Human Resources Payroll in China 2019-20

Human Resources and Payroll
in China 2019-2020
(7th edition)
Produced in association with

Disclaimer
This edition of Human Resources and Payroll in China was produced by a team of HR professionals at Dezan Shira & Associates, with Zhou Qian acting as technical
editor and Adam Pitman as managing editor. Creative design of the guide was provided by Ha Ngoc Anh Thu and Nguyen Quang Tue.
© 2019 Asia Briefing Ltd.
Human Resources and Payroll in China 2019-2020 (7th Edition) 2

Preface
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 March 2019 with the latest information available at the time. It was
written in consultation with Dezan Shira & Associates, a specialist at 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.
Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service
consultancies with operational offices across China, Hong Kong, India, Singapore, and Vietnam,
as well as liaison offices in Germany, Italy, and the United States. Dezan Shira & Associates’
experienced business professionals are committed to improving the understanding and
transparency of investing in emerging Asia.
ADAM LIVERMORE
Partner
Dezan Shira & Associates
CONTACT
china@dezshira.com
www.dezshira.com

Human Resources
& Payroll in China at a Glance
• Hiring options: An enterprise can hire staff through three basic options - direct hiring, HELEN KONG
labor dispatch, and outsourcing. Manager
Human Resources
• Representative offices: The simplest of foreign investment vehicles in China, the representative Dalian Office
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). While the overall
process for hiring people
• Dispatch limits: Labor dispatch can only apply to three types of positions-temporary position,
in China does not differ
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. much from elsewhere in the
world, there are a number
• Mandatory written contracts: All directly hired employees must be given a written
of points that require
”
contract within one month of hiring; if not, the employee is entitled to double salary.
special attention.
• 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 non-
fixed (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 salar y pack age could include base salar y,
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 manda-
tory minimum number of leave days during their first year of employment (ever), except
those during major holidays such as Chinese New Year around February, and the Na-
tional 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 are 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.

About Dezan Shira & Associates
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing
legal, tax and operational advisory to international corporate investors. Operational throughout
China, India and ASEAN, our mission is to guide foreign companies through Asia’s complex
regulatory environment and assist them with all aspects of establishing, maintaining and
growing their business operations in the region. With more than two decades of on-the-ground
experience and a large team of lawyers, tax experts and auditors, in addition to researchers and
business analysts, we are your partner for growth in Asia.
Our Services
>> Business Intelligence
>> Corporate Establishment and Structuring
>> Due Diligence
>> Accounting
>> HR and Payroll
>> Tax
>> Audit and Risk Advisory
>> Technology
>> Outbound Direct Investment

Our Locations
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Dezan Shira Asian Alliance Members

Table of Contents
Preface 03
Part 1 | Hiring Staff 12
Direct hiring and labor contracts 14
Labor contract in Chinese recommended 15
The term of the labor contract 15
Mandatory clauses in labor contracts 18
Recommended clauses in labor contracts 18
Verify the labor contracts in the local labor bureau 21
Dispatch 22
Dispatch agency 23
Applicable scope of labor dispatch 23
10 percent limit 23
Contract signing 24
‘Equal pay for equal work’ principle 25
Cross-region labor dispatch 25
Termination of labor contract 26
Outsourcing 27
Part 2 | Staff Administration and Payroll 29
Structuring a salary package 30
Base salary and bonus 30
Allowances 30
Mandatory benefits (social security) 31
Defining net salary 32
Work hour systems and overtime payments 33

The standard work hour system 33
The comprehensive work hour system 34
The non-fixed (flexible) work hour system 35
How to get approval for the special work hour system 35

Mandatory benefits (social security) 37
Social security types 37
Contribution calculations 42
Foreigner and migrant worker involvement 42
Employer obligations 43
Local variances 44
Trending developments 45
Statutory vocations and payment calculation 46

Statutory annual leave 46
National holidays 48
Sick leave 50
Parental leaves and related benefits 52
Marriage leave 58
Additional payroll costs 60

Winter heating fee 60
Summer heat allowance 60
Disabled worker assistance fund 61
Calculating and withholding individual income tax 62

IIT reform 62
IIT taxpayer and their liability 64
IIT taxable income and tax rates 68
Deductions 71
IIT calculation 77
IIT on lump-sum bonuses 80
IIT declaration 82
IIT filing 83

Distributing salaries 84
Outsourcing payroll 85
Advantages of outsourcing payroll 85
Payroll processing procedure 86
How to identify a reliable payroll processing agent 88
Part 3 | Terminating Employees 90

Termination during the probation period 92
Termination during a fixed-term or non-fixed 93
term contract
Termination through mutual agreement 93
Immediate termination for inappropriate behavior of the 93

employee
Termination with 30 days’ notice and compensation 94
payment
Automatic termination upon bankruptcy/ 96
license revoking/permanent dissolution of the company
Mass layoff 96
Termination at the end of a fixed-term contract 99

Employees not allowed to be terminated 100
Termination pay and its tax treatment 101
Calculation of severance payment 101
IIT implication on severance payment 103
Part 4 | Employing Foreign Workers 105

Overview of China’s visa system 106
China’s visa system 106
Z-visa 108
M-visa 118
F-visa 109
R-visa 109

China’s new unified work permit and 110
tiered talents classification system
Unified work permit system 110
Tiered talents classification system 111
Administrative procedures for hiring foreign 113

employees (>90 days)
Applying for Notification Letter of Foreigner’s Work Permit 114
in China
Applying for Z-visa or R-visa 117
Applying for Foreigner’s Work Permit 118
Applying for Residence Permit 119
Renewal of Foreigner’s Work Permit 120
Deregistration of Foreigner’s Work Permit in China 121
Administrative procedures for hiring foreign 122

employees (≤90 days)
Administrative procedures for short-term work 122
Administrative procedures for Foreigner’s Work Permit in 124
China (≤90 days)

1
Hiring Staff
• Direct hiring and labor contracts
• Dispatch
• Outsourcing

Hiring staff is one of the first key decisions a company will come across in China. Before HELEN KONG
employing significant numbers of employees, a company should first take into account all the Manager
issues introduced in this chapter. It may be acceptable, or even sensible, to hire a few employees Human Resources
without investing money in developing handbooks, policies, and complex salary structures, but Dalian Office
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, explains the requirements of the social insurance system as they It’s important to make
relate to employers, and covers some other critical points that should be addressed. sure newly hired staff
receive and sign a written
contract within a month, to
avoid potential liabilities.
Companies are well
advised to streamline this
process, as an oversight
”
may prove costly.

Direct hiring and labor contracts
In principle, any company located anywhere in the world may employ a Chinese person to
physically work in China. However, the employment contract will not be regulated by relevant
RELATED READING
Chinese legislation unless it is entered into via an invested entity on the Chinese mainland, or
under circumstances where the overseas company is regarded as a permanent establishment
in China.
Is your company a representative office (RO)?
ROs in China cannot hire staff directly. Instead, Chinese staff must be seconded from an
agency that will take the title of official employer (to find out more, please refer to the section
on ‘Dispatch’). Representives working for ROs should have an employment relationship
with the parent company abroad, and any disputes should be settled under the laws of
that country.
This is because an RO is not a capitalized legal entity in China. An employee must have the
HR Management
right to claim against their employer, and an RO is not a suitable entity to file claims against.
Tools for China
By forcing ROs to employ staff through an agency (which itself is a capitalized legal entity
China Briefing magazine
in China), the interests of the employee are thereby protected.
July, 2018
If a company is qualified to hire employees directly and decides to do so, it should be specially
In this issue of China
noticed that employers are required to sign a written contract with their employees within one
Briefing magazine, We
month starting from the employee’s first day of work at the company.
begin by comparing
labor costs across China,
If the employer fails to conclude a written contract with the employee after a period of more
and look at ways foreign
than one month but less than one year from the date of employment, the employer must pay
investors can optimize
the worker double wages for each month. Over one year, the employer and the employee will be
expenses. Then, we
deemed to have concluded a non-fixed term labor contract (explained later), and the employee
explain how to create an
can be entitled to double wages for the period of more than one month but less than one year.
HR strategy for relocating
a business in China.
If the employee refuses to conclude a written labor contract with the employer, the employer
should terminate the employment relationship, notify the employee in writing, and pay monetary
compensation to the employee in accordance with the PRC Labor Contract Law. AVAILABLE HERE
One exception to the abovementioned rules is part time work, where an oral agreement is
considered sufficient, as stipulated in Article 69 of the PRC Labor Contract Law.

The employment relationship is deemed to have started from the first day that the employee
works at the company, not from the date of signing of the contract. As long as the employee can
prove that they have physically been working for the company for over a month prior to signing
an employment contract, this will be sufficient to make a successful claim against the company.
The simplest piece of evidence proving this will be the receipt of salary.
To effectively lower the future risk of labor disputes, employers should build up reliable mechanisms
to ensure the prompt conclusion of labor contracts.
Labor contract in Chinese recommended

The question of which language a labor contract should be written in is seemingly a trivial
one, but it has the potential to render even the best written contracts unenforceable. While
monolingual foreign language contracts are accepted by Chinese courts, the foreign language
contract must be translated by institutions that are approved by the courts, on a basis unknown
to the plaintiff. Bilingual contracts contain their own problems, principally in determining which
language will be the controlling language and in ensuring uniformity in the translation.
More often than not, a bilingual contract that does not specify which language is the controlling
version will automatically default to Chinese as the authoritative language. Alternatively, in the
event that both languages in a bilingual contract each claim to be the controlling version, the
Chinese will again be accorded primacy, even though the Contract Law provides that the contract
should be interpreted according to the aim of the contract. Foreign investors are therefore
advised to have a Chinese version contract for the purpose of legal certainty.
The term of the labor contract

Depending on how the term is defined, labor contract could be divided into three groups:
• Fixed-term Labor Contract;

• Non-fixed Term Contract; and
• Job Contract.

Fixed-term labor contract
The fixed-term contract creates an employer-employee relationship for a fixed length of time.
It can be used for part-time or full-time work.
The part-time worker has five characteristics:
• The employee may not work for over four hours per day on average and 24 hours per week;
• No probation period is allowed, and either the employer or employee may end the agreement
at any time;
• The employee is not entitled to severance compensation;
• The employee must be paid at least every 15 days; and
• Part-time employees need not receive a written contract.
Part-time work could be appropriate for an office cleaner, or some other role where the tasks
can be completed within a relatively short period of time each day.
Fixed-term contract is the most commonly used norm of labor contract in employment
relationship. It grants employer more flexibility in termination as compared to non-fixed term
contract, and provides more legal certainty to the employment relationship as compared to
job contract.
Non-fixed term contract

Non-fixed term contract refers to a norm of labor contract between employer and employee
that has no fixed term.
Generally, there are four ways to obtain a non-fixed term contract:
• The employer and employee voluntarily sign a non-fixed term contract upon commencement
of employment (not recommended);
• The employer has failed to give a written contract to a full-time employee who has been
working for over one year;
• The employer wants to renew the employee’s contract for a second time, and the employee
does not fall under any of the categories stipulated in ‘immediate termination for inappropriate
behavior of the employee’ and the first two items of ‘termination with 30 days’ notice and
compensation payment’ (provided later); or
• The employee has worked for the same employer for ten years continuously.

The non-fixed term contract effectively guarantees the employee job security until retirement
age. As there is no longer a contractual limit to the length of employment, companies will be
unable to dismiss the employee upon the expiry of the labor contract.
This means employers can only terminate the employee by mutual agreement or based on
valid grounds.
Job contract
A job contract is defined by the task or project the employee is to work on, not the length of
time. This type of contract allows a company to hire a person to implement a specific project.
Once the project is completed, the employment relationship comes to an end. At that stage,
the company needs to make a severance payment to the employee accordingly.
Job contracts are sometimes used for seasonal jobs where the scope of work can be defined
very clearly. However, in most cases, defining the scope of work proves to be a challenge. It
is often hard to adequately define the completion of a project. The relevant legal framework
offers no guidance on what to do when a project is left uncompleted for whatever reason, or
how employees should be compensated in such a case.
This lack of clarity makes job contracts relatively more prone to disputes and even litigation.
Unlike a contract signed by a company with another company for its provision of services to
complete a project, the job contract forms an employer – employee relationship. As such, in
the event of a dispute, the court will tend to protect the interests of the employee to a greater
extent than those of the employer.
In addition, the employer is not allowed to set a probation period for a job contract. For these
reasons, most employers avoid this type of arrangement.

Mandatory clauses in labor contracts
According to relevant laws, the following clauses are mandatory to be included in the labor
contracts:
• Name of the company, address, name of the legal representative or a senior manager;
• Name of the employee together with a valid address and identification number;
• Commencement date and the term of the contract;
• Description of the job and the location where it is to be implemented;
• Salary details;
• Statement that the employer will contribute social insurance for the employee; and
• Labor protection, labor conditions and protection from occupational hazards.
Every local labor bureau will have standard labor contracts available in Chinese. However, we
do not recommend using these in every case. Each company may have specific requirements,
and may wish to draft labor contracts with its employees in such a way as to offer the company
more protection. We therefore suggest combining a local standard template with terms you
use in labor contracts for your operations abroad.
Recommended clauses in labor contracts

Depending on the specific situation, a number of additional terms to the labor contract are
recommended, including:
• Probation period;
• Non-competition clauses;
• Confidentiality clauses;
• Allowances and benefits (particularly for foreign employees); and
• Reference to the company rulebook or staff manual.

Probation period
Employers may choose to set a probation period clause in the labor contract to enable the
two-way choice with its employee.
During the probation period, it’s comparatively easier to end the employment relationship. The
employee can resign by giving three days’ notice, instead of one month. And the employer can
dismiss the employee if it can substantiate the employee fails to meet the requirements for
the position. There are other admissible grounds stipulated in Article 39 and the first two items
of Article 40 of the Labor Contract Law. More details can be found in the chapter ‘Terminating
Employee’.
To be noted, if the employer fails to prove it has well established job requirements, and
doesn’t have enough evidence to show the employee is incapable, it may be forced by law
to restore the employment relationship, or to pay extra severance payment.
The employer is allowed to pay the employee 80 percent of the full salary as stated in the labor
contract during the probation period, although the employee’s take-home amount may not
fall below the local minimum wage standard.
The maximum length of the probation period is decided by the term of the labor contract:
Maximum Probation Period by Contract Term

Contract term Maximum probation period
CT < 3 months or job contract No probation period

3 months ≤ CT < 1 year 1 month
1 year ≤ CT < 3 years 2 months
CT ≥ 3 years or non-fixed term contract 3 months
One employer can only set one probation period for the employee. For example, when the
company is merged or acquired by others, it cannot make its employee to go through another
probation period.

Non-competition clauses
The non-competition clause, which aims to prevent an employee from working for a competitor
after terminating the labor contract, is usually used for senior management personnel, senior
technical personnel and other person who is obliged to keep confidentiality.
The maximum non-competition period is up to two years. Companies should continue paying
a proportion of the employee’s salary during this period in order to maintain the effectiveness
of the non-competition agreement. There is no unified standard about the amount of the
compensation. Employers are advised to make an agreement with their employees or consult
with the local labor bureau in charge.
Confidentiality clauses
The confidentiality clause, which normally covers corporate secrets, may include terms relating
to the scope of the secret, the confidentiality period, the secret-keeping method, as well as the
legal liabilities of divulging the secret.
To be noted, the confidentiality clause must be made with the agreement of both the employer
and the employee. That is, the employee shall not be obliged by the confidentiality clause if it
is made by the employer unilaterally.
Company rulebook
Any company with over 10 employees is recommended to create a company rulebook, and
refer to it clearly in the labor contract.
A company rulebook can provide supplemental explanations to the clauses of the labor contract,
and thus make it easier to demonstrate the case where an employee broke a company rule.
The contents of the rulebook vary per industry. While manufacturing companies tend to focus
on issues relating to promptness, break lengths, and safety requirements, business process
outsourcing companies are usually more concerned with confidentiality of their clients’
information. Employers are recommended to build the company rulebook based on the specific
needs.

When drafting the company rulebook, employers are suggested to keep in mind the below
considerations:
• Ensure the company rulebook has a Chinese version, and make it clear which version shall
prevail in case of discrepancies.
• Ensure the full participation of the labor union (if any) when drafting the company rulebook.
• Ensure the labor contract make clear reference to the company rulebook –this will strengthen
the company’s case if it plans to dismiss an employee over a breach of company rules.
• Make company rulebook based on necessity:
»» Don’t make the company rulebook too lengthy – this may unnecessarily burden employees
to stay in compliance, and increases the workload of the HR department in supervising
the rules; and
»» Don’t set arbitrary rules that lack reasonable grounds –this may be challenged by the
judge in case a labor dispute is taken to court.
• Have the rulebook differentiate between minor and major rule breaches:
»» A minor breach can lead to an official warning letter;
»» A major breach can result in immediate dismissal without compensation, though whether a
breach is sufficiently serious to be regarded as major breach can be challenged in court; and
»» A company is suggested to specify how many minor breaches may constitute a major
breach.
• Have each employee sign a statement that they have read, understood and agreed to the
rulebook (this process needs to be repeated whenever the company rulebook gets updated
or amended).
Finally, all contracts need to be signed by the employee and chopped with the company seal
before they are considered valid.
What is the importance

of original employment
contracts in China?
Q&A answered by Adam
Livermore, Partner
EXPLORE DETAILS

Dispatch
Labor dispatch is an important form of supplementary employment in China. Unlike direct hiring, ALLAN XU
labor dispatch has a triangular form of employment relations, in which a host company hires Manager
dispatch workers from a dispatch agency. While dispatched workers work for and are supervised Business Advisory Services
by the host company, the dispatch agency, which usually have considerable experience Shanghai Office
and knowledge of hiring local workers, is the de facto legal entity that is responsible for the
“
administrative management of the employees.
With the regulatory
Thus, labor dispatch is regarded as an effective method to help businesses save hiring costs, framework surrounding
circumvent tedious administrative processes, and minimize risks and legal responsibilities for
labor dispatch now
potential labor disputes.
fundamentally changed,
Compared to direct hiring, labor dispatch is particularly attractive where: companies must be aware
of alternative methods of
• the business is not allowed to hire employee directly, either because the business is in the
process of setup and hasn’t got its business license, or because the business is structured as hiring temporary workers
a RO, which is legally required to recruit through dispatch agencies; to avoid labor disputes and
”
• business priority is given to revenue-generating activities over any other concerns, especially
government penalties.
when the business is small-size and at its very early stage; or
• there is an inconsistent work flow for businesses in seasonal and project-based industries.
Despite the popularity of the labor dispatch among FIEs, on the other hand, it leaves
dispatched workers more vulnerable to exploitations. In practice, large manufacturing plants
may employ the bulk of their workers ‘temporarily’ under the guise of a dispatch relationship,
to save cost on employee welfare, or to abscond employer responsibility to the employees.
In view of this, China made two key legislative amendments to limit companies from taking
advantage of labor dispatch:
• Firstly, the Labor Contract Law was amended, with effect from July 1, 2013, to strictly define
labor dispatch as a form of supplementary employment only; and
• Secondly, the Interim Regulations on Labor Dispatch (Interim Regulations) was issued and
came into effect on March 1, 2014, to the use of dispatching, remuneration, termination, and
performance of labor contracts.
Key information about dispatch can be found as follows.

Dispatch agency
To establish a labor dispatch agency, the following requirements should be satisfied:
• A registered capital of no less than RMB 2 million;

• The fixed business premises and facilities correspond to the business;
• The labor dispatch management system complies with the provisions of laws and
administrative regulations; and
• Any other criteria stipulated by laws and administrative regulations.
Additionally, the labor dispatch agency must have a license issued by the local labor bureau.
Without such a license, the business registration of the labor dispatch agency cannot be
completed.
Applicable scope of labor dispatch

According to the Interim Regulations, labor dispatch are only applicable for the following three
types of positions:
• Temporary position: A position with a duration of no more than six months;

• Auxiliary position: A position that provides auxiliary services to the main or core business
of the employer; and
• Replaceable position: A position that can be performed by a dispatched employee in place
of a permanent employee during the period when such an employee is away from work for
study, vacation or other reasons.
The applicable position type must be specified within the dispatch contract.
10 percent limit
The Interim Regulations stipulate that the number of total dispatched employees used by an
employer should not exceed 10 percent of its total number of employees, including regular
employees and dispatched employees. ROs of foreign enterprises, however, are not subject to
this restriction on dispatched employees’ positions.
In the event that the number of dispatched employees exceeds this limit before the effective date
of the Interim Regulations, the employer must reduce the proportion of dispatched staff to 10
percent before March, 2016. All FIEs, excluding ROs, must now be fully compliant with this policy.

