Country Playbook

Region: Asia-Pac

Country: China

August 2015

Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

Region –Asia-Pac

Country–China

  1. Country Currency/Abbreviation

Chinese Yuan – CNY;Renminbi - RMB

  1. Tax Year Designation

Calendar – Year Start 1/1; Year End 12/31

  1. Minimum Pay Frequency

Monthly

  1. National Minimum Wage

Set locally - Ranges from RMB 830 per month, 7.50 per hour to RMB 1820 per month, RMB 17 per hour

  1. Workday/Workweek

Standard Work Hour System - 8 hours is considered a workday with a maximum of 40 hours per week.

  1. Overtime Considerations

1. Overtime on normal working days = 150% of regular pay;

2. Overtime on rest days (generally Saturday and Sunday) = 200% of regular pay or time off in lieu;

3. Overtime worked on public holidays = 300% of regular pay;

4. Overtime may not exceed three hours per day and 36 hours per month. In practice, only the 36 hour limit is regularly enforced.

  1. Employment Contracts *

Employment contracts are required in China, but only for full time workers.

  1. Social Security Program *

Chinese employers must make contributions equal to 37% of wages paid. Employees must contribute 11% of their wages to the social security program.

  1. Income Tax Withholding *

China requires employers to withhold taxes from employees.

  1. Unemployment Taxes *

Employers are required to contribute to an unemployment insurance fund.

  1. Termination Notes *

Chinese law requires employers to follow specific guidelines regarding termination of employees. The set of guidelines are set forth in China’s labor contract law. These employee protections are not provided to part-time employees who can be terminated without cause.

  1. Other Special Payroll Considerations *

Delaying or withholding large wage payments to an employee according to the mandated monthly remittance schedule could result in criminal charges.

  1. Summary Analysis/Recommendation

Country Labor Climate:

It is very difficult to meet the requirements for classifying an individual as an independent contractor in China. In order to qualify as an independent contractor in China, the individual must be registered as a corporate entity.

Employment Status Recommendation:

The initial decision on independent contractor status should start with verifying if the individual is registered as a corporate entity within China. If the individual is registered as a corporate entity, then the decision tree should be used; combined with circumstances of either very strong or strong evidence of independent contractor status the individual could likely be considered an independent contractor.

Independent Contractor Payments:

It is very difficult to meet the requirements that would allow an organization to determine that a labor relationship in China is with an independent contractor. For this reason there is high risk in making payments to independent contractors through accounts payable despite the classification decision.

Recommendation:

  1. Due to the limited scope of legally defined independent contractor status and the relatively intensive regulatory requirements associated with the payroll function, it is considered high risk to pay contractors in China through accounts payable.
  2. The recommendation is to seek a 3rd party vendor to administer this program.

Employee Payments:

When making the determination of risk and cost of establishing an internal payroll program, numerous factors must be taken into consideration. Within this document, sections denoted with an asterisk “*” are some of the basic components of that analysis.

Once an individual is identified as an employee, there are many requirements inherited by the employer. Those requirements range from social benefit programs to employer related taxes directly attributed to headcount. Factors such as risk of being out of compliance, the capital cost associated with being in compliance, and additional administrative costs to establish and maintain the programs associated with the requirements are key components of determining the best solution for paying employees.

Recommendation:

  1. Due to the extensive requirements related to payroll processing in China, the recommendation is to seek a 3rd party vendor to administer this program.
  2. If possible, the best solution is to contract with an in country staffing entity that will hire employees and own employer-employee requirements for a negotiated fee.