Salary and Wages

What is the minimum wage in China?

Minimum wages in China continue to rise. The minimum wage standards are determined by provincial governments by taking into consideration factors, such as the minimum living costs of local employees and their dependents, the urban residents’ consumption price index, the social insurance premiums and the housing funds paid by the employees themselves, the average salary of the employees, the level of local economic development, the local employment status, etc.

Contributing Advisor

David Niu

Partner

According to China’s Provisions on Minimum Wage, the legal minimum wage refers to the minimum labor remunerations that shall be paid by the employers to the employees under the precondition that the employee has provided normal labor within the promissory working hours or within the working hours that is prescribed in the labor contracts.

In general, the minimum wage standards appear in two forms:

• The monthly minimum wage standard; and
• The hourly minimum wage standard.

The monthly minimum wage standard applies to full-time employees while the hourly minimum wage standard applies to non-fulltime employees, such as part-time and temporary employees.

The minimum wage is the basic wage that employers must pay their employees, which excludes overtime pay, night shift allowance, summer high temperature allowance, the special working environment allowance, and subsidies for meals, transportation, and housing.

Nevertheless, China’s minimum wage standards do include the social insurance premiums and housing fund contributions paid by employees in most regions. Here, the employee’s take-home pay is lower than the corresponding minimum wage standard in these regions. Only a few regions, such as Shanghai, clearly stipulate in their local rules that their local minimum wage standards exclude social insurance premiums and housing fund contributions.

Local governments in China are generally required to update their minimum wages every few years but have the flexibility to adjust wages according to local conditions.

Most provinces set different classes of minimum wage levels for different areas based on the level of development and cost of living in that region. For example, the provincial capital and the province's most developed cities have a higher minimum wage class, whereas smaller cities and rural areas have a lower wage class.

Minimum wage in China guide

A complete guide to China’s minimum wages can be found below.

Salary components

Base salary and bonus

The employee’s base salary needs to be stated in the labor contract. Employers can also include some one-off payments. For instance, many companies make a 13th month salary payment to their employees around Chinese New Year.

Companies should exercise caution when including payments other than the base salary in the labor contract, as they will be legally obligated to make the payment. Employers can instead choose to pay this amount as an annual bonus. In this case, the employer can explain to staff that the company generally pays this amount under normal business circumstances but is not obligated to do so if performance is below expectations.

Base salary is the fixed monthly amount that the company guarantees to pay the employee.

The company can also pay bonuses at various points throughout the year. In this case, please note that under Chinese IIT law, employees can use a special tax treatment for a one-off annual bonus to reduce their tax burden (more below).

Allowances

The Chinese Tax Bureau allows foreign staff (including those from Hong Kong, Macau and Taiwan) to deduct certain “allowances” before calculating the tax burden on their monthly salary, provided that:

• In the employment contract (and sometimes also in a board resolution depending on the location of the company), there should be a clear reference to the amount being paid to the employee under the title of each specific allowance; and
• Each month, the employee should produce evidence to show the company that this money was indeed spent on the services described in the contract; this is done using the ubiquitous “fapiao”, or official invoice, which should be received whenever an official monetary transaction is completed in China, valid till December 31, 2023.

The following allowances are deductible:

• Meal allowance;
• Housing allowance;
• Laundry allowance;
• Children’s education allowance; and
• Home visit allowance.

How much of a foreign employee’s salary can be allocated to allowances is not clearly defined by the law, which stipulates that the allowances should be “reasonable.” In practice, many companies adopt a proportion of 30 percent of the total salary of the foreign employee and classify this portion as allowances. There is always the possibility that the tax office will challenge the company on this issue, so we recommend that the proportion of allowance should be set at or below this level.

Overtime defined by Chinese Law

For employees that work beyond eight hours a day, the employer should pay a minimum 150 percent of the employee’s basic salary for overtime worked. However, companies can structure overtime in several different ways. For example, a company can adopt either the Comprehensive Working Hour system or the Flexible Working Hour system – both of which usually do not entitle employees to typical overtime payments – but government approval must be sought for implementation.

For an employee to work overtime, employers must consult with the employees and labor unions first. As stated above, in the event that employees do work overtime, they must be paid 1.5 times their usual wage. Employers are not required to pay overtime compensation to high-ranking managers. If employees work on a weekend, they are to be paid double their regular wage or get an additional day off during the week. Finally, if employees work on a statutory holiday, they must be paid three times their normal wage.

Overtime Payments & Regulations

Overtime is regulated by the People’s Republic of China Labor Law. 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.

The standard work hour system

Working hours in the standard work hour system are subject to the usual overtime rates:

• For overtime work, not less than 150 percent of the normal wage shall be paid;
• For work on a rest day, and where such rest days cannot be postponed and taken at another time, not less than 200 percent of the normal wage shall be paid;
• For work on an official public holiday, not less than 300 percent of the normal wage shall be paid.

The standard work hour system is suitable for most types of jobs in China.

The comprehensive work hour system

In this work hour system, overtime is applicable for hours worked above the standard set per cycle. Such rates match those of the standard work hour system for extra hours worked and work on public holidays. However, no rest day is outlined under this system.

Before a company can implement this system, it must first submit its plan to the local labor bureau and get approval.

Once this system is in place, the employee’s work hours will be calculated over a “comprehensive calculation period” (e.g., weekly, monthly, quarterly, or yearly). In contrast to the standard work hour system, employees on this system may work for up to 36 hours more before overtime rates apply. This system is employer-friendly because local labor bureaus will define the upper limits for employee’s monthly work hours.

The non-fixed (flexible) work hour system

The non-fixed work hour system accommodates employees whose working hours are impractical to measure. Employees on such a work hour system are paid as a salaried employee. This salary is a set amount paid per period, often monthly.

No overtime cost is associated with the non-fixed work hour system. Employers are required to observe appropriate work and rest schedules, though it is ultimately up to the employer’s discretion.

This type of work hour system and payment method makes sense when outcomes trump specific hours spent at work. Such roles include:

• Senior management;
• Salespeople; and
• Employees in the transport, warehousing, and railway sectors.

Non-fixed working hours cannot be applied to employees in low-level management or non-management roles unless they fall under one of the following work roles:

• Off-site sales personnel;
• Personnel permanently based out of town;
• Long distance transportation personnel;
• Non-production on-duty personnel; or
• Others in special work positions that may arrange their own work and rest schedules.