Contract signing
Labor contract between the dispatch agency and the dispatched

employee
According to the Interim Regulations, the contract signed between the labor dispatch agency
and the dispatched employee should have a fixed employment term of at least two years.
The dispatch agency may arrange a probation period of employment with the consent of the
dispatched employee. However, such probationary periods are only allowed once for each
dispatched employee.
Dispatching contract between the dispatch agency and the host

entity
The Interim Regulations add several essential items required for drafting the dispatching contract
between the dispatch agency and the host entity:
• The title and type of the dispatching position (temporary, auxiliary, or replaceable);
• The location of work;
• The number of dispatched employees and the allotted time;
• Payment amount determined in accordance with the ‘equal pay for equal work’ principle;
• The payment method and the amount of social insurance premiums;
• Work hours and vacations;
• The relevant treatment for work-related injury, maternity leave and illness;
• Work safety and hygiene, and other relevant training;
• Financial compensation;
• The valid term of the dispatching contract;
• The payment method and the standard of dispatching service fees;
• The penalty for violating the dispatching contract; and
• Other required items.
Contract between the host entity and the dispatched employee

The host entity and the dispatched employee may sign a supplementary contract to clarify
the relationship between them, or sign a confidential agreement to bound the dispatched
employee to keep company secrets. This contract shall be regulated by the PRC Contract Law
rather than PRC Labor Contract Law.

‘Equal pay for equal work’ principle
The Interim Regulations stipulate that the principle of ‘equal pay for equal work’ is applied to all
labor dispatching agreements, meaning that employers should apply the same remuneration
standards for dispatched employees as they do for direct-hire employees who hold similar
positions, including overtime salaries and bonuses.
Where the employer has not hired any employee holding a similar position, the labor
remunerations payable to the dispatched employee should be determined with reference to
those payable to employees holding a similar position in the place where the employer is located.
Cross-region labor dispatch

Under the Interim Regulations, if a labor dispatch agency dispatches employees to an employer
located in another region, the social insurance to be enjoyed by the dispatched employees should
be provided according to the rates and standards of the place where the employer is located.
With respect to who makes the insurance payment, if the labor dispatch agency has a branch
in the region where the employer is located, the local branch of the labor dispatch agency
should pay the social insurance for the dispatched employees; if it does not have a branch in the
region, the host entity should pay for the social insurance on behalf of the labor dispatch agency.
A Comparison Between
Direct Hire, Dispatch,
Outsourcing and
Utilizing Independent
Contractors in China
Presented by Adam
Livermore, Partner
EXPLORE DETAILS

Termination of labor contract
The dispatched employee may resign by giving a written notification to the labor dispatch
agency 30 days in advance. During the probation period, such notification may be given three
days in advance.
The Interim Regulations stipulate that the host entity may return the dispatched staff back to
the dispatch agency due to the following reasons:
• Major change in objective circumstances;

• Mass layoffs due to financial difficulties;
• The host entity is dissolved or its operation is discontinued; and
• The term of dispatching contract is due.
If the dispatched employee is returned because of the above reasons, the labor dispatch agency
is responsible for redistributing the dispatched employee. The labor dispatch agency may only
terminate the employee’s contract if the employee refuses a new dispatch offering equal or
greater conditions.
For more details, please refer to the later chapter on ‘Terminating Employees’.

Outsourcing
Outsourcing is another form of supplementary employment in China. It’s traditionally applied

to tasks that require specialist skills, a high degree of confidentiality, or those that have a clear
scope but incur major consequences if incorrectly implemented, such as IT development,
accounting, tax filing, HR administration and payroll processing.
With labor dispatch facing increasing scrutiny, many companies tend to use outsourcing as a
substitute to dispatching, as another alternative to avoid directly hiring employees.
Outsourcing
Service contract Employment contract
Outsourcing Outsourcing
Client enterprise
company employee
Similar to labor dispatch, outsourcing can help businesses in China circumvent tedious
administrative processes and still match workforce needs. Under this model, the client enterprise
has no direct employment relationship with the outsourcing employees.
However, outsourcing has its special characteristics:
• The outsourcing task usually require a high level of specialization, confidentiality, or defined
scope;
• The outsourcing agreement usually does not refer to specific employees or performance
criteria, but rather defines the work that needs be done;
• The outsourcing tasks usually need to be processed with special software licensed by the
outsourcing company, but the client enterprise usually does not need to pay for the software
license or the development work; and
• The outsourcing company usually retains a high-level of autonomy to direct whichever
resources it feels are best for each project.

To make the difference between labor dispatch and outsourcing more clear, we present the
following chart:
Relationship
with the
employee
Compliance
requirements
of the
employee
Accountability
Fees payment
Restrictions
Comparision between Dispatching and Outsourcing
Labor dispatch
• The host entity has de facto
the dispatched employee (but can

only claimed through the dispatch
agency)
• Dispatched employee must abide

by the rules and regulations of the
host entity
• Dispatched employee must
adhere to the host entity ’s
qualification rules and standards
supervises, and assesses the

performance of the dispatched
employee
do not exceed 10 percent of the

total number of the host entity’s
employees
• The dispatch agency must sign
labor contract with the dispatched
employee with a fixed-term of no
less than two years
N/A
Outsourcing
employment relationship with • The client enterprise has no direct

relationship with the outsourced
employee
• The outsourced employee is not

obligatory to abide by the rules
and regulations of the client
enterprise
• The client enterprise retains the
right to replace any employee
assigned
• T h e h o s t e n t i t y m a n a g e s, • The client enterprise monitors and

assesses the progress and outcome
of the project, rather than the
performance of the outsourced
employee
• Payment is usually made monthly • Payment (outsourcing fee) is

to the labor dispatch agency per
individual dispatched employee
• The dispatched position must be

generally made based on the
progress of the project
temporary, auxiliary, or replaceable

• Number of dispatched employees
2
FOR MORE INFORMATION
For assistance with

automating your HR
processes or advice on
drafting labor contracts,
please contact us at
hr.admin@dezshira.com
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2
Staff Administration and Payroll
• Structuring a salary package
• Work hour systems and overtime payments
• Mandatory benefits (social securities)
• Statutory vocations and payment calculation
• Additional payroll costs
• Calculating and withholding individual income tax
• Distributing salaries
• Outsourcing payroll

Structuring a salary package
The structure of a salary package payable for each position in a company should be given careful
consideration. Certain employees need to be incentivized, while other roles require a more fixed
form of salary. Furthermore, the employer should consider the amount of income tax that will be
payable by the employee based on the proposed salary package. This is particularly important
if the company offers a net salary package to its employees.
Base salary and bonus

As we saw in the previous chapter, the base salary needs to be stated in the labor contract. This
is the fixed monthly amount that the company guarantees to pay the employee. Employers
can also include some one-off payments. For example, many companies make a 13th month
salary payment to their employees around Chinese New Year.
Companies should beware including any payments that are separate to the base salary in the
labor contract, as they will be legally bound to make the payment. Instead, employers can
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.
Allowances
The Chinese tax bureau currently allows foreign employees to deduct certain allowances before
levying the tax on their monthly salary, so it’s common practices that companies structure part
of their foreign employee’s salary as allowances.
Generally, the below allowances are deductible:
• Housing, meals, and laundry expenses;

• Reasonable expenses for personal trips of home visiting; and
• Reasonable allowances for language training and children’s education.
To be noted, not all companies are eligible to use these allowances to help their foreign employee
save tax. This is because the tax bureau has certain discretion to reject the tax-exempt applications
where the employer has in-compliant tax records. Companies are suggested to consult with
the tax bureau in charge in advance.

Besides, these allowances can only be paid on actual expenses. That is to say, foreign employees
are required to provide corresponding invoices or receipts for each expense as evidence.
Companies are suggested to put clear reference in the labor contract to the reimbursement
requirements and payment methods of these allowances, in case of potential challenges from
its employees.
Moreover, these allowances are subject to the limit of a ‘reasonable’ proportion of the expatriate’s
monthly salary. But how much of a foreign employee’s salary can be allocated to the allowance
is not clearly defined by the law. In practice, most company adopt a proportion of 30 percent
of the total salary as the upper limit of these tax-exempt allowances.
These allowances can be applied before December 31, 2021.
Mandatory benefits (social security)

The next portion of the salary package is mandatory benefits (social security), often referred to
in China as social insurance and housing fund. Contributions are made by both the employee
and employer. The employee’s portion is deducted from their gross salary. The proportions
and maximum contributions made by employer and employee vary depending on where the
business is located.
Some employers choose to enroll their employees in additional pension plans or other types of
wealth accumulation plans. These are legal, but please note that only the mandatory benefits
can be fully deducted before calculation of IIT, unless it is otherwise stipulated by law.

Defining net salary
Normally, ‘net salary’ is defined as the amount that employees receive each month after payment
of IIT and mandatory benefits. It is more commonly offered to blue-collar workers that may not
understand the details of the Chinese social insurance or IIT systems.
Misunderstandings between managers and employees over the definition of net salary are
commonplace. If a company intends to offer such packages to employees, we suggest that
the HR department draws up a clear example to explain to each employee how their salary
package will be structured, and to show the employee how much money they will be able to
take home each month.
The total of the base salary, allowances, bonuses, non-mandatory pension plans, and the
employer’s portion of social insurance contribution are added together to form the total
compensation and benefits (C&B) amount. This amount is the total labor cost the employer
pays for each employee.

Work hour systems and
overtime payments
Work hour systems define specific work hours, rest periods, and overtime payments rates for DAVID NIU
employees. In China, there are three main work hour systems: the standard work hour system, Senior Manager
the comprehensive work hour system, and the non-fixed (flexible) work hour system. Human Resources
Beijing Office
The latter two systems are considered ‘special work hour systems’, which engages special approval
“
and compliance requirements. Compliance with these regulations is essential to correctly
maintain payroll expenses and avoid unnecessary costs that could arise, including potentially Overtime regulations
damaging labor disputes. in China are complex and
often seen as controversial.
Employers should therefore acquaint themselves with the different work hour systems in China,
identify which suits their business best, and take the appropriate steps to comply with local Employers must therefore
labor regulations. understand the legalities
that govern overtime in
The standard work hour system China in order to avoid
The standard work hour system requires that an employee’s work day is not more than eight
potential discrepancies
”
hours and an average work week is not more than 40 hours. Most white-collar jobs in China with the law.
currently operate according to this system, which usually involves a five-day work week, although
some domestic companies institute six-day work weeks.
Daily overtime cannot be over three hours and monthly overtime cannot be over 36 hours.
Workers shall be granted at least one rest day per week.
Overtime payments are subject to the below overtime rates:
• For overtime work in normal days, 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.
Overtime Payment under the Standard Work Hour System

Time of work Percentage of hourly salary*
Extra hours worked on weekdays 150%
Hours worked on weekends 200%
Hours worked on public holidays 300%

*Basic hourly salary is calculated by taking the monthly pay of the employee and dividing it by 174 (average number
of working hours in the month).

The comprehensive work hour system
The comprehensive work hour system accumulates work hours over a specified cycle (weekly,
monthly, quarterly, or yearly). The average number of hours is then determined based on this
accumulation period. Broadly speaking, this system is most suited to work roles with irregular
shifts, including seasonal or project-based work.
Although the distribution of hours worked during this period may be quite irregular, the average
number of work hours per day and per week should roughly correspond to the levels set out
in the standard 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.
Overtime Payment under the Comprehensive Work Hour System

Time of work Percentage of hourly salary
Extra hours worked outside of normal shift 150%
Extra hours worked on public holidays* 300%

*This higher rate applies even if the standard shift for the worker is scheduled on a public holiday.
The following types of employees and industries are most suited to this system:
• Employees who are required for continuous operations due to the special natures of their
jobs, such as work related to transportation, aviation, railway, shipping, fishing, postal and
telecommunications service industries, electric power, petroleum, petrochemical, and finance
industries;
• Seasonal workers and those subject to natural constraints, such as in the mining, construction,
salt production, sugar production, and tourism industries;
• Employee whose work load is imbalance due to objective circumstance;
• Long distance transportation personnel;
• Shift workers; and
• Industries which can arrange rest and vacation on a concentrated but regular basis. Comparison between
China wages with other
Before a company can implement this system, it must first submit its plan to the local labor Asian countries.
bureau and get approval. Infographic.
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The non-fixed (flexible) work hour system
The non-fixed work hour system accommodates employees whose work hours are impractical
to measure. Employees on such a work hour system will generally be paid as a salaried employee.
This salary is a set amount paid per period, often monthly in China.
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 as lawyers and senior management. Such roles include:
• Senior management;
• Outworker and salespeople;
• Long distance transportation personnel;
• Personnel permanently based out of town;
• Non-production on-duty personnel; and
• Others in special work positions that may arrange their own work and rest schedules.
Again, local labor bureau approval is required prior to implementation.

How to get approval for the special work hour
system
Before implementing a special work hour system, be it comprehensive or non-fixed work hour
system, the employer usually must apply to the local labor bureau for approval. The following
documents are generally required for the application:
• An application for the implementation of a special work hour system (both types), which
should include the below information:
»» The reason to apply the special work hour system;
»» The type and functional characteristics of the positions;
»» The proposed work hours and rest periods;
»» The number of employees involved; and
»» The payroll calculation method of the special work hours system.
• Deliberation opinion of the labor union or the staff assembly (where the labor union hasn’t
been established) on the implementation of a special work hour system;
• A copy of the employer’s business license; and
• Other materials required by relevant laws and regulations.
It usually takes around 20 working days for the labor bureau to examine and decide whether to
grant an approval. Once approved, the company can implement the special work hour system
for one to three years, as stipulated by the approval document issued.
To be noted, the requirements to the special work hour system may vary from city to city. For
example, Beijing allows senior management to undertake the non-fixed working hour system
without the need for approval. Shanghai, on the other hand, requires permission prior to allowing
any staff to engage in the non-fixed work hour system. In this case, we suggest companies to
contact the relevant labor bureau in charge for applying the special work hour systems.

Mandatory benefits
(social security)
Social security is a complicated but unavoidable issue in employer-employee relationship

management for businesses operating in China.
With labor costs continually rising and economic growth slowing, it is not uncommon that
companies may endeavor to look for ways to circumvent social security burdens.
However, timely and adequate social security payments is a mandatory obligation to employers,
and this obligation cannot be exempted by mutual consensus between the employer and the
employee.
Employers should therefore have a thorough understanding of the social security system to
avoid unnecessary labor disputes and ensure full compliance.
Social security types

China’s social security system consists of five different types of insurance, plus one mandatory
housing fund, as introduced below.

China’s Social Security System
Pension Work-related Injury

Designed to cover the cost of treatment should an
individuals after their retirement. occupational injury or illness occur.
Employer rates: around 20%** Employer rates: 0.5% - 2%

Employee rates: around 8% Employee rates: -
Unemployment Maternity
In the event of redundancy, the employee may Designed to cover part of the female employee’s
medical expense of childbirth and their salary
24 months. during the maternity leave.
Employer rates: 0.5% - 1% Employer rates: 0.5% - 1%

Employee rates: around 0.5% Employee rates: -
Medical Housing Fund

Designed to cover part of the employee’s treatment Designed to ensure that workers save to purchase
cost in the event of illness or non-occupational house.
injury.
Employer rates: 5% - 12% Employer rates: 5% - 12%***

Employee rates: around 2% Employee rates: 5% - 12%***
Category
Contribution*
percentages required by each local government entity.

**Pension insurance contributed by employer can be lowered down to 16 percent starting from May 1, 2019. And in certain cities such as Shenzhen,
the contribution rate could be even lower.
*** In certain cities, employer and employee are allowed to contribute more than 12 percent.

Pension insurance
The employee’s pension insurance is designed to provide necessary financial support to
individuals after their retirement.
In China, both employers and employees are required to contribute to the employee’s pension
scheme. The employer’s contribution is usually between 13 percent and 20 percent of the
employee’s average salary, which vary from city to city, while the employee’s contribution rate
is around eight percent.
By contributing to the pension scheme for at least 15 years, the individual can receive pension
on a monthly basis after retirement -- generally, the statutory retirement age is 60 for men, 55
for women in management position, and 50 for women in manufacturing position. The amount
of pension that an individual can draw is based on the level of contributions made over their
working career. Once the personal account is empty, the individual’s pension will be 100 percent
funded from the social account. If the individual dies before the amount in the personal account
is used up, the balance remaining in this account could be inherited by their inheritors.
If the employee’s contribution term is less than 15 years upon retirement, the individual can
continue to contribute and get pension after reaching 15 years payment in certain cities. However,
this policy is not available everywhere. As an alternative, the individual can choose to terminate
the pension scheme and withdraw all the money accumulated in the personal account. In this
case, the individual will loss his claims for the social account.
Unemployment insurance
Unemployment insurance is designed to provide financial support to individuals who faultlessly
lost their job within certain period. That is to say, employees who voluntarily terminate
employment, or those who are self-employed, are not eligible to apply unemployment
compensation.
Both the employer and the employee are required to contribute to this scheme. The employer’s
contribution rate is between 0.5 percent and one percent of the employee’s average monthly
salary depending on where the company is located, while the employee’s contribution rate is
usually between 0.3 percent and 0.5 percent.
The unemployed individuals can get unemployment payment for a maximum period of
24 months, after contributing into the unemployment scheme for at least one full year. The
unemployment payment amount is not relevant to the employer and employee’s contribution
amount.

Medical insurance
Medical insurance is designed to cover part of the employee’s treatment cost in the event of
illness or non-occupational injury.
Both employer and employee are required to contribute to this scheme. Proportions vary
considerably between cities, but generally the employer’s contribution rate is between five and
12 percent of the employee’s average monthly salary, while the employee’s contribute rate is
around two percent.
Each individual covered by medical insurance will be issued a medical treatment card. Every
month, a small amount of money is added to the balance on this card. Contributions accrue
to a card can be used for pharmacy or out-patient costs in government- approved hospitals
and clinics. A base charge will usually have to be paid up front to the hospital by the individual,
and the rest of the treatment expense should be received by the hospital from the insurance
scheme. The precise portion covered by insurance can depend on the type of sickness or injury.
Work-related injury insurance

Work-related injury insurance is designed to covers the cost of treatment should an occupational
injury or illness occur.
Only the employer is required to make contributions to this fund. The premium is typically
between 0.5 percent and two percent of the average monthly salary of the employee, depending
on what kind of work is being carried out by the employee.
If an employee is injured at work, the employer needs to collect evidence of the incident and send
it to the agency that is in charge of the work-related injury insurance. Assuming everything is in
order, the work-related injury insurance will reimburse the employer for the cost of the treatment.
If failing to pay premiums to the work-related injury insurance, the employer will be liable for
all costs of the treatment, which can be very high in case of serious injury.

Maternity insurance
Maternity insurance is designed to cover part of the female employee’s medical expense of
childbirth and their salary during the maternity leave.
Only employer is required to contribute to the maternity insurance, at the rate of 0.5 percent
to one percent.
To be noted, different cities have different policies on the maternity allowances. Some city pays
the allowances to the pregnant employees directly during their maternity leaves, while some
cities will reimburse the employer by the end of the maternity leave. In the latter case, the
employer will need to pay salary to the female employee as usual during their maternity leave.
Housing fund
The housing fund is designed to ensure that workers save some money towards buying a house.
The housing fund is administrated separately from social insurance, by the local housing fund
bureau.
Both the employer and employee are obligated to make contributions to the fund at the rate
of five percent to 12 percent, and all payments go towards the individual’s personal balance. In
certain cities, the employer and employee are allowed to make contributions to the housing
fund at more than 12 percent.
Employee can use the money in the fund as a down payment for a house, or to subsequently pay
back the mortgage. Besides, banks are often willing to offer lower interest rates if the employee
has accumulated a high enough amount in their housing fund. Upon retirement, the remaining
balance can be withdrawn at a lump-sum.
Some cities allow the funds to go towards rent or renovations as well.

Contribution calculations
To correctly calculate the monthly social security contribution amount, it is important for
employers to understand the basic rules on deciding the contribution base figure.
Firstly, rather than the actual payment that employees get for each month, the social security
contribution base is a figure that determined by the employee’s average income in the previous
year (i.e. January to December). The calculation method is as follows:
SOCIAL SECURITY CONTRIBUTION BASE = PREVIOUS YEAR’S TOTAL INCOME / 12*
*For new hires, the starting salary may be used as the social security base during the first year.
Secondly, the base figures for social security contributions has floors and ceilings. Generally,
the contribution base is capped at 300 percent of the average local salary. And the minimum
contribution base is usually decided either by the local minimum wage or certain percentage
of the average local wage.
Local governments generally update the average local salary benchmark once per year, which
update the social security floor and ceiling in kind. Considering that the timing for the release
of these figures varies per city and per year, it is challenging but critical for employers to obtain
accurate and up-to-date information for their operations in each region.
Foreigner and migrant worker involvement

While the former social security system only covers urban workers, rural workers who move to
cities to work (so-called ‘migrant workers’) have gradually been included. In most cities, rural
workers are now treated the same as urban workers – they are subject to the same contribution
rates and the same contribution floor and ceiling.
However, in certain cities, the system still treats rural and urban workers differently. While
employers are still required to make full contributions in these cities, rural workers may only
need to contribute to the pension and medical insurance, rather than the pension, medical
insurance, and maternity insurance.
Foreign employees working in China have been required to participate in China’s social insurance
scheme starting from 2011, when the Ministry of Human Resources and Social Security (MOHRSS)
released the Interim Measures for the Participation in Social Insurance of Foreigners Employed
in China.

