviated or exempted by reaching mutual agreement with employees. Foreign employees working in China have been required to participate in China’s social insurance scheme as well starting from 2011, but this obligation can be exempted if they come from countries that have social insurance exemption agreements with China.

Leave during the first year of employment: Employees are not entitled to any mandatory minimum number of leave days during their first year of employment (ever), except those public holidays such as Chinese New Year around February, and the National Day celebrations in early October.

Regional variation: National laws are often intentionally broad and vague, leaving a lot of room for local interpretation or additional legislation. Regulations and practices differ per city on issues such as minimum wage, work visa policy, social security contributions, and
maternity leave.

No at-will termination: Terminating employees in China is both difficult and expensive. Employees may resign with 30 days’ notice, but for employers, there are limited grounds for terminating an employee before their contract has come to an end.

Non-fixed term contract after two fixed term contracts: After an employee finishes their second contract with your company, he or she generally shall be offered a lifetime contract as the third unless he or she wants another fixed term contract instead. Such non-fixed term contract can only be terminated if there are grounds for dismissal. Notably, some regions, such as Shanghai, offer more flexibility on this rule.

Severance payments mandated by law: In practice, severance payments can be even higher than the law prescribes, and can comprise a significant part of overall HR costs.

Hiring foreign workers: China implements a tiered talents classification system for hiring foreign workers. Different classes of talents are subject to different administration. Foreigners who want to work at companies in China should arrive on a valid work visa (Z-visa or R-visa). Employers need to obtain and renew Foreigner’s Work Permit and Residence Permit for their foreign staffs in a timely manner.

Tech-powered HR and payroll solutions: Companies are increasingly moving away from separated, localized payroll software or Excel, and towards integrated and tech-powered human resources management platforms that streamline multiple HR processes, often including onboarding, attendance, leave, claims, and possibly even areas like talent management and training.

Privacy and personal information protection: With the release of the Civil Code, the Personal Information Protection Law, as well as the other relevant data security laws and regulations, employers in China are faced with a series of new compliance requirements in human resources management. Companies need to audit their current policies and develop corresponding mechanisms to stay compliant.

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