In your pursuit of setting up an offshore company in China, comprehending the country’s intricate employment laws is essential. Here, we’ll guide you through the critical facets of employment contracts, probation, working hours, minimum wage, and employer obligations.
Types of Employment Contracts
China mandates written contracts for employment, and failure to provide one within 30 days results in penalties for employers. There are three primary contract types:
- Fixed-term Labor Contracts: Standard employment agreements for a set period.
- Open-ended/Indefinite Labor Contracts: Without a termination date, they require a mutual agreement for closure.
- Project-based Contracts: Linked to a specific project, they conclude upon project delivery.
Each contract should meet statutory benefits and leave requirements, including maternity leave, holidays, vacation time, health coverage, sick leave, workers’ compensation, and pensions.
Probation
Probationary periods can be incorporated into full-time contracts exceeding three months. Employees during probation must receive at least 80% of their agreed wages, with varying periods based on the contract duration.
- For contracts under a year: Up to one month of probation.
- For contracts of one to three years: A maximum of two months.
- For contracts exceeding three years or open-term contracts: Up to six months.
Working hours
China’s Labor Contract Law restricts employees to eight hours per day and an average of 40 hours per week. Employers can extend work hours upon consultation with trade unions but are limited to one hour of overtime daily. In exceptional cases, employers can request over one hour of overtime, but it should not exceed three hours daily or 36 hours monthly.
Minimum wage
Minimum wage in China varies across regions and is determined by factors like average wage levels, cost of living, and economic development. It includes hourly and monthly rates for part-time and full-time workers, respectively.
Obligations for companies when hiring in China
Withholding and paying individual income tax
Incorporating an offshore company in China provides a strategic avenue for global business expansion. Understanding the tax landscape is essential. Individual Income Tax (IIT) in China follows a progressive rate, starting at 3% for taxable incomes under RMB 36,000 (approx. US$5,200) and reaching 45% for incomes exceeding RMB 960,000 (approx. US$138,500) for resident taxpayers.
Companies need to diligently manage IIT for employees. This involves calculating and withholding IIT on various components of an employee’s compensation package, such as base salary, allowances, bonuses, and more. Employers are obligated to file IIT for their employees on a monthly basis, ensuring compliance and accurate taxation.
Tax payment & deadline
Employers must promptly file IIT within the initial 15 days of the subsequent month following tax withholding. This filing can be completed via the online IIT system or by submitting a Filing Form for Individual Income Tax Withholding to the relevant Tax Bureau.
Additionally, for the first payment made to a taxpayer, employers need to provide essential details using an Individual Income Tax Basic Information Sheet (Form A). This form includes vital information like the taxpayer’s tax ID and must be submitted to tax authorities during the subsequent month’s tax filing.
Social insurance
When considering offshore expansion, understanding the facets of China’s social security system is crucial. It encompasses six vital insurance aspects: Pension, Unemployment, Medical, Work-related injury, Maternity, and Housing fund. Navigating this system necessitates a precise calculation and withholding of contributions from both employers and employees. Although both sides are obligated to make contributions, it is generally the employer’s responsibility to correctly calculate and withhold the payments for both parties.
Employment paid leave
Statutory employee leave
In the realm of doing an offshore company in China, comprehending employee statutory leave is indispensable. The duration of statutory annual leave for employees in China is contingent upon their tenure within the company. Here’s a succinct breakdown:
| WORKING YEARS | STATUTORY ANNUAL LEAVE |
| More than 1 year but less than 10 | 5 days |
| 10-20 years | 10 days |
| More than 20 years | 15 days |
Maternity leave
Maternity and paternity leave entitlements serve as pivotal considerations when planning to incorporate an offshore company in China.
Maternity Leave: Female employees are entitled to 98 days of maternity leave. However, it’s essential to note that local regulations wield influence over the actual duration. For instance, in select provinces, maternity leave can extend up to 190 days.
Paternity Leave: Similar to maternity leave, paternity leave varies by region and is influenced by local regulations.
Sick leave
Sick leave in China entails financial implications for both local and foreign employees. The stipulated percentage ratios are as follows (local policies may vary):
| SICK LEAVE IS LESS THAN SIX MONTHS | |
| Working period | Percentage of salary |
| Less than two years | 60% |
| Between two and four years | 70% |
| Between four and six years | 80% |
| Between six and eight years | 90% |
| More than eight years | 100% |
| SICK LEAVE IS MORE THAN SIX MONTHS | |
| Working period | Percentage of salary |
| Less than one year | 40% |
| Between two and three years | 50% |
| More than three years | 60% |
In navigating the intricacies of setting up an offshore company in China, a comprehensive understanding of employment laws is crucial. At Iris International, we offer expertise in offshore company registration, incorporation, and formation in China. Our services encompass offshore incorporation services and offshore business setup, ensuring compliance with China’s employment regulations. Reach out and book a meeting with our consultants for a seamless transition into the Chinese business landscape. Let us guide you through every step to establish a successful offshore venture in China.
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