However, since social security is managed at regional level, a range of inconsistencies exists
among cities. For example, cities such as Beijing, Tianjin, Shenzhen, and Nanjing treat foreign
employees the same way as domestic workers, meaning that social insurance payments are
compulsory. On the other hand, Shanghai does not currently require foreign employees to
contribute towards social insurance. And in Dalian, foreign employees are only required to
contribute to pension and medical insurance.
Foreign employees are also eligible for social insurance exemptions if they come from countries
that have social insurance exemption agreements with China. To date, eight such agreements
have been implemented between China, and the following countries: Germany, Korea, Denmark,
Canada, Finland, Switzerland, the Netherlands, and Spain. China has also made agreements with
France, Serbia, and Japan that are not yet in effect.
The exemption scope and qualifications may vary from one agreement to another, and the
local social security bureaus may have different policies towards the implementation of the
exemptions. Employers should consult and apply with the local bureau in charge before they
decide not to contribute for their foreign employees.
Notably, foreign expatriates are generally not required to contribute to the housing fund scheme.
Nevertheless, foreigners can make housing fund contributions on a voluntary basis in certain
cities such as Shanghai, Shenzhen, and Tianjin. This is a measure to attract talents rather than
mandatory obligation.
Employer obligations
Under China’s system, it is not enough that employers are simply willing to pay. Whenever
hiring new staff, employers need to register him or her with local social security 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.
Meanwhile, employers are obliged to make timely payments for themselves and their employees.
A late contribution can result in a fine, while failure to contribute may lead to onerous labor
disputes. In case of severe and multiple violations, the company might be put on an HR ‘name
and shame’ list, which is not only embarrassing but also could bring barriers to future recruitment.

One thing to be noted is that employer’s obligation to make adequate and timely contributions
cannot be alleviated or exempted by reaching mutual agreement with employees. In practice,
employers and employees (especially those whose gross salary is not high) may mutually agree
not to contribute to the social security schemes or to make contributions on a smaller basis, to
save labor costs and maximize employee’s take-home payment.
However, the court would consider such an agreement invalid in the case of a labor dispute
between the employer and employee. The employer might be required to repay the social
security evasion or pay extra severance payment to its employee in case of termination.
Local variances
Although there are national guidelines issued by the central government as mentioned above,
local levels of government manage the specifics and administration of the system. That is to
say, the contribution base ceiling and floor, the contribution rates, the social insurance and
housing fund registration, as well as other compliance requirements, might be very different
from one city to another.
Local variance in administration, though at times inconvenient, may be a practical necessity

for a country as diverse as China, as any rigid system could not be expected to be suitable for
Lhasa, Harbin, and Shanghai at the same time. However, given the sheer size of China in terms
of geographic area and population, employers, and especially those who maintain operations
in multiple locations, may find it confusing to determine how much they should contribute to
each employee.
Under China’s current framework, employers cannot simply believe they are in compliance by
referring to the national guidelines. It is very common that the local social security bureaus only
accept instructions from the local authority that directly manages them. As such, employers
should conduct social security research on a city-by-city basis or consult third party professional
services to ensure compliance.

Trending developments
As the central government exerts pressure to maintain economic growth targets and attract
foreign investments, it has recently released or already implemented a series of plans to cut
labor costs.
The 13th Five Year Plan of China brought out that China shall combine its maternity insurance
and basic medical insurance. And according to the Opinions on Combining Maternity Insurance
and Urban Employees’ Medical Insurance (the Opinions) released by the State Council on March
25, 2019, China aims to complete this reform by the end of 2019.
According to the Opinions, employees will be enrolled in the maternity insurance scheme
automatically when the employer make medical insurance registration for them. The medical
insurance fund and the maternity insurance fund shall be merged into one fund, to which the
employer and the employee shall make contributions.
The contribution rate of the employer shall be the sum of their original contribution rates to the
medical insurance and the maternity insurance. The contribution rate of the employee shall be
their original contribution rate to the medical insurance, considering employees don’t need to
contribute to the maternity insurance.
That said, the relevant benefits an employee can enjoy from the maternity insurance shall remain
the same, but the stipulated medical expenses in childbirth and the maternity allowance shall
be borne by medical insurance fund after merge.
Besides the reform to the medical insurance and maternity insurance, according to the Premier
Li Keqiang’s annual Work Report in 2019, China will allow local cities to lower down employer’s
contribution to the pension scheme to 16 percent starting from May 1, 2019, though the
implementation will be subject to local variance.
And to further reduce the social insurance burden, China plans to change the calculation method
of the contribution base-the local average salary will be calculated based on employees in all
sectors, rather than just based on those in non-private sectors.

Statutory vacations and
payment calculation
Statutory annual leave RICCARDO BENUSSI

Deputy Regional Manager
Shanghai Office
Statutory annual leave in China is generally granted based on an employee’s work tenure, as
demonstrated in the below table:
Work tenure
Statutory Annual Leave
Days leave “ China is among the
five least generous nations
Less than one year No leave
for paid annual leave
1-10 years 5 entitled to employees. The
10-20 years 10 amount of statutory annual
Over 20 years 15 leave is generally based
on an employee’s work
”
From the table we can see employees whose work tenure is less than one year will have no
statutory annual leave. However, it is important to note that the work tenure is not limited to experience/tenure.
the length of time that an employee has worked for their current employer, but rather refers to
their cumulative work years with all previous and current employers.
Employers can calculate annual leave for newly hired employees as follows:arrange rest days
according to their operation and production plan.
THE AMOUNT (THE NUMBER OF DAYS HE/SHE WILL BE WORKING FOR THE CURRENT EMPLOYER IN
OF STATUTORY =
THAT YEAR ÷ 365) x HIS/HER TOTAL STATUTORY ANNUAL LEAVE IN THE SAME YEAR
ANNUAL LEAVE
In addition, paid annual leave does not include the country’s statutory rest days, public holidays,
and other additional holidays (e.g., maternity leave and paternity leave). Based on Chinese Labor
Law, employees are entitled to at least one rest day per calendar week, which can be any day
of the week. Saturdays and Sundays are generally rest days in China. However, employers may
arrange rest days according to their operation and production plan.

Employees may not take paid annual leave under the following circumstances:
• Where an employee is legally entitled to a summer and/or winter holiday that is longer than
their annual leave;
• Where an employee takes at least 20 days of personal affairs leave and the salary is not
deducted according to the company rules of the employer;
• Where an employee whose accumulated working time is more than one year, but less than
10 years, takes sick leave of at least two months;
• Where an employee whose accumulated working time is more than 10 years, but less than
20 years, takes sick leave of at least three months; and
• Where an employee whose accumulated working time is at least 20 years takes sick leave
of at least four months.
How to deal with employees’ untaken annual leave

In the case where an employee has not taken all of their paid annual leave in that year, and
does not agree to carry over the untaken leave to the next year, the employer must compensate
this employee with 200 percent of the employee’s average daily wage for each day of unused
annual leave, in addition to their regular daily wage.
EMPLOYEE’S DAILY WAGE = EMPLOYEE’S AVERAGE MONTHLY SALARY1 / 21.75 DAYS
Many foreign companies in China provide additional annual leave for their employees as a
benefit. As this part of annual leave is not specified in Chinese labor laws, employers have the
right to make internal HR rules regarding compensation schemes.
In practice, employees are generally required to use up their leftover annual leave from the
previous year before a specific deadline set by the company’s internal rules. If employees
volunteer not to take the leftover annual leaves, they are usually required to sign a written
agreement. Employers are advised to write down these rules in the employment contract or
the employee handbook to avoid any possible future labor disputes.
1. Note that the average monthly salary does not include overtime payments.

National holidays
Besides statutory annul leave, employees are entitled to paid leave for the below national holidays:
• New Year – 1 day;

• Spring Festival (Chinese New Year) – 3 days;
• Tomb Sweeping Day – 1 day;
• Labor Day – 1 day;
• Dragon Boat Festival – 1 day;
• Mid-Autumn Festival – 1 day;
• National Day – 3 days.
Employers should note that Saturdays and Sundays are often connected with the national holiday
to make it longer, or marked as additional official work days to compensate for adjusted longer
breaks around the national holidays.
For example, in 2019, the Spring Festival fell between February 4 and 6. To make it longer to a
consecutive seven-day break, it was expanded to include February 7 (Thursday) and February
8 (Friday) and then connected with the coming weekend February 9 (Saturday) and February
10 (Sunday). Correspondingly, February 2 (Saturday) and February 3 (Sunday) are designated
as official work days to offset the extra days off for the Spring Festival, i.e. February 7 (Thursday)
and February 8 (Friday).
To be noted, despite employees can take longer break after the national holiday break being
adjusted, the triple pay for working on national holidays can only be granted to the original
national holiday days stipulated by law, such as one day for the New Year and three days for the
Chinese New Year. Working on the adjusted breaks, such as February 7 to February 10, will only
be granted double pay for overtime.
The General Office of the State Council usually releases official holiday schedule for the next
year in December. China’s 2019 official national holiday schedule is as below:

Holidays Working Days
January February March

New Year Spring Festival
April May June

Tomb Sweeping Labor Day Dragon Boat
Day Festival
July August September

Mid-Autumn
Festival
October November December

National Holiday

Sick leave
Employers usually have considerable autonomy in deciding how many paid sick days it
would like to give employees in a year. However, there are stricter rules when it comes to the
recuperation period, a specific type of sick leave in which the employer cannot terminate the
employee suffering from non-occupational sickness or injury and is responsible for paying a
proportion of salary by law.
Since the regulations on recuperation period are made at the local level, here we use Shanghai
and Beijing as examples to demonstrate how recuperation period works.
Shanghai
Generally, the minimum recuperation period is three months plus one month for every year
of service to the company from the second year onward, with a maximum of 24 months.
Nevertheless, for employees who have lost their labor capacity entirely, but are not qualified
for retirement, the recuperation period should be extended subject to the agreement of the
employer and employee. In addition, if the recuperation period stipulated in the collective labor
contract, labor contract, or the company rulebook is longer than the statutory minimum one,
the longer recuperation period shall be applied.
Sick Pay for Consecutive Leave in the Recuperation Period

Within a 6-month period
Continuous working period < 2 years 60% of employee’s salary
2 years ≤ continuous working period < 4 years 70% of employee’s salary
8 years > continuous working period 100% of employee’s salary
In excess of a 6-month period
Continuous working period < 1 year 40% of employee’s salary
1 year ≤ continuous working period < 3 years 50% of employee’s salary

The employer needs to pay a percentage of the employee’s salary – higher for the first six months
of recuperation and lower for subsequent months. The employee’s salary for calculation of sick pay
is defined as the base salary stated in the employment contract, and does not include additional
social insurance, allowances, bonuses, etc. If there is no clear salary clause in the contract, the
base salary could be determined in accordance with Article 18 of the PRC Labor Contract Law. If
the base salary still cannot be determined or the amount is regarded as unreasonable, 70 percent
of the employee’s normal salary shall be defined as the base salary for calculation of sick pay.
Sick pay in the recuperation period cannot be lower than 40 percent of the company’s average
salary. In Shanghai, when the 40 percent of the company’s average salary is lower than
80 percent of the minimum wage, the sick pay should be increased to 80 percent of Shanghai’s
minimum wage. However, when the 40 percent of the company’s average salary is higher than
Shanghai’s average social salary or the employee’s usual salary, the sick pay will be caped at the
latter two which is lower.
In Shanghai, employers can fire an employee after the recuperation period is over, but will have
to pay the dismissed employee an additional medical care subsidy of no less than six months’
wages on top of the statutory severance payment.
Beijing
In Beijing, the recuperation period is calculated depending on whether or not an individual has worked
for 10 years cumulatively, and how many years the individual has worked for the current company.
Recuperation Period by Cumulative Number of Working Years

Cumulative years worked Recuperation period (< 10 Recuperation period (>10
at current company cumulative working years) cumulative working years)
Under 5 years 3 months 6 months
5 - 10 years 6 months 9 months
10 - 15 years - 12 months
15 - 20 years - 18 months
Over 20 years - 24 months
The employer is required to pay at least 80 percent of the Beijing minimum wage per month,
unless the contract with the employee says otherwise.
According to Beijing’s regulations, the employer may dismiss an employee after the recuperation
period, but the company needs to make a one-off compensation payment of two months’ salary for
every year worked (this already includes the regular severance payment). Additionally, the employer
will need to pay six months’ salary as further compensation for medical expenses. This amount will
be increased by 50 percent for ‘serious illnesses’ and 100 percent for those defined as ‘terminal’.

Parental leaves and related benefits NICOLE JIANG
Assistant Manager
Human Resources
Parental leaves in China include prenatal check-up leave, maternity leave, breast-feeding leave
Dalian Office
for female employees, and paternity leave for male employees whose wife has given birth.
Below, we explain the current parental leave system in China and detail the payment of maternity
allowances. “ Maternity leave in
China can vary widely
by location, especially in
Prenatal check-up
terms of ‘maternity rewards
Starting from the 12th week of pregnancy, a pregnant employee will need to go for an increasing leave’ as determined by
”
number of prenatal check-ups, for which she is entitled to paid leave. These check-ups will be
the local government.
logged in the ‘pregnancy handbook’ provided by the local Community Health Service Center.
Generally, there will be at least five times prenatal check-up during the whole pregnancy period.
And the number of check-ups will be far beyond that whenever abnormal situation is spotted.
It’s not proper for employer to limit the prenatal check-up times by any means.
Maternity leave
Maternity leave in China includes two parts: the basic maternity leave granted by the State
Council as stipulated in the Provisions on Female Labor Protection under Special Circumstances
(State Council Decree No. 619), and the extra maternity leave granted by local governments as
stipulated in the local Population and Family Planning Regulations.
Generally, the basic maternity leave is 98 days for normal childbirth, which can be extended by 15
days under special circumstances such as dystocia. In the case of a multiple birth, an additional
15-days maternity leave shall be granted for each infant. Employee can choose to start the
leave 15 days prior to the expected date of childbirth. In case of miscarriage or abortion, female
employee can be granted 15-days maternity leave for pregnancy shorter than four months, and
42-days maternity leave for pregnancy reaching four months.
While the basic maternity leave uniformly applies to all female employees across the country,
the extra maternity leave could vary from city to city. For example, Shanghai provides 30 days
extra maternity leave to the female employees, Anhui provides 60 days extra maternity leave, and
Hainan provides three months extra maternity leave. It can therefore be more complex for an
employer to calculate how much maternity leave and allowance a female employee is entitled to.
The complete guide to maternity leave in China is shown below.

Maternity Leave in China (in days)
Region Base maternity leave Local extra maternity leave In total
Anhui 98 60 158
Beijing* 98 30 128
Chongqing* 98 30 128
Fujian 98 60~82 158-180
Gansu 98 82 180
Guangdong 98 80 178
Guangxi 98 50 148
Guizhou 98 60 158
Hainan* 98 3 months 98+3months
Hebei 98 60 158
Heilongjiang 98 82 180
Henan 98 3 months 98+3months
Hubei 98 30 128
Hunan 98 60 158
Inner Mongolia 98 60 158
Jiangsu** 98 30 128
Jiangxi 98 60 158
Jilin* 98 60 158
Liaoning 98 60 158
Ningxia 98 60 158
Qinghai 98 60 158
Shaanxi 98 60 158
Shandong 98 60 158
Shanghai 98 30 128
Shanxi 98 60 158
Sichuan 98 60 158
Tianjin 98 30** 128
Tibet 98 267-268 1 year
Xinjiang 98 60 158
Yunnan 98 60 158
Zhejiang 98 30 128
* In Beijing, Hainan, Chongqing, Jilin, upon agreement with the employer, the employee can get extra leave with a certain amount of payment.
**If the company has difficulty to give 30-days additional leave, as an alternative, it can pay additional one-month salary to the employee.

To be noted, the basic maternity leaves generally includes working days, weekends, and national
holidays, which means maternity leave does not need to be extended when it meets weeks
and national holidays. For extra maternity leave granted by local government, it’s up to local
regulations regarding whether maternity leave can be extended upon weekends and national
holidays.
For example, Shanghai allows the 30-days extra maternity leave to be extended upon national
holidays, while Jiangsu, Chongqing, Tianjin, and Hunan allow for extension of extra maternity
leave upon not only national holidays but also weekends. Employers are therefore suggested
to double check with the local labor bureau before deciding the starting date and ending date
of the female employee’s maternity leave.
Maternity allowance
During basic maternity leave, the female employee will receive a maternity allowance in lieu
of salary, as long as the employee has participated in maternity insurance for a certain period,
as required by local maternity insurance scheme. This allowance, together with the medical
expenses for delivery, will be borne by the local social security bureau. But in most cities, the
employer would help with the employee for the application.
There is no general rule on whether maternity allowance covers the extra maternity leave
granted by local government. In practice, it varies from province to province, or even city to
city, as summarized below.
Maternity Allowance and the Extra Maternity Leave

Anhui, Beijing, Chongqing, Gansu, Hebei, Hubei,
Maternity allowance covering
Hunan, Jiangsu, Jiangxi, Jilin, Ningxia, Qinghai,
the extra maternity leave
Shanghai, Tianjin, Tibet, Xinjiang, Yunnan, Zhejiang
Maternity allowance not covering Guangdong, Guangxi, Hainan, Heilongjiang, Henan,
the extra maternity leave Inner Mongolia, Liaoning, Shaanxi, Shanxi, Sichuan
Different city has different practice Guizhou, Shandong
Unclear Fujian
In cities where the extra maternity leave is not covered by the maternity allowance, the employer
will need to pay for the salary of the employee during the extra maternity leave. This further
results in employer’s reluctance to hire female employees who are under childbearing age.

In determining the amount of maternity allowance, the social security bureau will generally
refer to the average monthly salary of all employees in the company over the last 12 months
(hereinafter ‘company average salary’), based on the below formula:
MATERNITY ALLOWANCE = COMPANY AVERAGE SALARY ÷ 30 × MATERNITY LEAVE DAYS
In certain cities, the calculation method of maternity allowance is more sophisticated. For
example, in Shanghai, the social security bureau will cross check company average salary, the
social average salary in the bureau’s jurisdiction, and the employee’s monthly salary before the
maternity leave (hereinafter ‘employee’s salary’):
• Where the company average salary is no more than three times the social average salary in
the bureau’s jurisdiction, the maternity allowance paid by the bureau will be the company
average salary;
• Where the company average salary is over three times the social average salary in the bureau’s
jurisdiction, the maternity allowance will be capped at three times the local average salary,
and any amount beyond that will paid by the employer itself;
• In certain parts of China, such as Shanghai, if the maternity allowance paid by the bureau is
lower than employee’s salary, the remainder should be paid by the employer; and
• In addition, the maternity allowance is subject to minimum standards--maternity allowance
generally cannot be lower than 60 percent of the local social average salary.
If the employee is not enrolled in the maternity insurance scheme for required period, the
employer would need to pay the employee’s average salary during her maternity leave. It can
be very costly where the employee’s salary is high. We thus recommend the employer to enroll
its newly hired employee into maternity insurance in time.
Foreign employee’s participation
Expatriates can enjoy the basic maternity leave granted to all female employees as long as they are
legally work in China. However, they cannot enjoy the extra maternity leave, which is stipulated
by the local Population and Family Planning Regulation and thus applies to Chinese citizens only.
If the foreign employee is enrolled in the maternity insurance scheme, then her salary during
the maternity leave shall be covered by the maternity insurance, though one female employee
can only enjoy twice maternity allowance in certain cities, such as Beijing.
In cities where foreigners are not enrolled in or exempted from maternity insurance, the employer
will need to pay salary that is equal to the average salary of the employee over the past 12
months during her maternity leave.

Breast-feeding leave
When a female employee comes back to work after maternity leave, she will still be granted at
least one hour paid leave per day during work hours for breastfeeding. By law, the breastfeeding
period lasts one year counted from the date of childbirth.
In practice, companies tend to ask employees to work a full eight-hour day, and allow them
to accumulate the extra hour toward vacation time. Most female employees also prefer this
approach.
Paternity leave
Paternity leave is granted to male employees whose wife has giving birth, provided they are
legally registered couples. China does not have unified legislation for paternity leave. Rather,
paternity leave policies are implemented on a municipal or provincial level by local population
and family planning regulations.
For this reason, it is generally believed foreign employees have no mandatory paternity leave, as
the family planning regulation applies to Chinese citizen only. Nevertheless, employer can always
grant more leaves beyond the mandatory minimum leaves as employee welfare to attract talents.
Paternity leave can vary from seven to 30 days, which 15 days is granted in most regions.
To be noted, paternity leave length and pay is determined by location of employment and not
by an employee’s place of birth. Besides, the paternity leave includes working days, weekends,
and national holidays in most regions unless it is otherwise stipulated in local regulations, such
as Shanghai and Jiangsu Province. That is to say, the paternity leave generally won’t be extended
if it’s overlapping with weekends or national holidays.

The complete guide to paternity leave in China is shown below.
Paternity Leave in China (in days)

Region Paternity leave Region Paternity leave
Anhui 10/20* Jiangxi 15
Beijing 15 Jilin 15
Chongqing 15 Liaoning 15
Fujian 15 Ningxia 25
Gansu 30 Qinghai 15
Guangdong 15 Shandong 7
Guangxi 25 Shanghai 10
Guizhou 15 Shaanxi 15
Hainan 15 Shanxi 15
Hebei 15 Sichuan 20
Heilongjiang 15 Tianjin 7
Henan 1 month Tibet 30
Hubei 15 Xinjiang 15
Hunan 20 Yunnan 30
Inner Mongolia 25 Zhejiang 15
Jiangsu 15
*Paternity leave shall be 20 days if the couple live in different cities.

