Business owners have many considerations when preparing a salary package for their employees. To note, payroll in China involves local tax variations that can often affect the structure of an employee’s salary package. Therefore, it is important to put things into perspective when drafting salary packages for employees.

Read our previous article on Things to Know about Payroll Service in China

How do employers view salary structures for their employees in China? What are the basic requirements required under Chinese law? Read more.

A business perspective for structuring employee’s salary package

As an employer, your main concern would be to be profitable but at the same time be able to have full compliance with all labor regulations and policies. An employment contract between a full-time employee and employer must be written, issued, and signed. This protects the employer from related penalties or punishment if it does not comply with the law or ensure its dues to employees.

In China, there are many different types of contracts depending on the employment, and various terms must be included per the law. Furthermore, an employee handbook is also essential due to its crucial role in resolving conflicts when employer-employee arguments arise.

Employee salary requirement from the government

China’s laws are stringent. Meaning, laws tend to be stricter, more precise, and on point in terms of technicality and wording. In terms of labor laws, China labor statutes seek to ensure the equal and fair treatment of employees. Since employment and payroll regulations vary from city to city in China, it is worthwhile to know the most basic and universal requirements the Chinese government asks of employers.

The government expects companies to take note of the following requirements for employment compensation:

  1. Wholly Foreign-Owned Enterprises (WFOE) and other limited companies may have employment agreements with Chinese nationals directly;
  2. Representative Offices, and other companies that are not limited, would need to acquire the services of third-party local entities;
  3. Any prospective employee in China is required to present proof of residence;
  4. Social insurance is required of employers for each employee;
  5. Permits and other documentation such as VISAs.

Salary package breakdown for employees

Employees have rights and entitlements ensured and rightfully given to them which at most would refer to their entire salary package. Thus, companies must be transparent with how salaries are broken down following Chinese law. Below are some components of the employee salary package in China:

Main components:

  1. Base salary – the monthly fixed rate to be given to employees including special deductions or additions.
  2. Net salary – the actual money employees receive after all additions and deductions have been considered.
  3. Taxes – these vary according to the working location (city or region) of the employee.
  4. Mandatory benefits and social insurance – social security and housing funds are different depending on the location of employment and the residency status of the employee. Social insurances on the other hand may take several forms, as required in China:
  • Pension/retirement insurance
  • Occupational/workplace insurance
  • Maternity insurance
  • Medical insurances
  • Unemployment insurance

Other components based on the employment contract:

  1. Overtime pay – China’s Labor Law provides specific and strict computations and implementation as to overtime. The most basic information is that overtime hours should not exceed three hours after the normal eight hours of duty, but cannot exceed 36 hours in a month.
  2. Allowances – like bonuses, these should be indicated in the employment contract, or at least in a board resolution issued by the board of directors. Allowances may include housing allowance, meal allowance, education allowance for children of expatriates, travel allowance, and laundry allowance.
  3. Leaves and Chinese Holidays – ten paid holidays are granted to employees annually (Chinese New Year, International Labor Day, Spring Festival, etc.). Employers may also grant five to fifteen days of annual leave, sometimes depending on the employee’s length of service. Leaves also include sick leaves, maternity leaves, funeral leaves, and marriage leaves.
  4. Bonuses – these are figures usually offered to employees for special holidays, performance incentives, and the like. The company typically has no obligation to grant employees such bonuses, but these must be clearly reflected in the employment contract.


It is never a small thing to compute for salaries. Different sides have varying concerns, and they do not always coincide. It is when these concerns clash and doubts as to the correctness of the salary package and employer practices arise. It is always best to have experts on such matters guide you through the process and periodically advises you on any changes to the law, correctness of payroll computations, and all other technicalities involved in giving out salaries.

Contact us

S.J. Grand’s tax and accountancy services extend to managing payroll for your employees and making sure that your company complies with tax and administrative obligations. Contact us to avail of our special services.

Moreover, our team of local and foreign experts utilizes Kwikdroid, a company management tool integrated with accounting software and tailored for any kind of business functions such as Human Resources Management. Visit our Kwikdroid page to request a demo and see the prices and packages we offer.


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