Other protective measures for pregnant employees include:
• No termination - In China, it is illegal to terminate a pregnant employee during her

pregnancy, maternity leave, or breast-feeding period (which lasts until the infant is
one year old). Further, if an employee gets pregnant during the term of her fixed-term
contract, and the contract ends during the pregnancy, the contract shall be automatically
extended (through a renewed end date or a second contract) until the end of the
breast-feeding period.
• No overtime or night hours - Starting from the seventh month of pregnancy, employers
may not have a pregnant employee work overtime or night hours. This requirement
continues as long as she is breastfeeding a baby that is not yet one year old.
Marriage leave
In China, newly-wed employees are entitled to marriage leave – extra days of paid leave.
Although there is no clear law on how many days of marriage leave an employee can get on the
national level, every region in China offers employees who get married at least three days of leave,
by referring to the marriage leave requirements to the state-owned enterprises. Many regions in
China tend to offer extra marriage leave, with Gansu and Shanxi – which offer 30 days – the most
generous.
An employee is eligible for the three-day basic marriage leave once they have registered the
marriage with the relevant authorities, including divorced individuals who get re-married and
foreign employees.
However, there are debates on whether foreign employees can enjoy the extra marriage leave, since
the extra marriage leave are stipulated by the local Population and Family Planning Regulation,
which applies to Chinese citizen only. To avoid potential confusion and labor disputes on this
issue, we suggest employers to clarify the marriage leave treatment of the employees in their
employee handbook.
There are no concrete guidelines on the time period during which marriage leave must be used.
Employers can include rules on marriage leave in their employee handbook to determine how
and when it can be used, and which documents must be submitted as proof. Usually, employers
stipulate that marriage leave must be used within a year of the marriage registration.
Previously, China offered additional ‘late marriage leaves’ as an incentive for couples to get married
at an older age and postpone having children, as part of its One Child Policy. However, late marriage
leave was abolished in late 2015 with the introduction of the two child policy, except in Tibet.

The complete guide to marriage leave in China is shown below.
Marriage Leave (in days)

Province Basic marriage leave Local added marriage leave In total
Anhui 3 NA 3
Beijing 3 7 10
Chongqing 3 12 15
Fujian 3 12 15
Gansu 3 27 30
Guangdong 3 NA 3
Guangxi 3 NA 3
Guizhou 3 10 13
Hainan 3 10 13
Hebei 3 15 18
Heilongjiang 3 12/22* 15/25*
Henan 3 18/25* 21/28*
Hubei 3 NA 3
Hunan 3 NA 3
Inner Mongolia 3 15 18
Jiangsu 3 10 13
Jiangxi 3 NA 3
Jilin 3 12 15
Liaoning 3 7 10
Ningxia 3 NA 3
Qinghai 3 12 15
Shandong 3 NA 3
shanghai 3 7 10
Shaanxi 3 10* 13*
Shanxi 3 27 30
Sichuan 3 NA 3
Tianjin 3 NA 3
Tibet 3 7** 10
Xinjiang 3 20 23
Yunan 3 15 18
Zhejiang 3 NA 3
*Granted to those who take pre-marital checkups, which involves being checked for any health conditions that will affect childbirth.
**Tibet are the only region that has not made changes in accordance with China’s new family planning regulations (as of July 2018). And the extra seven days local marriage
leave are granted to those who comply with the late marriage standards, i.e. 23 years old for females, and 25 years old for males.

Additional payroll costs
Certain cities and regions require additional mandatory payments be made to employees.
Although these additional fees do not appear high, especially by Western standards, we include
them in this chapter to highlight the fact that there are regional policies in place affecting the
amount of payment to employees. Companies that do not follow these rules can be fined. Such
regional allowances should be considered when processing the monthly payroll.
Winter heating fee

North China – defined according to the Huai River-Qin Mountains line – gets very cold in the
winter, with temperatures below -30 degrees Celsius in some areas. Heating is supplied to most
apartments during the winter, but the costs vary per city. Each household can expect to pay a
fixed fee of around RMB 2,000 to RMB 4,000 for constant heating through the winter months.
To ensure that all households are able to afford their heating bill, many local governments require
companies to set aside a heating allowance each month for all employees.
For example, in Dalian, this amount is calculated according to the job title and issued monthly.
Additionally, companies must contribute two percent of the average salary of all employees with
a Dalian hukou to a fund that helps retired people pay for their annual heating fees. This amount
is paid together with the monthly social security contribution to the social security bureau.
Summer heat allowance

Areas of both south and north China get very hot in the summer, prompting local governments
to require companies to compensate employees during the hot months. For example, in
Guangdong province, during the period of June to October, companies should pay an additional
RMB 100 per month to employees working indoors without air conditioners and RMB 150 per
month to any staff working outdoors.

Disabled worker assistance fund
The Chinese government sets a minimum quota of disabled employees that a company must
hire. The national average is 1.5 percent of a firm’s workforce, but the rate can differ by province.
The quota does not apply to companies under three years old and with a workforce of less than
30 employees.
Companies that do not meet this quota have to pay into a fund called the ‘Disabled Workers
Employment Assistance Fund’, with the necessary amount again varying according to location.
Below, we provide examples of how the fund works in Beijing and Shanghai.
Disabled Workers Employment Assistance Fund

Beijing Shanghai
Minimum quota of
1.7% 1.5%
disable workers
Actual average annual salary for the company in

Fee contribution Actual average annual salary for the company in previous
previous year* × (Number of workers employed
amount year* × Number of workers employed × 1.5%
× 1.7% - Number of disabled workers employed)
Companies that employ some disabled

workers but do not meet the exemption
For company with over 2,000 employees, the contribution
requirement will pay a reduced amount into
Comments amount to the disabled workers employment assistance
the fund based on the difference between the
fund will be adjusted on a more sophisticated method.
percentage of disabled employees actually
employed and the exemption threshold.
* Where the actual average annual salary for the company in previous year is higher than 200 percent of the local average wage, the amount equals to 200 percent of the local
average wage will apply.

Calculating and withholding
individual income tax
In China, it’s generally the employer’s responsibility to accurately calculate and withhold individual SABRINA ZHANG
income tax (IIT) on employment income, including wages and salaries, bonuses, stock options, Partner
and allowances, before paying a net amount to its employee. Dezan Shira & Associates
Beijing Office
In 2018, China introduced the biggest reform to its IIT system since 2011 with the passing of
“
a new IIT Law. The new law brought forward a host of changes to individual taxation in China,
including by revising tax brackets, expanding deductibles, and altering residency rules for foreign China’s new IIT Law
workers. With additional circulars and announcements add clarity to the details of the new brought forward a host
IIT system, it’s important for employers to guard themselves with the up-to-date knowledge.
of changes to individual
taxation in China,
IIT reform including by revising
With economic pressures growing, and international trade disputes becoming entrenched, tax rackets, expanding
the Chinese government has sought to boost consumption and expand domestic demand. deductibles, and altering
residency rules for
Unfortunately, the IIT system frustrated this effort.
”
On the one hand, China’s IIT revenue increased substantially: China’s IIT revenue increased by foreign workers.
19.6 percent in 2017 from the previous year. This outpaced both the per capita income and
GDP growth, which stood at 7.3 percent and 6.9 percent, respectively. On the other hand, the
IIT payment threshold has not changed since 2011, despite more than 70 percent GDP per
capita growth.
Given these factors, China decided to reform its IIT system at the beginning of 2018. The
subsequent reforms took effect rather quickly: from the unveiling of the Draft Amendments to
the IIT Law in June 2018, to the full implementation of the new IIT system on January 1, 2019,
the whole process took less than one year.
A completed timeline of the IIT reform is provided as below.

Timeline of the IIT Reform
June 29, 2018:

Draft Amendment to the Individual Income Tax Law was released
August 31, 2018:
Revised Individual Income Tax Law was released
September 7, 2018:
Circular about Implementing Individual Income Tax Reform Policies (Shui Zong Han[2018] No.484) was released
October 1, 2018:
The new IIT brackets started to be applied
October 20, 2018:
Interim Measures for Special Additional Deductions for Individual Income Tax (Exposure Draft) and the Implementation
Regulations for the Individual Income Tax Law of the People’s Republic of China (Exposure Draft) were released
December 13, 2018:
Provisional Measures on Special Additional Deductions for Individual Income Tax (Guo Fa [2018] No. 41) was released
December 18, 2018:
Implementation Regulations for the Individual Income Tax Law of the People’s Republic of China (Fourth Revision pursuant
to State Council Order No. 707 ) was released.
December 19, 2018:
Announcement on Several Transition Tax Collection Issues Relating to Full Implementation of the New Individual Income
Tax Law (State Administration of Taxation (SAT) Announcement [2018] No. 56) was released
December 21, 2018:
Announcement on Promulgation of the Operation Measures on Special Additional Deductions for Individual Income Tax
(Trial Implementation) (SAT [2018] No. 60), Announcement on Promulgation of the Administrative Measures on Declaration
of Individual Income Tax Withholding (Trial Implementation) (SAT [2018] No. 61), Announcement on Issues Relating to
Voluntary Declaration of Individual Income Tax (SAT Announcement [2018] No. 62) were released
December 27, 2018:
Notice on Issues Relating to Transition of Preferential Policies following the Revision of the Individual Income Tax Law
(Cai Shui [2018] No. No. 164) was released
December 29, 2018:
Announcement about the Catalogue of Preferential Individual Income Tax Policies with Continued Effect (Cai Shui/SAT
Announcement [2018] No.177) was released
January 1, 2019:
Full implementation of the new IIT system, with transitional period for certain preferential policies provided
March 14, 2019:
Announcement on the Criteria for Determining the Residence Time of Individuals without Domicile in China (Ministry of
Finance (MOF) and SAT Announcement [2019] No.34), and Announcement about Individual Income Tax Policies for Non-
resident Individuals and Individuals Without Domicile (MOF and SAT Announcement [2019] No.35) were released

IIT taxpayer and their liability
To calculate IIT for its employee, the employer must decide whether an employee is liable to
Chinese IIT.
The new IIT Law divided IIT taxpayers into two categories-resident taxpayer and non-resident
taxpayer:
• Individuals who have a domicile in China, or individuals who do not have a domicile in China
but have resided in China for 183 days or more cumulatively within a tax year, are categorized
as resident taxpayers; and
• Individuals who do not have a domicile in China and have not resided in China, or individuals
who do not have a domicile in China but have resided in China for less than 183 days
cumulatively within a tax year, are categorized as non-resident taxpayers.
A tax year starts from January 1 of a calendar year and ends at December 31. And having
domicile here means habitually residing in China due to household registration, family, and
economic interests.
To put it in a simple way, domestic employees and foreign employees who stayed or are expect
to stay in China for at least 183 days are most likely to be regarded as resident taxpayers, while
expatriates who come to China for short-term (less than 183 days) work, such as commercial
performance and training, are likely to be regarded as non-resident taxpayers.
Only days where non-domicile individuals staying in China for a full 24 hours will be counted
into days of residence in China. That is to say, unless an individual enters into China at 0:00
of a day, that day won’t counted into his stay period.
Under the new IIT system, resident taxpayer and non-resident taxpayer have different tax liabilities
to their income, as summarized below:

Tax Liability of Resident Taxpayer and Non-Resident Taxpayer
Taxpayer status Domicile and residence time Tax liability
• Income sourced in China; and

• Having domicile in China
• Income sourced outside of China
• No domicile in China; and

• The number of consecutive years • Income sourced in China; and
Resident taxpayer residing in China for 183 days or • Income sourced outside of China
more cumulatively is over six

• Income sourced in China; and
• The number of consecutive years
• Income sourced outside of China but paid
residing in China for 183 days or more
by a Chinese enterprise or individual
cumulatively is no more than six

• Residing in China for no more • Income sourced in China
than 183 days in a tax year
Non-resident
taxpayer
• Income sourced in China that is paid
• Residing in China for no more
and borne by domestic employer
than 90 days in a tax year
Six-year rule
From the above table, we can see individuals who have no domicile in China won’t be subject
to paying IIT on their worldwide income until their number of consecutive years residing in
China for 183 days or more is over six. This is the so called ‘six-year rule’, replacing the previous
five-year rule of the old IIT system.
According to the official statement, the six-year rule counts starting from January 1, 2019. That
is to say, the number of years before 2019 won’t be included into the count of the six-years,
and individuals who have no domicile in China won’t be subject to worldwide income before
the year of 2024.

Besides, the count of the six-year can be reset by living in China for less than 183 days in a tax
year, or by leaving China for more than 30 days continuously where their days of residence in
China has reached 183 days in a tax year.
This is much easier than the clock-reset rule that expatriates could use under the old system to
become exempt from paying Chinese IIT on their worldwide income. Previously, expatriates could
reset the clock by living in China for less than 90 days in a tax year. They could also temporarily
be exempted from paying Chinese IIT on their worldwide income by leaving China for more
than 30 consecutive days in a single trip, or leaving China for more than 90 days cumulatively
over multiple trips in a tax year.
We therefore suggest companies with foreign employees to kindly arrange their clock-reset
trip before reaching six years.
Income sourced in China
Generally, the following income shall be deemed income sourced in China, regardless if the
place of payment is in China:
• Income derived from labor services provided in China due to tenure of office, employment,
performance of contract, etc.;
• Income derived from lease of property to a lessee for use in China;
• Income derived from licensing of various licensing rights for use in China;
• Income derived from transfer of properties such as immovable property in China or transfer
of other properties in China; and
• Income from interest, dividends and bonuses derived from enterprises, institutions, other
organizations and resident individuals in China.
As to employment relationship, income sourced in China is determined by the individual’s ‘actual

working period in China’.
Under the new IIT Law, actual working period is counted in days, which includes work days, public
holidays, annual leaves, as well as training days occurred during the individual’s work in China.
For non-domicile individuals who are employed by domestic employer and overseas employer
at the same time, or who are employed by overseas employer only, but provide work in China
and overseas within the same period, a day in which the individual stays in China for less than 24
hours will be counted as 0.5 day when determining their actual working period.

And the amount of their income liable to Chinese IIT shall be calculated by the below methods.
• When non-domicile individual living in China for no more than 90 days:
ACTUAL WORKING PERIOD IN CHINA/TOTAL CALENDAR DAYS

INCOME LIABLE TO CHINESE IIT = OF THE PERIOD × INCOME FROM WAGES AND SALARIES
OF THE PERIOD PAID BY DOMESTIC EMPLOYERS
• When non-domicile individual living in China for over 90 days but no more than
183 days:
ACTUAL WORKING PERIOD IN CHINA/TOTAL CALENDAR DAYS OF

INCOME LIABLE TO CHINESE IIT = THE PERIOD ×TOTAL INCOME FROM WAGES AND SALARIES OF
THE PERIOD PAID BY DOMESTIC AND OVERSEAS EMPLOYERS
• When non-domicile individual living in China for over 183 days, but the number of
consecutive years residing in China for 183 days or more cumulatively is no more
than six:
[1- INCOME FROM WAGES AND SALARIES OF THE PERIOD

PAID BY DOMESTIC EMPLOYERS/ TOTAL INCOME FROM
WAGES AND SALARIES OF THE PERIOD PAID BY DOMESTIC
INCOME LIABLE TO CHINESE IIT = AND OVERSEAS EMPLOYERS ACTUAL WORKING PERIOD
OVERSEAS/TOTAL CALENDAR DAYS OF THE PERIOD]
×TOTAL INCOME FROM WAGES AND SALARIES OF THE
PERIOD PAID BY DOMESTIC AND OVERSEAS EMPLOYERS
• When the number of consecutive years a non-domicile individual residing in China

for 183 days or more cumulatively is over six, and the clock is not reset:
TOTAL INCOME FROM WAGES AND SALARIES OF THE

INCOME LIABLE TO CHINESE IIT =
PERIOD PAID BY DOMESTIC AND OVERSEAS EMPLOYERS

To be noted, the actual-work-time rule does not apply if the individual holds a senior
management position in domestic enterprises in China. Their director’s fees, supervisor’s
fees, wages and salaries, and other similar income such as bonuses and stock options paid
by the domestic enterprise, shall be regarded as income sourced from China, regardless of
whether they actually work in China or not.
In general, senior management positions include:
• Director;
• Chief executive officer;
• General manager;
• Vice president;
• Chief representative;
• Individuals holding positions in specific professional fields, such as chief engineer or
chief financial officer; and
• Certain individuals not holding titles such as manager but carrying similar responsibilities
or having a great influence on business operations or decisions.
IIT taxable income and tax rates

Under the new IIT Law, the following income of an individual shall be subject to IIT:
• Income from wages and salaries;

• Income from remuneration for personal services (20 percent of the income is regarded as
deductible expenses);
• Income from author’s remuneration (20 percent of the income is regarded as deductible
expenses, and a further 30 percent discount is available when computing the taxable income);
• Income from royalties (20 percent of the income is regarded as deductible expenses);
• Income from business operation;
• Income from interest, dividends and bonuses;
• Income from lease of property;
• Income from transfer of property; and
• Contingent income.
Income from wages and salaries includes wages, salaries, bonuses, year-end increments, profit
sharing, allowances and subsidies derived by individuals from tenure of office or employment,
as well as other income in relation to their tenure of office or employment. And the income
could be in the form of cash, in kind, priced securities, or any economic interests.

For resident taxpayers, the first four types of income are consolidated into a new category -
‘comprehensive income’, and are subject to yearly computation.
The taxable income amount of comprehensive income of a resident individual shall be the
balance after deduction of the standard deduction (RMB 60,000 per year), as well as special
deductions, special additional deductions and other deductions determined pursuant to the
law, from the income amount of each tax year.
The comprehensive income is subject to three to 45 percent of progressive rates on a whole,

following the below brackets:
IIT Rates Table for Resident Individuals (Yearly)

Taxable income amount (RMB) IIT rate Quick deduction (RMB)
≤36,000 3% 0
36,000 - 144,000 10% 2,520
144,000 - 300,000 20% 16,920
300,000 - 420,000 25% 31,920
420,000 - 660,000 30% 52,920
660,000 - 960,000 35% 85,920
>960,000 45% 181,920
Although the IIT on comprehensive income is subject to yearly computation, employers

who pay wage and salaries to their employees are still required to compute and withhold
the IIT on a monthly basis (the detailed method is introduced in the later sections).
Where resident individuals have comprehensive income other than wage and salaries, they
are required to go through an annual settlement process, during which they may need to
pay extra tax or get tax refund, based on the result of yearly computation.
For non-resident taxpayers, the first four types of income are computed separately per time
or per month when it occurs.
The taxable income amount for income from wages and salaries of a non-resident individual
shall be the balance after deduction of the standard deduction (RMB 5,000 per month), as well
as other applicable deductions.

IIT Rates Table for Non-resident Individuals (Monthly)
≤3,000 3% 0
3,000 - 12,000 10% 210
12,000 - 25,000 20% 1,410
25,000 - 35,000 25% 2,660
35,000 - 55,000 30% 4,410
55,000 - 80,000 35% 7,160
>80,000 45% 15,160
The IIT rates for non-resident taxpayers are generally equal to those for resident taxpayers.
But since it’s computed on a monthly basis, the following brackets shall be followed:
Tax-exempt income
Under the new IIT Law, the following types of individual income shall be exempted from
individual income tax:
• Awards for achievements in science, education, technology, culture, public health, sports,
environmental protection, etc. granted by the provincial People’s Governments, ministries
and commissions under the State Council, units of the Chinese People’s Liberation Army at
or above corps level, as well as foreign organizations and international organizations;
• Interest income on treasury bonds and other financial debentures issued by the State;
• Subsidies and allowances issued on a unified basis in accordance with the provisions of the
State;
• Welfare benefits, compensation and relief funds;
• Insurance claims;
• Military severance payment, demobilization pay and decommissioning pay received by
members of the armed forces;
• Settling-in allowance, severance pay, basic pension or retirement pay, retirement allowances
and subsidies given to public servants and workers on a unified basis in accordance with
the provisions of the State;
• Income derived by diplomatic representatives, consular officers and other personnel of
embassies and consulates in China, which are exempted from tax in accordance with the
provisions of the relevant laws of China;
• Tax-exempt income stipulated in international conventions and executed agreements to
which the Chinese Government is a party; and
• Other tax-exempt income stipulated by the State Council.

In practice, employers should carefully deliberate whether a specific income is tax-exemptible
or not. For example, not all welfare benefits are tax-exempt income. Welfare benefits under
the new IIT Law refer to living subsidies paid to individuals out of welfare funds or union funds
appropriated by enterprises. To be eligible for tax-exempt:
• The living subsidies should be granted only to employees suffering temporary living difficulties
due to specific reasons (not including car purchase and real estate purchase) – if the living
subsidies are provided to all employees, then they are not tax-exempt income; and
• The enterprise welfare funds or union funds should be appropriated in line with relevant
provisions-generally, where the welfare funds are appropriated over 14 percent of the total
amount of employee salaries and wages, and where the union funds are appropriated over
two percent of the total amount of employee salaries and wages, the living subsidies paid
by the exceeding part of the funds that is over the cap are not tax-exempt income.
Another example could be the maternity allowances. In some cities, the social insurance scheme
tends to pay maternity allowance through the account of the company, rather than paying to the
individuals directly. In this case, the maternity allowance may look like wage and salaries given
the similar amount and payment frequencies. However, the employer should not withhold tax
on this part because maternity allowance is tax-exempt income, regardless of which account
it is transferred from.
Deductions
The new IIT Law allows several deductions-standard deductions, special deductions, special
additional deductions and other deductions determined pursuant to the law-to be deducted
from the wage and salaries before they subject to IIT.
Standard deductions
Standard deduction refers to a fixed amount of money that can be deducted from the individual’s
taxable income, which equals to the government’s evaluation of the basic living expenses of
the individuals.
Under the new IIT Law, the standard deductions for all taxpayers are unified to RMB 5,000 per
month. Previously, the standard deductions are RMB 3,500 per month for domestic employees,
and RMB 4,800 for foreign employees.

Special deductions
Special deductions refer to the basic social insurance premiums and housing fund contributed by
the employee in accordance with the scope and standard stipulated by the laws and regulations.
As introduced earlier, there are five different type of social insurance in China, including pension
insurance, unemployment insurance, medical insurance, maternity insurance, work-related
injury insurance. Employee usually contribute to the first three insurance only. Where foreign
employees are required to contribute to the social insurance as well, the part they contributed
can be deducted from taxable income as well.
Each region has their stipulated basic contribution rates. Contribution beyond that might
not be pre-tax deductible. For example, although employees are allowed to make additional
contributions to the housing fund, it’s not pre-tax deductible for the part over 12 percent of
their salary.
Special additional deductions

The new IIT system introduced ‘special additional deductions for specific expenditures’
(hereinafter, special additional deductions), which includes:
• Children’s education expenses;

• Continuing education expenses;
• Healthcare costs for serious illness;
• Housing mortgage interest;
• Expense for supporting the elderly; and
• Housing rent.
The introduction of special additional deductions makes the Chinese IIT system more consistent
with international practices. It applies to both resident and non-resident taxpayers. According to
the IIT Special Deduction Procedure (Trial Implementation), most special additional deductions
should be deducted on a standard basis. For example, the deduction standard for children’s
education expense is RMB 1,000 a child per month, regardless of the actual expense in the month.
To enjoy the special additional deduction, taxpayers are required to provide relevant information
to the tax bureau and retain the relevant documents as evidence for five years.
The applicable scope, deduction standard, and deduction method of each specific expenditures
are summarized as below.

IIT Special Additional Deductions in China
Item Applicable scope Deduction Amount Deduction method
• Standard deduction for each kid

Children’s education • Pre-school education RMB 1,000/month for each child
• 50/50 split between parents, or
expenses • Diploma education (or RMB 12,000/year for each child)
100% deducted by one parent
RMB 400/month, up to 48 months • Standard deduction

Continuing education Diploma education (or RMB 4,800/year, up to four years) • Parent could choose to claim
expenses Professional qualification RMB 3,600 in the year when such expenses for their child
related certificate issued if it’s for diploma education
• Deduction on actual expenses

• Can only deduct the medical
Expenses recorded in
Healthcare costs for Maximum RMB 80,000 cost that is over RMB 15,000
social medical insurance
serious illness based on actual basis and borne by the individuals
management system
• Could claim for the spouse
and the underaged children
• Standard deduction
Housing mortgage First housing loan under RMB 1,000/month up to 240 months • Could be 50/50 split
interest taxpayer or spouse’s name (or RMB 12,000/year, up to 20 years) between the couple, or 100%
deducted by one of them.
• Standard deduction in total,

regardless of the actual
number of the elderly
Expense for supporting • Parent over 60 years old RMB 2,000/month
• Could share among siblings,
the elderly • Other legal dependent (or RMB 24,000/year)
but each one can deduct
no more than RMB 1000/
month (or RMB 12,000/year)
Three applicable deduction amounts

• Standard deduction
based on working locations:
• Shall be 100% deducted by
one of the couple if they
• Taxpayer and spouse do • RMB 1,500/month
live in the same city
Housing rent not have house in the (or RMB 18,000/year)
• The couple can claim this
city where they work • RMB 1,100/month
deduction separately if they
(or RMB 13,200/year)
live in different cities and have
• RMB 800/month
no house in both cities
(or RMB 9,600/year)

Special additional deductions are available to foreigners working in China as well. For expatriates,
the only extra step is that they may need to visit the tax bureau in-person to get their tax ID,
which is necessary to obtain for the application.
Expatriates who choose to avail of these special additional deductions are not able to avail of
the tax-exempt allowance for foreigners.
Employees have the option to claim special additional deductions directly through their
tax filing or employer.
Where an employee provides the relevant information to the employer, and requests
the employer to handle special additional deductions, the employer is obliged to make
deduction for the employee on a monthly basis at the time of withholding tax. Further,
the employer cannot refuse.
The employer should compute the tax amount and make the withholding declaration based
on the information provided by the employee. If the employer discovers a discrepancy in
the information provided by the employee, the employer can request the employee to
make amendment, and report to the tax bureau in charge if the employee refuses to make
an amendment. The employer is not allowed to arbitrarily change information provided
by its employee.
In other words, the employer has no obligation to ensure the authenticity and accuracy
of relevant information provided by the employee for the purpose of special additional
deductions. Individuals are responsible for their deduction information.
Employers should retain the ‘Information Sheet for Special Additional Deductions for
Individual Income Tax’ provided by the employee, in case of inspection by the tax bureau.
It also protects the employer if the employee provides inaccurate or false information.
Moreover, employers should keep information provided for special deductions confidential
– employees may wish to keep information regarding children, marriage, and real estate
private.

Tax-exempt allowances for foreigners
Expatriates working in China are still allowed to deduct certain ‘allowances’ before calculating
the tax liability on their monthly salary for another three years, between January 1, 2019 to
December 31, 2021, including:
• Housing, meals, and laundry expenses;

• Reasonable expenses for personal trips of home visiting; and
• Reasonable allowances for language training and children’s education.
However, foreigners need to choose between the deductible allowances or the six special
additional deductions during this three-year transitional period. Once decided, the preference
cannot be changed within a given tax year.
The tax-exempt allowance policy is believed to be more beneficial to expatriates with a higher
income and level of expense – this policy is based on the actual cost of each expenditure, and
subject to the limit of a “reasonable” proportion (generally around 30 percent) of the expatriate’s
monthly salary.
However, to enjoy this policy, expatriates are required to provide corresponding invoices or
receipts every month for each expense, which is not easy in all circumstances.
For example, if an expatriate wants to claim rent allowance, it’s not enough to simply sign a lease
contract with the landlord. To get an invoice for the rent, the expatriate needs to ask the landlord
to make record-filing for the lease contract, and get invoice for him every month. In practice,
some people try to skirt this process by using alternative invoices, but that is not advisable.
Further, the tax authorities have discretion on whether to grant expatriates this tax-exempt
allowance. This can affect application for these benefits in different ways. For example, tax
authorities could reject applications by expatriates that work for an employer that has a record
of tax incompliance.
Ultimately, the transition from the tax-exempt allowance system to the new special additional
deductions is not necessary a bad thing, especially for those whose income is not that high and
who cannot enjoy the tax-exempt allowance because of various impediments.
On the other hand, employers are suggested to restructuring their foreign employee’s salary
package to lower their tax burden.

Other deductions determined pursuant to the law
The new IIT Law also allows certain other deductions, such as payment by an individual for
enterprise annuity and occupational annuity which comply with State provisions, expenditure
of an individual for purchase of commercial health insurance and tax-deferred commercial
pension insurance which comply with State provisions, and other deductible items stipulated
by the State Council.
For enterprise annuity and occupational annuity:
• The part contributed by the employer for all their employees, is not be subject to IIT when it
is transferred to the employee’s personal annuity account, as long as the employer’s annual
contribution amount is within one-twelfth of the total wage and salaries amount of the
enterprise in the preceding year;
• The part contributed by the employee can be deducted from their taxable income, as long
as the contribution amount is within four percent of the employee’s average monthly wage
in the preceding year-where the employee’s average wage is more than 300 percent of the
local average wage, then the deductible amount should be capped at four percent of the
300 percent of the local average wage; and
• The employees are only required to pay IIT when they attain the annuity upon retirement,
which will be tax separately.
For expenditure on commercial health insurance:
• The expenditure incurred by individuals from purchasing qualified commercial health

insurance products can be deducted before IIT collection, with a cap of RMB 2,400 per year
(or RMB 200 per month);
• Companies purchasing healthcare insurance for their employees will be deemed as
purchasing made by individuals and thus will enjoy the same tax incentives;
• Qualified commercial health insurance should be approved by the China Bank and Insurance
Regulatory Commission (CBIRC), and listed on the platform managed by China Insurance
Information and Technology Company (CIITC).

For expenditure on tax-deferred commercial pension insurance:
• The expenditure incurred by individuals from purchasing qualified tax-deferred commercial

pension insurance can be deducted before IIT collection, with a cap of RMB 1,000 per month
or six percent of the wage or salary of the current month, whichever is lower;
• The individual is only required to pay IIT when they attain the pension benefits upon
retirement, which will be tax on 75 percent of the pension attained at 10 percent tax rate;
• Qualified commercial pension insurance product should be approved by the CBIRC, and
listed on the platform managed by CIITC.
• This policy is currently implemented in the Shanghai, Fujian Province (including Xiamen),
and Suzhou Industrial Park.
IIT calculation
Under the new IIT system, the IIT calculation method for resident taxpayers and non-resident
taxpayers are slightly different.
While the ‘cumulative withholding method’ plus ‘annual calculation and settlement’ are adopted
for resident individuals, the IIT for non-resident individuals are solely calculated and withheld
on monthly basis.
The withholding method for a non-resident individual within a tax year is unchanged, but
when a non-resident individual satisfies the criteria for resident individual, they must notify the
employer of the change, and complete annual tax computation and settlement formalities at
end of the year.
IIT calculation for resident individuals

When a company pays wages and salaries to an employee who is regarded as resident individual,
it must compute the IIT amount using the ‘cumulative withholding method’, and withhold the
IIT on a monthly basis.
Under the cumulative withholding method, the ‘IIT amount to be withheld for the current period’
should be the balance of the ‘cumulative IIT withholding amount until the current period’, with
the ‘cumulative tax credit’ and the ‘cumulative IIT amount that has already been paid’.
To calculate the cumulative IIT withholding amount until the current period:
• First, calculate the taxable income amount subject to cumulative withholding by deducting
various items – including the cumulative tax-exempt income, the cumulative standard
deductions, the cumulative special deductions, the cumulative special additional deductions,

and cumulative other deductions determined pursuant to the law – from the taxpayer’s
cumulative income from wages and salaries for the tax year derived from employment up
to the current month; and
• Second, apply the applicable withholding rates and quick deductions stipulated in the IIT
Withholding Rates Table for Resident Individuals.
Where the IIT amount to be withheld is a negative value, a tax refund will not be made in the
interim. Where the balance amount at end of the tax year is still a negative value, the taxpayer
will, through completing annual computation and settlement for consolidated income, obtain
a tax refund for excess tax paid and make retrospective payment if there is under-paid tax.
The IIT Withholding Rates Table for Resident Individuals and the detailed formulae for calculating
IIT to be withheld per month under the cumulative withholding method are as below.
IIT calculation for non-resident individuals
IIT Withholding Rates Table for Resident Individuals

Taxable income amount subject to Quick deduction
Level Withholding rate
cumulative withholding (RMB) ( RMB)
1 ≤36,000 3% 0
2 36,000 - 144,000 10% 2,520
3 144,000 - 300,000 20% 16,920
4 300,000 - 420,000 25% 31,920
5 420,000 - 660,000 30% 52,920
6 660,000 - 960,000 35% 85,920
7 >960,000 45% 181,920
IIT AMOUNT TO BE WITHHELD CUMULATIVE IIT WITHHOLDING AMOUNT UNTIL THE CURRENT
FOR THE CURRENT PERIOD PERIOD - CUMULATIVE TAX CREDIT - CUMULATIVE IIT AMOUNT
THAT HAS ALREADY BEEN PAID UNTIL LAST PERIOD
CUMULATIVE IIT WITHHOLDING AMOUNT TAXABLE INCOME AMOUNT SUBJECT TO CUMULATIVE

UNTIL THE CURRENT PERIOD WITHHOLDING × WITHHOLDING RATE-QUICK DEDUCTION
TAXABLE INCOME AMOUNT SUBJECT CUMULATIVE INCOME FROM WAGE AND SALARIES -
TO CUMULATIVE WITHHOLDING CUMULATIVE TAX-EXEMPT INCOME -
CUMULATIVE STANDARD DEDUCTIONS -
CUMULATIVE SPECIAL DEDUCTIONS -
CUMULATIVE SPECIAL ADDITIONAL DEDUCTIONS -
CUMULATIVE OTHER DEDUCTIONS
DETERMINED PURSUANT TO THE LAW

When a company pays wages and salaries to a non-resident individual, it must withhold IIT on
a monthly basis, or for each payment, in accordance with the following methods:
• First, calculate the taxable income amount by lessening standard deduction (RMB 5,000) and
other deductions-special deductions (where it is applicable), special additional deductions
(where it is applicable), deductible allowances (where it is applicable) – from the non-resident
taxpayers’ monthly income amount liable to Chinese IIT;
• Second, apply the applicable tax rates and quick deductions stipulated in the IIT Withholding
Rates Table for Non-resident Individuals.
The IIT Withholding Rates Table for Non-Resident Individuals and the detailed formulae for
calculating IIT to be withheld are as below.
Annual calculation and settlement
IIT Withholding Rates Table for Non-Resident Individuals

Level Taxable income amount Withholding rate Quick deduction (RMB)
1 ≤3,000 3% 0
2 3,000 - 12,000 10% 210
3 12,000 - 25,000 20% 1,410
4 25,000 - 35,000 25% 2,660
5 35,000 - 55,000 30% 4,410
6 55,000 - 80,000 35% 7,160
7 >80,000 45% 15,160
MONTHLY TAXABLE INCOME ×

MONTHLY TAX PAYABLE
APPLICABLE TAX RATE - QUICK DEDUCTION
WAGES OR SALARIES AMOUNT -

MONTHLY TAXABLE INCOME STANDARD DEDUCTION -
OTHER APPLICABLE DEDUCTIONS

The new IIT Law introduces the annual calculation and settlement mechanism to the IIT system,
under which resident taxpayers are required to make a settlement during the period between
March 1 and June 30 the following year.
This mechanism applies specifically to the following scenarios:
• Taxpayers deriving comprehensive income from two or more sources, and the balance after
deducting special deductions from the amount of annual comprehensive income exceeds
RMB60,000;
• Taxpayers deriving one or more items of comprehensive income from labor services, author’s
remuneration or royalties, and the balance after deducting special deductions from the
amount of annual comprehensive income exceeds RMB60,000;
• Taxpayers who paid an amount in advance within a tax year that is less than the tax payable
amount; and
• Taxpayer who apply for a tax refund.
IIT on lump-sum bonuses

Under the new IIT Law, the IIT calculation of lump-sum bonuses are also different.
Lump-sum bonuses received by resident individuals

According to the recently released Circular about Preferential Policy Arrangement after the
Amendment of the Individual Income Tax Law (Cai Shui [2018] No.164), IIT on lump-sum bonus
received by resident individuals could be calculated in either of the below two methods.
• Method 1: Lump-sum bonus being taxed separately
Under this method, lump-sum bonus is calculated and taxed separately from other
comprehensive income, according to the following formula:
To decide the applicable tax rate, the employer should first divide the lump-sum bonus amount
by 12 and find the corresponding tax rates shown in the Comprehensive Income Tax Rates Table
(Converted on monthly basis) below.
LUMP-SUM BONUS X APPLICABLE TAX RATE –

IIT ON LUMP-SUM BONUS =
QUICK DEDUCTION

For example, if an employee will get annual bonus of RMB 36,000 in January 2019, the applicable
tax rate under Method 1 would be three percent, because the result of 36,000 divided by 12 is
3,000, matching Level 1 in the table.
Comprehensive Income Tax Rates Table (Converted on monthly basis)

Monthly taxable income (RMB)
Level Applicable tax rate Quick deduction (RMB)
(Lump-sum bonus/12)
1 ≤3,000 3% 0
2 3,000 - 12,000 10% 210
3 12,000 - 25,000 20% 1,410
4 25,000 - 35,000 25% 2,660
5 35,000 - 55,000 30% 4,410
6 55,000 - 80,000 35% 7,160
7 >80,000 45% 15,160
Notably, this method serves as a transitional policy only, which will be valid for three years.
Starting from January 1, 2022, the lump-sum annual bonus will be taxed as part of the annual
comprehensive income.
• Method 2: Lump-sum annual bonus being taxed as part of the annual comprehensive
income
Under this method, the lump-sum annual bonus should be combined into the employee’s
comprehensive income, and taxed in the cumulative withholding method, as introduced above.
For example, if an employee will get annual bonus up to RMB 36,000 in January 2019, and the
employee’s other taxable comprehensive income is RMB 40,000, then the employee’s total
taxable comprehensive income is RMB 36,000 + RMB 40,000 = RMB 76,000, which means the
10 percent tax rates would apply.
During the period from January 1, 2019 to December 31, 2021, taxpayers can choose to calculate
the IIT on their lump-sum annual bonus on voluntary basis. Starting from January 1, 2022,
however, the lump-sum annual bonus can only be taxed as part of the annual comprehensive
income.

Lump-sum bonuses received by non-resident individuals
For non-resident individuals, the lump-sum bonus received by them shall be taxed separately
from the wage and salary of the current month, and calculated based on the below formula:
(LUMP-SUM BONUS/6 X APPLICABLE

IIT ON LUMP-SUM BONUS =
TAX RATE – QUICK DEDUCTION) ×6
To decide the applicable tax rate, the employer should first divide the lump-sum bonus amount
by six and find the corresponding tax rates shown in the Comprehensive Income Tax Rates Table
(Converted on monthly basis) below.
Comprehensive Income Tax Rates Table (Converted on monthly basis)

Monthly taxable income (RMB)
Level Applicable tax rate Quick deduction (RMB)
(Lump-sum bonus/6)
1 ≤3,000 3% 0
2 3,000 - 12,000 10% 210
3 12,000 - 25,000 20% 1,410
4 25,000 - 35,000 25% 2,660
5 35,000 - 55,000 30% 4,410
6 55,000 - 80,000 35% 7,160
7 >80,000 45% 15,160
IIT declaration
The new IIT Law changed the circumstances in which taxpayers are required to make a tax
declaration. The reform removed some old circumstances: a taxpayer, for example, is no longer
required to declare annual income over RMB 120,000. But it also added some new circumstances:
taxpayers now need to make a declaration requirement upon emigration.
For ease of reference, we have detailed the circumstances under which taxpayers need to make
a tax declaration below.

Comparison of the Tax Declaration Circumstances under the Old and New IIT Law
Under the old IIT Law Under the new IIT Law
• Taxpayer obtains taxable income but

there is no withholding agent;
• Non-resident individual derives
• Taxpayer obtains income over the
income from wages and salaries from
amount stipulated by the State
two or more sources in China;
Council, i.e. RMB 120,000 annually;
• Taxpayer obtains comprehensive income and
• Taxpayer obtains taxable income
needs to process final settlement and payment;
but there is no withholding agent;
• Taxpayer obtains taxable income but the
• Individual derives income from
withholding agent does not withhold tax;
wages and salaries from two
• Taxpayer obtains overseas income;
or more sources in China.
• Taxpayer has migrated overseas and cancelled
his/her household registration in China; or
• Any other circumstances stipulated
by the State Council.
Generally, it’s the taxpayer’s obligation to make the IIT declaration for themselves. However,
the employer should be able to provide the income information and the withheld IIT amount
information to its employees within two months from end of the year. Where the employee
requests for the aforesaid information at any time during the year, the employer is obliged to
provide.
IIT filing
The employer is required to make IIT filing within the first 15 days of the month following the tax
withholding and submit a ‘Filing Form for Individual Income Tax Withholding’ to the tax bureau
in charge. Generally, the form covers the relevant information of all individuals to whom it pays
income, amount of income paid, deduction items and amounts, IIT amounts withheld for each
employee and total IIT amount withheld for all employees, as well as other relevant tax-related
information and materials.
When the employer pays income to a taxpayer for the first time, it shall complete an ‘Individual
Income Tax Basic Information Sheet (Form A)’ based on basic information such as tax ID provided
by the taxpayer, and submit it to the tax authorities at the time of tax filing in the following month.

Distributing salaries
The vast majority of companies in China handle salary distribution via electronic funds transfer
(EFT). EFT files can be uploaded through bank websites by the HR manager and approved online
for payment to employees by the finance manager. If employees have bank accounts with the
same bank as the company then the transactions should be processed immediately; otherwise,
there can be a short delay of normally no more than one day.
Uploading one EFT file that includes details of each employee’s net take-home pay saves time,
and also has the advantage that individual salary details will not appear on the bank statement
at the end of the month. Before the batch is processed, the bank will require approval from the
finance manager at the company for the total amount of salary to be released. This is the figure
that will appear on the company’s next bank statement. Only the person that uploaded the EFT
file will know the contents of that file; usually the HR manager at the company.
Salary payments in China should be handled through the company’s main operating bank
account if possible so that payments can easily be classified as salary payments.
It is not always possible to process a batch of EFT files for companies that use an international
bank as their main bank account. Salary details for each individual will therefore appear on
the statement. To avoid this situation, some companies set up a domestic bank account, first
transferring the funds into this new account (specified as a payroll account) before remitting to
their employees’ accounts. Another alternative is to pay a lump sum to a payroll agent, which will
then pay salary, mandatory benefits (social security), and possibly IIT on behalf of the company.
This method is not recommended, however, as it causes an unnecessary delay in the monthly
payroll process while the agent verifies that the funds have been received. There is also the risk
that the agent fails to make the required payments.

Outsourcing payroll
Payroll processing is never easy work. As a company’s payroll structure becomes more complex, ADAM LIVERMORE
and especially when the company is expanding its operations, both the time involved and the risk Partner
of error increase. Outsourcing payroll then offers a solution. It takes valuable time off the hands of Dezan Shira & Associates
local managers to have these processes automated. Entrusting the matter to an experienced payroll Dalian Office
outsourcer also reduces the risk of error and non-compliance. Additionally, when payroll is handled
“
externally, reports can be sent directly to HQ, ensuring confidentiality of sensitive information.
Providing only the
Advantages of outsourcing payroll most basic data will
only enable your payroll
More and more companies are turning to third parties to handle their payroll in China. Common provider to make payroll
calculations for you,
reasons for doing this include:
• Increased efficiency - Providers should have their own software that can generate all the such as salary, leave,
necessary reports required by the client, the bank and the tax bureau. This is more efficient and bonuses. The more
detailed HR information
and reliable than generating reports internally using relatively manual processes on software
like Excel.
you can provide, the more
• Increased accuracy - Running payroll through a manual system can often lead to mistakes. sophisticated analysis
your payroll provider
This presents a poor image of the company to its employees. It can also cost the company
money if employees have been overpaid or are left on the payroll after they have left the
”
company. Both of these phenomena are remarkably common. can provide.
• Increased transparency - It is necessary to have a clear procedure in place to ensure that

the source of problems can be located and reported to management. When companies
handle payroll internally, it will often be the case that such problems are rectified without
any reporting to management. By outsourcing the payroll process, this possibility can be
eliminated.
Problems with payroll can come from one of two areas – incorrect input information or
incorrect processing. In the first instance, the problem lies within the company’s inter-
departmental reporting structures. As long as the problem is reported to management, it
can be investigated and dealt with. In the second instance, the problem lies with the setup
of the payroll calculation software itself. If the company is outsourcing payroll management,
the provider should take responsibility for the error and the client should consider switching
providers in the future.
• Increased confidentiality - By outsourcing payroll, there should only be a small core of

senior staff in the organization who are aware of payroll details. The finance team will only
need to know the total amount for the payroll every month, not the individual breakdown.

• Decreased liability - Outsourcing payroll management reduces the risk that the company
will make incorrect filings to the tax bureau. Assuming that the correct information has been
RELATED READING
provided to the third party by the agreed deadline, any responsibility for under-reporting of
tax or penalties for late filing will be the duty of the outsourced company.
• Decreased cost - While the costs of outsourcing are quite obvious, they should be carefully
compared with the costs of running payroll internally. These can include staffing costs (HR/IT/
managerial resources), software development costs, and other miscellaneous costs. Mistakes
made when processing payroll can cause discontent among a company’s staff and lead to
an increase in staff turnover. This is a very significant cost for a company to burden.
Please bear in mind that outsourcing payroll will not mean that a company can entirely
disregard its internal HR costs. Companies will still need somebody internally to supply the
input information to the provider and approve the payroll each month, as well as other HR tasks,
such as organizing the hiring of employees and ensuring observation of internal regulations.
Payroll Processing in China:
Challenges and Solutions
Payroll processing procedure China Briefing magazine
April, 2017
There are several distinct steps during a payroll processing operation:
In this edition of China
• Step 1 - Submission of payroll input information by company Briefing magazine, we
explore challenges
This should include all the information regarding staff who have joined or left during the presented by China’s payroll
month, details of salary increases, bonuses and other allowances. Depending on the scope landscape, and provide
of the outsourcing work, the company may also need to provide time management sheets, solutions to companies
mandatory benefits (social security) contributions, special additional deduction informations, of all sizes to meet their
and details of annual leave taken for each employee. HR and payroll needs.
• Step 2 - Initial processing of ‘master report’ AVAILABLE HERE
At this stage, the payroll processor checks all the information sent by the company before
uploading it into the payroll processing software. After uploading is complete, the software can
generate the ‘master report’. This file details all the components of salary for each individual,
as well as figures for net salaries, IIT payments, social insurance contributions (for employee
and employer), and total compensation and benefit costs for the employer. It also shows
the total amount of money that the company must prepare for payment of salary, IIT, and
social insurance payments. The payroll processor will send this file back to the internal HR
manager at the company for approval.

• Step 3 - Approval of payroll data
The internal HR manager will check the information on the master report, paying particular
attention to the completeness of the input information sent to the payroll processor. Once
everything is in order, the HR director will approve the payroll.
• Step 4 - Generation of all other payroll-related reports
The payroll calculations are now approved and the payroll processor can run the other reports.
These can include, but are not limited to, the following:
»» Electronic funds transfer (EFT) file;

»» Pay slips (printed on special security paper or provided online);
»» General ledger file for uploading into the financial system;
»» Cost center report; and
»» IIT online filing document.
• Step 5 - Processing of reports
This will depend on the scope of the outsourcing work requested by the company. Usually,
the outsourcer will implement the following:
»» The EFT file will be sent to the bank via the secure online portal using a password provided
by the bank;
»» The pay slips are couriered to the offices or, in some instances, to the home addresses
of employees;
»» The ledger file is sent back to the company’s HR department, and then forwarded to the
finance team for consolidation into the general ledger;
»» The cost center report is also sent back to the HR department to be relayed to management;
and
»» The IIT online filing document is uploaded into the tax bureau software at the beginning
of the following month and subsequently filed.
FOR MORE INFORMATION
• Step 6 - Transfer of funds
To arrange a free
consultation on automating
The final step is approval of the payment of salary via online banking (the finance team only
your payroll processing,
needs to see the total amount, not the individual payments) and ensure that there are enough
please contact us at
funds in the account to cover the payment of salary, mandatory benefits (social security),
hr.admin@dezshira.com
and IIT. As a general rule, the processing takes between six to 10 working days each month,
with the IIT online filing happening at the beginning of the following month.
EXPLORE DETAILS

How to identify a reliable payroll processing agent
• Agents should handle all interactions with the local HR team through e-mail and in English,
allowing management to monitor the process;
• Agents should have a reliable software system that can meet the requirements of the
company;
• Agents should not have direct contact with anyone but the members of the HR team at the
company and their supervisors;
• Agents should process the payroll from a remote location, preferably not the same city as
the client-only one or two internal employee should be involved in the processing work; and
• Agents should not do any executive search operations as a side business; no company would
want to entrust its employees’ salary records to a company that may misuse them for other
purposes.
Explaining Monthly
Payroll Work in China:
What Does Your Payroll
Manager Do?
Presented by David Niu,
Human Resources, Senior
Manager
EXPLORE DETAILS

PAYROLL PROCESSING
FLOW CHART
Collect payroll related E-mail

information from internal HR
and other service provider
(if applicable)
FTP
Cross check and verify
information, upload into
payroll system
HR submits to the bank for

Bank transfer file
Run master report first draft processing payments
Sent to employees on or after

Pay slips
credit date
Send master report to
HR manager
Individual income Submit file via internet and /or
tax file physically visit tax bureau
APPROVED BY To be uploaded into internal

Y General ledger file
HR MANAGER? accounting system BANK PAYS TO
N EMPLOYEES ON
PAY DATE
To be used by internal
Cost center report
accounting team
Amend master report
according to client’s request
Other user-defined To be designed according to
reports user’s request
Send final version of master Confirmation obtained from

report to client HR manager
PAYROLL PROCESSING
CYCLE
Monthly
Employee Basic Data OT and Leave File Social Welfare
Allowances File

PAYROLL SYSTEM
Bank Transfer File Other Adhoc Files

3
Terminating Employees
• Termination during the probation period
• Termination during a fixed-term
or non-fixed term contract
• Termination at the end of a fixed-term contract
• Employees not allowed to be terminated
• Termination pay and its tax treatment

Terminating an employee in China is more difficult and often more expensive than in many other
countries, as the Chinese Labor Contract Law offers a high degree of protection to workers’job security.
In the remarks below, we will only discuss terminating fixed-term and non-fixed term contracts.
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.
Terminating Staff in China - an Overview

Type of termination Admissible grounds Type of employee Severance payment
• Employee doesn’t meet the job requirements stated in
the job description
• Serious violation of company rules
• Serious loss attributed to employee
• Fixed-term
During probation • Fraud to reach the labor contract No
• Non-fixed term
• Criminal offense during employment
• Employee taking second job, and harming the employer
• Incompetent for the position
• Employee unable to work after sickness or injury
• Fixed-term Yes (if the termination is put forward by
Mutual agreement • Agreed with employee
• Non-fixed term the employer )
• Serious violation of company rules
• Serious loss attributed to employee
Immediate • Fixed-term
• Giving false information to employer No
(unilaterally) • Non-fixed term
• Criminal offense during employment
• Employee takes up second job, harming first employer
• Employee incompetent for position
30 days’ notice • Employee unable to work after sickness/injury • Fixed-term
Yes
(unilaterally) • Job cannot be performed due to fundamental change • Non-fixed term
in objective circumstances
Yes (unless the employee refuse to renew
Not renewing
• After one or two fixed-term contracts, differs per city • Fixed-term the contract upon maintaining or raised
contracts
provision proposed by the employer)
• Company being restructured under the PRC Enterprise
Bankruptcy Law
• Serious difficulties in productions or operations
• Fixed-term
Mass layoff • Company changes production method, making staff Yes
• Non-fixed term
unnecessary
• Objective economic situation makes employment
impossible
• The employer is declared bankrupt pursuant to the law
Automatic
• The employer’s business license is revoked
termination upon • Fixed-term
• The employer is ordered to close down or revoked by Yes
bankruptcy/revoke/ • Non-fixed term
government bureaus
dissolution
• The employer has decided to dissolve prematurely
• The employee is suspected of having occupational disease(s) and waiting for diagnosis;
Termination with 30 • The employee has completely or partially lost labor capability due to occupational disease(s) or work-related injury;
days’ notice and mass • The employee is still in the legal recuperation period for non-work-related illness/ injury;
layoff not allowed for • The employee is pregnant, on maternity leave or in breast-feeing period; and
• The employee has continuously worked for the employer for more than 15 years and is less than five years before retirement.
Note: When unilaterally terminating an employee, the employer needs to notify the labor union if there is one.

Termination during the
probation period
As mentioned earlier, during the probation period, the employee can resign at will by giving HELEN KONG
three days’ notice. However, the employer can only terminate the employee with admissible Manager
grounds, such as: Human Resources
Dalian Office
• Employee doesn’t meet the job requirements stated in the job description;
“
• The employee is deemed to commit a serious violation of the company rules;
• The company suffers a serious loss that can be attributable to the conduct of the employee; To avoid the onerous
• Labor contract signed by employer under false assumptions or coercion from the employee; and costly labor disputes
• The employee is convicted of a criminal offence during the term of the labor contract;
that can arise from
• Employer’s interests harmed due to the employee taking up a post at a separate entity;
• The employee is incompetent for the position, even after training or a job transfer; and improper termination,
• Employee unable to work after sickness or injury. foreign-invested enterprises
in China must understand
To be noted, the burden is on the company to prove that an employee has not been able to
meet the requirements of the position they were hired to fill. There are two aspects involved here: the governing framework
and key issues behind
• The job description shown to the employee prior to being hired must be specific enough to
employee termination
give valid grounds to the employer for dismissing the employee if the employee proves to
be unsatisfactory - it should clearly indicate the key roles that the employee will be expected and consider taking
to perform and the relevant skills that the employee should possess; and preventative measures from
the start of the employment
”
• The company must gather clear evidence to prove that the employee has not been able to
meet the requirements that were established. arrangement.
The probation period appraisal form can be used as the basis for assessing the suitability of the
employee and the degree to which they meet the requirements for the position. This will be an
useful evidence if the company wishes to dissolve the relationship at this point.
HR departments may also want to introduce more forms to make the appraisal process more
specific. For instance, some companies have their managers sit down with employees during
their first week and set tasks for which employees will be assessed during this probation period.
These tasks are summarized in a document signed by the employee and employer. At the end
of the probation period, the employee is assessed based on the degree to which these specific
tasks were completed. Managing the probation period in this way further reduces the scope for
dispute in the future, although there is a larger administrative burden on the managers involved.
To terminate an employee on probation period, the company is not required by law to pay
severance payment if the termination is based on the admissible grounds.

Termination during a fixed-term
or non-fixed term contract
Upon completion of the probation period, the employee has a greater degree of job security.
While the only additional requirement of the employee is to give the employer one month’s
notice if they intend to resign from the position, the employer has a higher hurdle to overcome
when terminating an employee.
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.
Termination through mutual agreement

This type of termination occurs when the employer and employee mutually agree to terminate
the relationship. If the termination is put forward by the employer, then the employee is entitled
to severance payment. More often than not, the employer will provide additional money to the
employee to obtain the employee’s consent on separation, and there is no mandatory limit to
this additional money.
Immediate termination for inappropriate behavior

of the employee
The employer can terminate its employee immediately for the employee’s inappropriate behavior.
No severance payment is required in this case. But the employer need to inform the labor union
in advance when there is one.
Generally, immediate termination without compensation can only happen under five
circumstances, detailed as follows:
• The employee is deemed to commit a serious violation of the company rules - The key
here is for the employer to show that the violation of the company rules was serious. Make
sure the company rulebook clearly stipulates what is considered a serious breach, and how
many minor breaches constitute a serious breach. However, even though the company rules
may deem a certain breach to be serious, the court will have the final say in the matter. The
employer will still need to justify the termination decision to the judge in the labor dispute
litigation.

• The company suffers a serious loss that can be attributable to the conduct of the
employee - In this situation, the company would have to convince the judge that the loss
was due to the negligence or inappropriate conduct of the employee, and that the loss can
be considered serious.
• The employee is convicted of a criminal offence during the term of the labor contract - In
practice, the employer may only know about the conviction of an employee if a prosecution
for a criminal offence in some way involved the company, or if the court or other authority
informs the company during the prosecution process.
Note that the employer may not terminate an employee for having a prior criminal record. It is
the responsibility of the employer to find out about any irregularities in the employee’s past prior
to hiring him/her. It should be possible to find this information in the ‘dangan’ of the individual.
• Labor contract signed by employer under false assumptions or coercion from the employee
- The most common situation falling under this category is due to misrepresentation of information
on the resume by job applicants. For instance, falsely claiming to have a degree or other qualification
is a relatively common phenomenon. We would suggest employers to require job applicants to
bring the originals of graduation certificates and licenses obtained and also sign a copy of each one
to be held by the employer’s HR department. Additionally, the company should ask the employee
to sign a statement that allows the company to request details about the employee from previous
employers or educational institutes. Adding this requirement to the job description may deter
potential employees from making false claims about their professional and educational background.
• Employer’s interests harmed due to the employee taking up a post at a separate entity
- If the employer discovers that an employee is working on behalf of another company and
it negatively affects the employee’s job performance, the employer must first request the
employee to terminate the other position. Only in the event that the individual refuses to
stop carrying out the second role may the employer terminate the labor contract.
Termination with 30 days’ notice and compensation

payment
Under the following three circumstances, an employer is allowed to terminate an employee
unilaterally with 30 days’ notice or an additional month’s salary. The terminated employee is
also entitled to severance payment. And the employer is required to inform the labor union in
advance when there is one.

• The employee can no longer work after becoming sick or injured
This ground can be used for an employee who meets the following three conditions:
»» He/she has been absent from work due to sickness or an injury unrelated to work;
»» After returning to work from the prescribed time for medical treatment (read more about
recuperation period in section ‘Statutory vacations and payment calculation’), he/she is
no longer able to perform the original work; and
»» He/she is unable to perform other work provided by the employer.
If these three conditions are met, the employee can be terminated, but the company needs
to pay severance payment together with an additional medical care subsidy of no less than
six months’ wages. In some cities, the additional medical care subsidy shall be increased by 50
percent for ‘serious illnesses’ and 100 percent for those defined as ‘terminal’.
• The employee is incompetent for the position, even after training or a job transfer
The burden is on the company to prove that an employee has not been able to meet the
requirements of the position. Similar to termination during probation period, there are two
aspects here:
»» The job description must be specific enough to give valid grounds to the employer for
dismissing the employee if the employee proves to be incompetent. It should clearly
indicate the key roles that the employee will be expected to perform and the relevant
skills that the employee should possess; and
»» The company must gather clear evidence to prove that the employee has not been able
to meet the requirements that were established.
• Change in circumstances
The objective situation on which the employment was originally based has changed
considerably. As a result, the employment contract can no longer be fulfilled. The employer
is required to first attempt to negotiate with the employee regarding changes to the content
of the contract.
Firing Senior
Management in China.
Presented by Allan Xu,
Business Advisory Service,
Manager
EXPLORE DETAILS

Automatic termination upon bankruptcy/license
revoking/permanent dissolution of the company
Upon the following circumstances, the employment relationship shall be terminated
automatically, and the employer is required to pay severance payment to the affected employees:
• The employer is declared bankrupt pursuant to the law;

• The employer’s business license is revoked;
• The employer is ordered to close down; and
• The employer has decided to dissolve prematurely.
Mass layoff
Where an employer needs to reduce 20 or more employees or where the number of employees
to be reduced is less than 20 but comprises 10 percent or more of the total number of employees,
it is considered a mass layoff. Due to the potential negative social effects, the law imposes higher
requirements and stricter procedures on mass layoffs.
Mass layoffs can be done under the following circumstances:
• The employer undergoes restructuring pursuant to the provisions of the PRC Enterprise
Bankruptcy Law;
• The employer has serious production and business difficulties;
• The enterprise undergoes a change of production, significant technological reform, or change
of mode of operation - upon variation of labor contracts, there is still a need for mass layoff; or
• The objective circumstances have undergone significant changes and, as a result thereof,
the labor contract can no longer be performed.
To be noted, the following personnel shall be given priority to be retained in a mass layoff:
• An employee who has entered into a fixed-term labor contract of a longer period with the
employer;
• An employee who has entered into a non-fixed term labor contract with the employer; and
• An employee whose family members are not employed or who needs to support aged or
under-aged family members.
If an employer that carried out a mass layoff is re-hiring employees within six months of the mass
layoff, the reduced employees need to be noticed and shall be given priority for employment
under the same conditions.

The detailed procedures of mass layoffs are subject to local variances. Companies are suggested
to pay close attention to these procedures. If failing to fulfill these requirements, the company
may be confronted with onerous labor disputes or even potential penalties from the labor bureau
in charge. Where a company definitely has a need to reduce staff, it shall act in accordance with
the following procedures:
• Step 1 - Explain the situation to all the employees or to the labor union and provide
information regarding details of its production and business, 30 days in advance.
• Step 2 - Submit a mass layoff scheme to all employees or the labor union, which shall include:
»» The names of the staff to be reduced;

»» When and how staff will be reduced; and
»» The procedures for economic compensation to the staff to be reduced in accordance
with laws and regulations.
• Step 3 - Opinions regarding the mass layoff scheme shall be solicited from the labor union
or all the employees and the proposal shall be revised and improved accordingly.
• Step 4 - The mass layoff scheme together with the opinions of the labor union or all the
employees shall be reported to the local labor bureau and the opinions of the bureau shall
be heeded.
Reporting to the labor bureau is not simply a formality to receive a bureaucratic rubber stamp.
Government officials use their discretion to determine whether a company qualifies for
economic redundancy and, in some cases, can be quite strict. There also appear to be unofficial
regional variations in enforcement standards. For example, Beijing has a reputation for being
tough on employers, while Shanghai is generally more amenable to green lighting layoffs. In
any case, liaising with the local labor bureau before formally submitting an application helps
mitigate uncertainty and increases the likelihood of success.
• Step 5: The company shall then formally announce the mass layoff scheme, handle
the procedures for terminating contracts with the staff to be reduced, pay economic
compensation personally and issue certificates of redundancy.
VISIT US ON LINKEDIN
<Dezan Shira & Associates>

Beyond complying with government requirements, companies must be conscious of the ALLAN XU
impacts that merely applying for a mass layoff can have on its employees. Announcing layoffs Manager
30 days in advance inevitably introduces various complications to the workplace. Employees Business Advisory Services
may feel dejected and protest, and particularly desperate workers may try to seize or damage Shanghai Office
company assets, such as official company chops. On the other hand, if the economic redundancy
“
application ends up being rejected, employees are empowered to negotiate more lucrative
severance payments from the employer. Developing a strategic plan to approach certain Developing a
employees before formally announcing mass layoffs can help employers retain control over strategic plan to approach
what is often an unpredictable process.
certain employees before
formally announcing
mass layoffs can help
employers retain control
over what is often an
”
unpredictable process.

Termination at the end of
a fixed-term contract
The expiry of a fixed-term contract provides an important opportunity for the employer to
evaluate the contribution of the employee and come to a decision on whether or not to renew it.
It is relatively straightforward for an employer to terminate an employee at this stage. The
employer does not need to give the employee a reason for the company’s decision. However,
employers should bear in mind the following points:
• If the employer does not provide a new contract to the employee by the end of the contract
term, and the employee still works in the company after this point, the labor relationship
effectively continues - that is to say, the employer shall take liability for absence of the labor
contract;
• If the employer decides not to renew the contract at the end of the period, the company
must still pay severance payment to the employee; and
• If the employer offers the employee a renewed contract on equal or better terms to the
expired contract but the employee refuses to accept it, the employer is not required to pay
any compensation to the employee.
The company should have a clear understanding of which employees are approaching the
expiry of their fixed-term contracts. Around two months before, the relevant managers should
come to an agreement on whether or not to retain the employee. Both the performance of
the employee and current and anticipated future business conditions should be considered
when making the decision.
To be noted, upon expiration of the second fixed-term contract, where the employee raises
the request to renew the employment contract, the employer will have no other option but to
accept such a request, unless the circumstances of ‘immediate termination’ or ‘termination with
30 days’ notice’ apply. Given this situation, it is recommended that the company decide whether
to retain the employee at the end of the first contract. In practice, companies might opt for a
longer contract term for the first contract in order to delay this point.

Employees not allowed
to be terminated
Under the current labor law system, certain groups of people are specially protected, including:
• Employees who are suspected of having an occupational disease and waiting for diagnosis;
• Employees who have completely or partially lost labor capability due to five occupational
diseases or work-related injury;
• Employees who are still in the legal medical treatment period for non-work related
illness/ injury;
• Employees who are pregnant, on maternity leave, or in nursing period; and
• Employees who have worked for the employer continuously for more than 15 years
and are less than five years away from retirement.
These groups of employees mentioned above cannot be terminated for reasons listed under
‘termination with 30 days’ notice’ and ‘mass layoff’. Additionally, upon expiration of their labor
contracts, they are not allowed to be terminated until the corresponding circumstances
extinguish, except where the employee has completely or partly lost labor capability due to
occupational diseases or work-related injury - this kind of employee shall be terminated and
treated in accordance with the provisions on work-related injury insurance.
Nevertheless, the employer can still terminate these specially protected employees by mutual
agreement or if any circumstance under ‘immediate termination for inappropriate behavior of
the employee’ exists.
For Employees Specially Protected by the Laws and Regulations
Terminate by mutual agreement Allowed
Immediate termination for inappropriate

Allowed
behavior of the employee
Termination upon 30 days’ notice Not allowed
Mass layoff Not allowed
Terminated upon the expiration of the labor contract Not allowed*

*Except where the employee has completely or partly lost labor capability due to occupational disease or work-related injury

Termination pay and
its tax treatment
As mentioned in the above sections, an employer is required to make severance payment to

employees for:
• Termination by mutual agreement and the proposal is put forward by the employer;
• Termination upon 30 day’s notice according to Article 40 of the Labor Contract Law.
• Termination upon bankruptcy/license revoking/permanent dissolution of the company;
• Termination in a mass layoff; and
• Termination upon the expiration of the labor contract, except where the employer offers
the employee a renewed contract on equal or better terms to the expired contract, but the
employee refuses to accept it.
Besides, the employee can get severance payment for termination put forward by himself/
herself under the following circumstances:
• Where the employer fails to provide labor protection or labor conditions pursuant to the
provisions of the labor contract;
• Where the employer fails to promptly pay labor remuneration in full amount;
• Where the employer fails to contribute social security premiums for the employee pursuant
to the law;
• Where the rules and system of the employer violate the provisions of laws and regulations
and are prejudicial to the employee’s rights and interests; and
• Where the labor contract is rendered void because it is concluded by use of fraudulent or
coercive tactics or by taking advantage of employee’s unfavorable position thus against the
real intention of the employee.
Calculation of severance payment

The formula of calculating the severance payment is:
SEVERANCE PAYMENT = AVERAGE MONTHLY SALARY x YEARS OF SERVICE
• For the average monthly salary - It is calculated as the employee’s average monthly salary
during the last 12 months preceding the termination. If the employee worked for less than
12 months, the average monthly salary shall be calculated according to the actual work time.
• Three-time restriction - For any period after January 1, 2008 – the date of the enactment
of the PRC Labor Contract Law – where the employee’s average monthly salary is more than
three times the average monthly salary in the location of employment, the latter will be used
to calculate severance pay. This rule does not apply to the period prior to the enactment of
the PRC Labor Contract Law.

For example, in Shanghai, the average local monthly salary of 2018 was RMB 7,832, and
three times this amounts to RMB 23,496. Thus, an employee whose employment is lawfully
terminated in Shanghai can only receive up to RMB 23,496 as severance for each year of
employment after January 1, 2008.
• For the counting of the years of service - For a working period that is less than six months, it
shall be counted as half a year, and half a month’s salary must be paid as severance payment.
If a working period is over six months but less than one year, it shall be counted as one
year, and one month’s salary shall be paid as severance payment.
For example, in the case that an employee worked for 13 months for the same company,
it can be regarded as (1+12) months when calculating the severance payment. For the 12
months, he or she will receive severance payment that amounts to one month’s salary. For
the one month, it can be regarded as half a year and the employee can receive 0.5 month
salary as severance payment. In total, the severance payment is 1.5 months’ salary.
• Total amount restriction - For employee whose average monthly salary is more than three
times the average monthly salary in the location of employment, the severance is limited to a
maximum of 12 month’s average salary, even if he/she worked for a company for over 12 years.
The calculation method provided above is only the minimum amount an employer is
required to pay by law. In practice, however, employers often pay a higher amount than
the statutory minimum amount.
The reason behind this is simple: employers are willing to pay more money to get the
employee’s consent, and thus avoid potential labor disputes. Even if there are grounds for
unilateral termination, they are challenged in court and lead to costly and onerous litigation
more often than not. This is because the grounds for termination are not always easy to prove.
Besides, employers often give higher severance payment to employees in sensitive positions,
such as employees who keep important documents of the company, upon the expiration
of their labor contracts.
Moreover, in the case of unlawful termination, where the employer terminate its employee
without of any admissible grounds we presented in the above sections, the employee shall
be entitled to double severance payment as economic compensation, if the employee does
not demand continued employment, or if it is impossible to continue the employment
relationship.
However, an employer cannot assume it can unilaterally terminate an employee with no

solid reasons by simply paying double severance payment. It’s possible that the employment
relationship has to be restored based on the court’s decision, and the employer has to pay
the employee’s remainder salary in addition to the litigation cost.

IIT implication on severance payment
China’s tax laws prescribe a special treatment for severance payment. As the terminated employee
may have no income in the coming months, the IIT burden on the severance payment is far
lower than if an employee received a similar amount as a salary or even as a bonus.
Under the new IIT Law, for lump-sum compensation income derived by an individual for
termination, the portion which falls within three times the annual average wage at the locality
in the preceding year shall be exempted from IIT.
The portion which exceeds three times the annual average wage at the locality in the preceding
year shall be subject to IIT, but it won’t be included in the comprehensive income for that year,
rather, it shall be taxed separately by applying to the IIT Rates Table for Comprehensive Income
(Yearly).
IIT Rates Table for Comprehensive Income (Yearly)
≤36,000 3% 0
36,000 - 144,000 10% 2,520
144,000 - 300,000 20% 16,920
300,000 - 420,000 25% 31,920
420,000 - 660,000 30% 52,920
660,000 - 960,000 35% 85,920
>960,000 45% 181,920

If the employee pays any mandatory social security contributions when they receive the
severance payment, the actual amount paid by the employee is deductible.
Furthermore, the compensation issued to employee for termination upon the bankruptcy of
the company shall be exempted from IIT.
Hence, the IIT calculation on severance payment should be as follows:
• Step 1 - Decide on an amount for the total compensation package that will be provided to
the employee;
• Step 2 - Deduct an amount equal to 300 percent of the annual average wage at the locality
in the preceding year from the total compensation package;
• Step 3 - Deduct the mandatory social security contributions actually paid by the employee
(if any);
• Step 4 – Apply the tax rates and quick deductions provided in the IIT Rates Table for
Comprehensive Income (Yearly), and then calculate the corresponding IIT.
This will be the IIT on severance payment for the employee. The employer is required to deduct
any tax burden payable by the employee on money received as part of a termination package
before paying the rest of the amount to the employee. 4
4
Employing Foreign Workers
• Overview of China’s visa system
• China’s new unified work permit and

tiered talents classification system
• Administrative procedures for hiring

foreign employees (>90 days)
• Administrative procedures for hiring

foreign employees (≤90 days)
• Sending your Chinese staff abroad

Overview of China’s visa system
As any foreigner who has been through the process will know, obtaining a work visa in China can KYLE FREEMAN
be a twisting process. A Chinese visa grants the holder the right to enter China and stay in the Manager
country for a fixed number of days. There are several visa categories, depending on the reason International Business Advisory
the foreigner is coming to China. Beijing Office
“
Each visa contains three important pieces of information: the issuance and final entry date, number
of entries, and duration of each stay. The number of entries states how many times the foreigner Although some
may cross the border into China between the date of issue and the final entry date. The final entry speculation has it that the
date is indicated on the visa as ENTER BEFORE xxx. The length of each stay indicates how long a
population of foreigners
foreigner may stay in China after each entry.
working in China is in
For example, a visa may be granted with issue and final dates January 1 and July 1, two entries decline, our experience at
and duration of stay of 30 days. This means the foreigner can enter China twice before July 1, and
stay for 30 days each time.
speaks otherwise, where
These factors are determined by the Chinese embassy or consulate where the application is made. questions regarding
Foreigners can also apply at the branch of the Ministry of Foreign Affairs in Hong Kong and Macau.
work visa procedures
Once in China, the visa can be extended at the local immigration office, at the discretion of continues to pour in at
”
local officials. a steady stream.
China’s visa system

The major regulation stipulating China’s visa system is the Administrative Regulations on Entry
and Exit of Foreigners (State Council Order No.637). With its amendment in 2013, the number of
visa categories was increased to 16.
In the following table, we present China’s visa categories according to the major purpose of visit.

Visa Categories in China
Major purpose of visit Visa categories Description of visa
Exchanges, visits, study
F Issued to those who are invited to China for exchanges, visits, study tours and other activities.
tours and other activities
Commerce and trade M Issued to those who are invited to China for commercial and trade activities.
Tourism L Issued to those who are going to travel to China for tourism.
Issued to those who are family members of Chinese citizens or of foreigners with Chinese permanent
residence and intend to go to China for a long-term family reunion, or to those who intend to go
Family reunion, foster
Q1 to China for the purposes of foster care (intended duration of stay in China exceeding 180 days).
care or visiting relatives
“Family members” refers to spouses, parents, sons, daughters, spouses of sons or daughters,
with permanent
brothers, sisters, grandparents, grandsons, granddaughters and parents-in-law.
residence in China
Issued to those who intend to visit relatives who are Chinese citizens residing in China or foreigners
Q2
with permanent residence in China; the intended duration of stay is limited to no more than 180 days.
Issued to relatives of foreigners working or studying in China for the purpose of long-term visit, or to
S1 those who intend to visit China for other private reasons (intended duration of stay exceeding 180 days).
“Relatives” refer to spouses, parents, sons or daughters under the age of 18 years and parents-in-law.
Visiting relatives working
or studying in China or Issued to those wishing to visit family members that are foreigners working or
other private affairs studying in China, or to those who intend to go to China for other private reasons.
S2 The intended duration of stay in China is limited to no more than 180 days.
“Family members” refers to spouses, parents, sons, daughters, spouses of sons or daughters,
brothers, sisters, grandparents, grandsons, granddaughters and parents-in-law.
Employment
Z Issued to those taking up a post or employment, or giving commercial performances, in China.
Commercial performances
Transit G Issued to those who are going to transit through China en route to a third country (or region).
Issued to foreign crew members of aircraft, trains and ships, motor vehicle drivers
As a crew member or a
C engaged in cross-border transport activities, and also to the accompanying
motor vehicle driver
family members of the above-mentioned ships’ crew members.
X1 Issued to those intending to study in China for a period of more than 180 days.
Study
X2 Issued to those intending to study in China for a period of no more than 180 days.
As an introduced talent R Issued to those who are high-level qualified talents or whose skills are urgently needed by China.
Issued to resident foreign journalists/media staff of foreign news organizations

J1
stationed in China. The intended duration of stay in China exceeds 180 days.
As a journalist
Issued to foreign journalists/media staff on temporary news coverage missions.
J2
The intended duration of stay in China is limited to no more than 180 days.
Permanent Residence D Issued to those who are going to reside in China permanently.

Z-visa
The Z-visa is usually referred to as a working visa. It is used by foreigners who are actually
employed by a company that has been incorporated in China (either domestic or foreign-
invested). An employee that possesses a Z-visa may subsequently apply for a residence permit.
The residence permit allows the foreigner an unlimited number of trips into and out of China
during the term, which is usually for one year.
Applying for a Z-visa will allow the holder more flexibility and also virtually eliminate the risk of
not being able to extend the visa (assuming the employer’s China entity remains in compliance
with relevant laws). On the other hand, the application procedure is more time-consuming. It is
not necessary for employees on occasional, relatively short-term business trips to go through
the process to obtain a Z-visa.
Employees working at companies in China should arrive in China on a Z-visa with limited
exceptions.
M-visa
The M-visa is usually referred to as business visa. In order to receive an M-visa, a foreigner must
supply an invitation letter from a company registered in China. This can be a Chinese business
or a foreign-invested company in China. If the company is not yet incorporated, or it is unable to
issue an invitation letter for other reasons, there are many agents that can provide such services.
M-visas are granted for lengths of time commonly ranging from one month to one year,
depending on the situation. They can be extended under certain conditions.
Generally, foreigners will keep the remaining entry as stipulated in the former visa. For example,
if the former visa has one entry remaining, then the current extension will keep that one entry.
Besides, the extension of stay cannot exceed the former visa stay period. For example, if the
duration of each stay of the former M-visa is 30 days, then the extension is up to another 30 days.
Only if the duration of each stay is 60 days, then the foreigners can apply for 60 days’ extension.
M-visas are appropriate for foreigners who do not work full-time in China, and only need to make
occasional visits, such as attending trade shows, meetings, or negotiations. While in practice,
foreign employees or interns sometimes stay in China on an M-visa, this is not permitted and
we advise against it. The Chinese government has been sharpening up its enforcement recently,
and employees that are caught may face deportation.

In January 2015, China released a new rule for foreigners who come into China to finish short-
term work (less than 90 days). In that rule, it clarified what kind of situation counts as a short-term
working (Z) visa and what situation counts as a short-term commerce and trade (M) visa. More
details can be found in section “Short-term work in China”.
In addition, starting from November 12, 2014 for US passports-holders and from March 9, 2015
for Canada passport-holders, applicants are able to obtain multi-entry M-visas that are valid for
10 years.
F-visa
The F-visa, which used to be known as business visa and was used by foreign nationals coming
to China on business, is limited to non-commercial purpose only under the 2013 entry-exit
regulation. As such, it can only be used within the limited range of permitted activities, such as
cultural exchanges, visits and inspections.
R-visa
The R-visa is issued to foreign high-level personnel and people with special talents of which
there is a shortage in China. What people can be regarded as ‘high level personnel’ is strictly
regulated. Applicants for the R-visa need to satisfy higher requirements.

China’s new unified work
permit and tiered talents
classification system
On November 1, 2016, China’s State Administration of Foreign Experts Affairs (SAFEA) launched
a pilot program to merge the previous Foreign Expert Permit and Alien Employment Permit
into a single permit in selected regions, namely Beijing, Shanghai, Tianjin, Anhui, Guangdong,
Hebei, Shandong, Sichuan, and Ningxia. The pilot program also introduced a tiered classification
system for foreign workers and a streamlined application and tracking system in order to attract
more high-level foreign talents. Starting from April 1, 2017, this pilot program was rolled out
to nationwide.
Unified work permit system

Previously, China’s work permit system included two different kinds of work permits: the Alien
Employment Permit and the Foreign Expert Permit. While the Alien Employment Permit is
issued for general employment, the Foreign Expert Permit is issued to ‘high-level’ talent or
candidates whose skills are urgently needed in China’s labor market. These two permits are
issued and administrated by different government entities, with the MOHRSS managing the Alien
Employment Permit and the SAFEA controlling the Foreign Expert Permit. Under this system,
it was sometimes unclear which permit candidates should apply for. The application system is
also largely paper-based and highly bureaucratic, resulting in months-long turnaround times.
To avoid deterring high-quality foreign candidates from working legally in China with these
issues, the government has prioritized streamlining the foreign employment system from the
application process to the permits themselves.
Under the new single work permit system, a unified model administered by SAFEA and its local
branches applies, eliminating the confusion and inconformity of the two-permit system. Each
applicant shall be assigned a unique ID number that does not change, regardless of permit
renewal or change of employer. Documentation requirements are standardized and reduced by
nearly 50 percent, with submissions like personal CVs and application letters no longer required.
In addition, the approval process becomes more streamlined and transparent, with a detailed
guideline released at the end of March, 2017.

Tiered talents classification system
Together with the unified work permit system, a tiered talents classification system was also introduced
to attract more high-level foreign talents. Under this system, foreign workers are classified into three
tiers: highly qualified top talents (Tier A), professional talents in line with labor market demand (Tier B),
and other foreign talents in line with labor market demand (Tier C).
The classification is based on the desirability and eligibility of the expats through a comprehensive
evaluation system, which includes a point-based system, a catalogue for guiding foreigners working
in China, a labor market test, as well as a quota administration system. Among others, applicants are
assigned points based on their education background, salary level, age, past achievements, work
experience and length, and Chinese language level. Candidates applying to work in less developed
areas may receive additional points. The SAFEA has released the detailed scoring criteria and other
specific standards to evaluate expats, which could be found in the online‘Service System for Foreigners
Working in China’under the official website of SAFEA. . Generally, the tiers and their eligibility requirements
are structured as follows:
• Tier A - Highly qualified top talents:
»» Selected into the vice-provincial level and above talent recruitment plan;
»» Professional achievements are internationally recognized;
»» In key roles in selected enterprises, organizations, institutions;
»» Salary is no less than six times of the local annual average income;
»» Qualified as creative and innovative talents;
»» Postdoctoral research under the age of 40; or
»» Gets 85 points and above in the points-based system.
• Tier B - Professional talents in line with labor market demand:
»» Has a bachelor degree or above and at least two years working experience, and being middle
level management or a professional in selected areas, organizations, representative offices, and
enterprises;
»» Holds internationally recognized qualification certificate or being regarded as a professional
whose skills are urgently needed;
»» Foreign language teaching staff;
»» Salary is no less than four times the local annual average income;
»» Professional who is invited by relevant department for selected projects; or
»» Gets 60 points or above in the points-based system.

• Tier C - Other foreign talents in line with labor market demand:
»» Other expats complying with the administrative regulations for foreigners working in China;
»» Expats coming to China for temporary short-term work (no longer than 90 days); or
»» Subject to the quota management system.
The three tiered talents are subject to different administrations. Applicants placed in the Tier A are
eligible for service through a ‘green channel’, which offers paperless verification, expedited approval,
and other facilitation measures. Tier A talents shall not be limited by their age, education degree, or
working experience.
In contrast, Tier B talents are required to to have bachelor degree and above and at least two years’
working experience, and be under the age of 60, with limited exceptions.
And Tier C shall be strictly limited by the quotas and other relevant rules.

Administrative procedures
for hiring foreign
employees (>90 days)
Hiring foreign employees here means hiring non-Chinese nationals who do not have permanent
residency in China to engage in social labor work in exchange for labor remuneration. That is to
say, citizens of Hong Kong, Macao, and Taiwan do not need to go through the administrative
procedures for hiring foreign employees – they are under the same treatment as mainland
Chinese in employment management.
To be eligible for working in China, foreigners should generally satisfy the following basic criteria:
• Attained 18 years of age, and are healthy;

• Possess the requisite professional skill and the corresponding work experience for
the work;
• Have no criminal record;
• Has confirmed employer in China; and
• Hold a valid passport or any other international travel document.
And according to the revised Administrative Regulations on the Employment of Foreigners in

China and the Guideline for Applying Foreigner’s Work Permit in China (Trial Implementation),
the major administrative procedures for hiring foreign employees include:
• Applying for ‘Notification Letter of Foreigner’s Work Permit in China’;

• Applying for Z-visa or R-visa;
• Applying for ‘Foreigner’s Work Permit’; and
• Applying for ‘Residence Permit’.

Applying for Notification Letter of Foreigner’s
Work Permit in China
• Step 1 - Apply online
The first step in the application process is completed by the employer in China.
An employer looking to hire expats must register on the online ‘Service System for Foreigners
Working in China’ to get its account at the first time of use, with the following documents
submitted online:
Document List for Registering Online Account

Documents* Notes
Application form • Stamped with company chop
Business registration certificate, such as business license, organization

• Should be renewed if the registration
code certificate, social insurance registration, the registration certificate
certificates are revised
of the representative office, or the new five-in-one business license
Identity certificate of the person in charge • ID, representative certificate, etc.
Other industrial certificate or license if applicable • e.g. Hi-tech enterprise certificate
Power of attorney in case of using an agent • N/A
*All the documents in this table should be the original version and in electronic form.

The SAFEA or its local branches will decide whether to verify the paper documents according
to the credit rating of the company. It may also verify the documents by interview, telephone
inquiries, or site inspections.
After registered successfully, the company can submit the application of the Notification
Letter of Foreigner’s Work Permit in China, along with other required documents through
the Service System for Foreigners Working in China.
Documents List for Notification Letter of Foreigner’s Work Permit in China Application
Documents* Notes
Application Form for Foreigner’s
• Singed by the employees (copy or fax), and sealed by the company
Work Permit in China
• Issued and sealed by the previous employer
Proof of previous work experience
• Tier A applicants can simply make a commitment
Highest level education certificate • Should be notarized or authenticated if the certificates are issued by overseas institutions
or qualification certificate • Most Tier A applicants can simply make a commitment
• Issued within six months by relevant authorities in the country
of nationality, or the country of habitual residence
Official proof of no criminal record • Should be notarized or authenticated unless it is issued by
the diplomacy and not solely based on pledge
• Tier A applicants could simply make a commitment
• Issued by Chinese quarantine institutions or foreign medical
Medical check document institutions recognized by China within six months
• Could make a commitment prior to entry of China
Employment contract or other proof of • Must be in Chinese, signed by the employee, and sealed by the company
employment (including dispatch letter) • Must include required information such as location, job description, position, salary, etc.
Passport or other international
• Should be valid for no less than six months
travel document
• Taken within six months
Official photo
• Should be taken without the face being covered
• Visa, relationship certificate, medical check document, and photo
Accompanying family members documents
• Family member includes spouse, children under 18 years old, parents, and parents-in-law
*All English documents should be translated to Chinese; all paper documents must be scanned and uploaded to the service system; Tier A
applicants should provide relevant certificates; pre-licensing or certificates for entering specific industries are also needed if applicable.
• Step 2 - Online preliminary review
Within five working days of the online application, the SAFEA in charge will make an
examination of the materials submitted online. If the materials contain errors or are
incomplete, the employer will be given one chance to correct the relevant materials. If the
materials are complete and correct in form, the employer could make the appointment to
submit the required paper documents.

• Step 3 - Verification of the employer’s application
The SAFEA in charge will verify the electronic and paper materials to decide whether to accept
the application. If the employer’s application meets the requirements, an acceptance letter
will be issued on site, including the official seal and the date.
• Step 4 - Review and decision
Upon acceptance of the application, the decision-making body will review the materials and
make a decision within 10 working days to approve or decline the employer’s request to hire
a foreign worker. Upon approval, a Notification Letter of Foreigner’s Work Permit in China
will be produced online. For Tier A talents, the time could be reduced to five working days.
Normally, the company should help the employee apply for the Notification Letter of
Foreigner’s Work Permit in China before their entry into China, and then apply the Foreigner’s
Work Permit within 15 days upon their entry.
However, under certain circumstances, the company can help the foreign employee apply
for the Foreigner’s Work Permit directly when the foreigner is already in China.
Such circumstances include:
• Tier A applicants who have entered China with another type of visa or resident permit;
• Foreigners working in China with a valid residence permit who will change their work
to another company in the same industry;
• Spouse and children of a Chinese citizen or foreigners who have permanent residence
in China, who have a valid visa and residence permit;
• Expats who can enjoy the preferential policy of the Free Trade Zones (FTZs);
• The employing company enjoys the preferential policy for headquarters of a multinational
company in China;
• Talent mobility within the group company;
• Expats implementing inter-governmental agreements;
• Representatives of an RO who have entered China with a valid visa;
• Expats who have a short-term work permit are employed within the duration of the
stay; and
• Other circumstances recognized by the SAFEA in charge.

Applying for Z-visa or R-visa
Upon the Notification Letter of Foreigner’s Work Permit in China being approved, expats should apply
for a Z-Visa or R-Visa in the Chinese diplomatic missions abroad (embassies and consulates) or the
MFA office in Hong Kong, unless they are qualified to apply for the port visa upon arrival (not advised).
Generally, the following documents will be required when applying for a Z-visa or R-visa:
• Application form;
• Passport valid for at least six months;
• Recent passport-size photo; and
• Notification Letter of Foreigner’s Work Permit in China.
To be noted, under the unified work permit system, the official ‘letter of invitation’ is no longer
required to apply for a Z-visa or R-visa.
The visa application may take around five working days, depending on the working procedure
of each embassy.
Port visa
A foreigner who needs to travel to China in case of emergency and cannot obtain the Chinese visa
by the Chinese overseas embassy/consulate in time can apply for the port visa at the designated
entry port, including Beijing, Shanghai, Tianjin, Chongqing, Dalian, Fuzhou, Xiamen, Xi’an, Guilin,
Hangzhou, Kunming, Guangzhou (Baiyun), Shenzhen (Luohu, Shekou), Zhuhai (Gongbei), Haikou,
Sanya, Jinan, Qindao, Yantai, Weihai, Chengdu, Nanjing, Yunchun, and Changchun.
Among them, Shanghai is the only city that can issue Z-visas to foreigners at the port.
Shanghai also provides preferential policies when applying for R-visas for high-level talents
recognized by the government or hired by a company certified by the Shanghai Science
and Technology Commission.
Invitation companies should apply to the port’s visa-granting office for approval at least
five working days in advance. The office shall verify the application within two working
days. If approved, a notice letter will be emailed or faxed to the expat, which is valid for
one month. With this notice letter, expats can apply for the port visa in the arrivals hall in
Hongqiao and Pudong airports.
Port visas are only valid for 30 days with one entry. Within this period, expats must go to the
entry and exit bureau to change their visa status if they plan to stay longer.

Applying for Foreigner’s Work Permit
Accommodation registration
After entering China, the foreigner needs to register with the police where he/she is staying.
If the individual is staying in a hotel, the hotel staff tends to do this. If the individual rents
an apartment, they need to take a copy of the passport and the signed rental agreement
to the nearest police station.
Within 15 days of entering China, the company should apply for a Foreigner’s Work Permit for their
foreign employee. The application should be done through the Service System for Foreigners
Working in China, with the following documents submitted:
Generally, it takes 10 working days for the SAFEA in charge to verify the material and decide
whether to approve. For Tier A talents, the time could be reduced to five working days. Upon
approval, the Foreigner’s Work Permit in China shall be issued on site.
Document List for Foreigner’s Work Permit in China Application

Documents* Notes
• Must be the same passport as

Z-visa or R-visa, or other
used for the Notification Letter of
valid residence permit
Foreigner’s Work Permit in China
• Provide if not previously provided when
Employment contract or other proof of
applying for the Notification Letter of
employment (including dispatch letter)
• Provide if not previously provided when
Medical check document applying for the Notification Letter of
*Should fulfill the work permit part in the Application Form for Foreigner’s Work Permit in China. If the
original documents were not provided when applying for Notification Letter of Foreigner’s Work Permit
in China, applicants (except those in Tier A) must submit the original copies required at this step.
The Foreigner’s Work Permit in China is normally valid for one year. The validity period can be
raised to two years for Tier B talents and five years for Tier A talents. It may not, however, exceed
the validity of the employee’s passport, the term on the company’s business license, or the
registration certificate of the employer. The Foreigner’s Work Permit in China will also be subject
to annual review.

For foreigners switching companies or changing nationalities during the validity of his/her
Foreigner’s Work Permit in China, they should deregister their old permit first and then apply
for the new one without leaving China, as mentioned above. If only the personal information -
name, passport number, and position - is changed, the Foreigner’s Work Permit in China could
be simply amended instead of re-applied for.
When re-applying for the Foreigner’s Work Permit in China, the applicant will not be required
to submit the original paper document for verification again.
Pilot program of five year work permit in the Zhongguancun Science Park and the FTZs
In March 2017, China’s Ministry of Public Security extended a pilot program for foreigners
working in China, which states that foreigners who have been granted two consecutive
work permits can apply for a five year work permit on the third application.
In addition to this, foreign nationals who have worked in the same city or province for four
consecutive years, and meet other requirements regarding salary and income tax thresholds,
will be eligible to apply for a permanent residence permit.
The pilot program will be implemented in ‘demonstrative zones of innovative reform’ in the
Zhongguancun Science Park in Beijing and FTZs in Shanghai, Tianjin, Fujian, Guangdong,
Hebei, Liaoning, Zhejiang, Anhui, Henan, Hubei, Chongqing, Sichuan, and Shanxi.
Applying for Residence Permit

Employees who receive their Foreigner’s Work Permit in China are required to apply for the
Residence Permit from the exit-entry department of the local public security bureau within
30 days after their entry into China. Receipt of a residence permit signifies the completion of
the administrative procedures for hiring foreign employees, allowing the employee to travel
into and out of China as regularly as they require.
The application takes about five to 15 working days. In addition, the application procedures are
slightly different from city to city. For example, in Shanghai, the applicant is required to show
up in person to a government office to take a digital picture to confirm it is the same person as
the passport holder from the application.
The term of validity of the residence certificate is determined in accordance with the validity
of the Foreigner’s Work Permit in China, which is usually up to one year. In some cities, such
as Beijing and Shanghai, certain foreign employees can apply for five-year Residence Permit,
subject to higher qualifications.

Renewal of Foreigner’s Work Permit in China
Renewing the Foreigner’s Work Permit in China is not as difficult or time-consuming as making
the initial application. However, companies must be organized enough internally to know when
each foreign employee’s visa will expire. If the Foreigner’s Work Permit in China is not renewed
upon expiry, it will be deregistered automatically.
To renew the Foreigner’s Work Permit in China, the employing company should apply to the
SAFEA in charge 30 days prior to the expiry date, with the following documents submitted:
• Application form for renewal;

• Employment contract or other proof of employment;
• Visa or other valid residence permit; and
• Foreigner’s Work Permit in China.
The renewal process takes around five working days. It is recommend that visa applications and
renewals be coordinated by a reliable agent, unless your organization is already structured to
effectively manage the visa.

Deregistration of Foreigner’s Work Permit in
China
When the employment relationship between the employer and the foreign employee ends,
the employer is bounded to deregister the Foreigner’s Work Permit in China within 10 days of
termination. And when the employer company no longer exists, the foreigner can apply to the
local bureau in charge to deregister its Foreigner’s Work Permit in China by themselves.
Upon deregistration, the bureau in charge will issue a deregistration certificate to the foreigner,
which might be required when the foreigner applies the new Foreigner’s Work Permit in China
in the future.
With the deregistration of the Foreigner’s Work Permit in China, the Resident Permit shall be
deregistered as well, and the foreigner need apply to the entry-exit bureau for a temporary visa
that grants limited time of stay.
Document List for Deregistration of the Foreigner’s Work Permit in China

Documents Notes
• Filling in online and printing out, and

Application Form for Deregistration
then uploading to the system after
of Foreigner’s Work Permit in China
stamped with the company chop
• Signed by both parties unless the

employer company no longer exists
Documents that can prove the ending
• When the foreigner cannot be
of the employment relationship
reached, the employer need to provide
an explanatory not online

Administrative procedures
for hiring foreign employees
(≤90 days)
For foreigners working in China for no more than 90 days, there are two different set of procedures,
both of which are in effect for the moment.
The first one is stipulated in the Procedures for Foreigners Undertaking Short-term Work
Assignments in China (Trial Implementation), under which what kind of activities are considered
as short-term work and the specific visa requirements are strictly defined.
The second one is stipulated in the Guideline for Applying Foreigner’s Work Permit in China
(Trial Implementation), under which Foreigner’s Work Permit in China (≤90 days) can be applied
solely based on the number of days the foreigners plan to work in China.
For visits considered as short-term work in China, the administrative procedures should be as
follows:
Administrative procedures for short-term work

in China
According to Procedures for Foreigners Undertaking Short-term Work Assignments in China
(Trial Implementation), foreigners undertaking short-term work in China refers to foreigners
who enter and stay in China for not more than 90 days for stipulated activities.
The circular defined which activity shall be considered as short-term work in China and clarified
the corresponding visa requirements, as follows:
Considered as short-
Reason for coming to China Visa type
term work
• Sports training at a local sports organization (athletes and coaches).

• Tasks involving technology, research, management, or guidance at or with a local partner.
• Filming (including advertisements and documentaries). Yes Z-visa
• Fashion show (including car shows and photo shoots for advertising).
• Foreign-related commercial shows and performances.
• Additional categories stipulated by the Ministry of Human Resources and Social Security.
• Maintaining, installing, testing, disassembling, or providing guidance and training for the use
of machinery and equipment.
• Guiding, supervising, and inspecting a project that has won bidding in China.
• Dispatching personnel to work at branches, subsidiaries, or Representative Offices (ROs).
No M-visa
• Participating in sports events (athletes, coaches, doctors, assistants, and other related
personnel).
• Unpaid work or volunteer work in China that is paid for by a foreign institution.
• Performances approved by the Culture Department but not marked as ‘foreign related show No F-visa
or performance for commercial ends’.

• Step 1 - Applying for Employment License (or Approval Letter from the Cultural
Department for commercial shows) and Short-Term Work Certificate
Foreigners who are traveling to China for short-term work, other than engaging in commercial
shows, need to apply for an Employment License and Short-Term Work Certificate from the
provincial or authorized-municipal Human Resources and Social Security Bureau (HRSSB).
The following documents are required:
»» Photocopies of the domestic partner’s Registration Certificate and Organization Code;

»» A contract between the Chinese and foreign enterprise, e.g. a project contract;
»» Resume of the foreigner;
»» Valid passport;
»» Copies of relevant certifications (applicable to foreigners coming to China for technical
or professional work); and
»» Additional documents required by the approving authorities.
Foreigners coming to China for commercial shows need to apply for the Approval Letter
from the Cultural Department where the first show is held. The letter of approval is the
equivalent of an Employment License and will be marked as ‘Foreign Related For-Profit Show
or Performance for Commercial Ends’. For foreign performers who shall stay in China for less
than 90 days, the Cultural Department will issue the Short-Term Work Certificate. To be noted,
for commercial shows held at more than one location, there is no need to apply for separate
approval letters from each Cultural Department.
• Step 2 - Applying for invitation letter3
Companies who invite foreigners to China for short-term work other than commercial shows
should apply for an invitation letter from the local HRSSB or other authorized departments.
The show organizer should apply for the invitation letter from the provincial level Foreign
Affairs Department where the first show is held.
• Step 3 - Applying for Z-visa
With the Invitation Letter, Employment License (or Approval Letter from the Cultural
Department for commercial shows), and Short-Term Work Certificate, the foreigner can
apply for a Z-visa.
3. According to the revised “Administrative Regulations on the Employment of Foreigners in China”, official invitation
letter is no longer required for applying Z-visa, F-visa or R-visa.

For short-term work, the medical check-up and the Employment Permit are not required.
Foreigners working in China for less than 30 days are not required to apply for the Residence
Permit. Instead, their Short-Term Work Certificate and Z-visa will stipulate how many days they
are allowed to stay. For stays over 30 days, the foreigner needs to apply for a Residence Permit.
Administrative procedures for Foreigner’s Work

Permit in China (≤90 days)
The Guideline for Applying Foreigner’s Work Permit in China (Trial Implementation) did not
mention the concept of ‘short-term work’. Instead, the administrative procedures to hire foreigners
for no more than 90 days are simply based on the number days of foreigners plan to work in China.
Under the new guideline, foreigners who plan to work in China for less than 90 days need to
apply for the Foreigner’s Work Permit in China (≤90 days) or Invitation Letter for Foreign Experts
Coming to China.
The application procedure is quite similar to the application of Foreigner’s Work Permit in China
(>90 days). However, the documents to be submitted for the application and the whole process
are bit simplified.
The documents required for the application are as follows:
Document List for Foreigner’s Work Permit in China(≤90 days) or Invitation

Letter for Foreign Experts Coming to China Application
Documents* Notes
Application form for Foreigner’s Work

• Filled online, signed by the employee (copy or fax), and sealed by the company
Permit in China or Invitation Letter for
• The applicant must present a clean criminal record
Foreign Experts Coming to China
• Must include required information such as applicant’s name, nationality,
Job contract, project contract, cooperation work duration, job description, location, number of entries, etc.
agreement, or invitation explanation • Company must explain the expenses arrangement, make commitments for the
authenticity of the invitation, and guarantee the applicant’s expenses in China
Passport or other international travel

• The information page is required
documents
Certification or other relevant • Only required when applying for the Invitation Letter
proof for Tier A talents for Foreign Experts Coming to China
*All English documents should be translated to Chinese; pre-licensing or certificates for entering specific industries are also needed if applicable.

Generally, the employer can apply online on behalf of the foreign employee. Within five
working days, the SAFEA in charge will conduct a preliminary review online to decide whether
to accept the application. Upon acceptance, the SAFEA will verify the online application
within five working days, without requiring for any paper documents. Upon approval, the
Notification Letter of Foreigner’s Work Permit in China (≤90 days) will be issued online, while
the Invitation Letter for Foreign Experts Coming to China shall still be issued on-site. To be
noted, neither of them is renewable.
With the Notification Letter of Foreigner’s Work Permit in China (≤90 days) or the Invitation
Letter for Foreign Experts Coming to China, expats can apply for the Z-visa, R-visa, or F-visa
based on specific qualifications.
With a Z-visa, foreigners are not required to apply for the residence permit if their stay is less
than 30 days. Beyond 30 days, the residence permit is needed.
For expats who get the F-visa for holding the Invitation Letter for Foreign Experts Coming to
China, no residence permits are required during their stay.
Since both the circular and the guideline are in effect for the moment, it is hard to say
which procedures prevail. In practice, however, neither the short-term work certificate nor
the Notification Letter of Foreigner’s Work Permit in China (≤90 days) are popular, because
the procedures are not actually much more convenient than the general procedures, and
the duration of stay is not renewable.

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Human Resources Payroll in China 2019-20

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Human Resources and Payroll

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© 2019 Asia Briefing Ltd.

Human Resources and Payroll in China 2019-2020 (7th Edition) 2

Human Resources and Payroll in China 2019-2020 (7th Edition) 3

Human Resources and Payroll in China 2019-2020 (7th Edition) 4

• No at-will termination: Terminating employees in China is both difficult and expensive.

• Severance payments mandated by law: In practice, severance payments are even

Human Resources and Payroll in China 2019-2020 (7th Edition) 5

Human Resources and Payroll in China 2019-2020 (7th Edition) 6

Dezan Shira & Associates Offices

Human Resources and Payroll in China 2019-2020 (7th Edition) 7

The term of the labor contract 15

Mandatory clauses in labor contracts 18

Recommended clauses in labor contracts 18

Verify the labor contracts in the local labor bureau 21

Applicable scope of labor dispatch 23

‘Equal pay for equal work’ principle 25

Cross-region labor dispatch 25

Termination of labor contract 26

Mandatory benefits (social security) 31

Defining net salary 32

Work hour systems and overtime payments 33

Human Resources and Payroll in China 2019-2020 (7th Edition) 8

Foreigner and migrant worker involvement 42

Statutory vocations and payment calculation 46

Parental leaves and related benefits 52

Additional payroll costs 60

Summer heat allowance 60

Disabled worker assistance fund 61

Calculating and withholding individual income tax 62

IIT taxpayer and their liability 64

IIT taxable income and tax rates 68

IIT on lump-sum bonuses 80

Human Resources and Payroll in China 2019-2020 (7th Edition) 9

Payroll processing procedure 86

How to identify a reliable payroll processing agent 88

Part 3 | Terminating Employees 90

Immediate termination for inappropriate behavior of the 93

Termination at the end of a fixed-term contract 99

IIT implication on severance payment 103

Part 4 | Employing Foreign Workers 105

Human Resources and Payroll in China 2019-2020 (7th Edition) 10

Tiered talents classification system 111

Administrative procedures for hiring foreign 113

Applying for Foreigner’s Work Permit 118

Applying for Residence Permit 119

Renewal of Foreigner’s Work Permit 120

Deregistration of Foreigner’s Work Permit in China 121

Administrative procedures for hiring foreign 122

Human Resources and Payroll in China 2019-2020 (7th Edition) 11

Human Resources and Payroll in China 2019-2020 (7th Edition) 12

Human Resources and Payroll in China 2019-2020 (7th Edition) 13

Is your company a representative office (RO)?

Human Resources and Payroll in China 2019-2020 (7th Edition) 14

Labor contract in Chinese recommended

The term of the labor contract

• Fixed-term Labor Contract;

Human Resources and Payroll in China 2019-2020 (7th Edition) 15

The part-time worker has five characteristics:

Non-fixed term contract

Generally, there are four ways to obtain a non-fixed term contract:

Human Resources and Payroll in China 2019-2020 (7th Edition) 16