In the Chinese labor market, foreign-funded enterprises in the mainland will naturally encounter difficulties when implementing human resource strategies. This is especially true when defining their compensation practices. Although compliance with Chinese labor law may be a challenge, various issues such as balancing foreign and local salaries, determining benefits and allowances, or incorporating cultural differences into constructive management, have become obvious.
Gross Salary and Bonus
The total fixed salary must be specified in the labor contract and should be carefully considered when negotiating with new employees, it depends on the employee’s previous employment, including the position offered, the industry, company location, working experience, and whether the employee is a Chinese citizen or not.
The variable part of the salary is usually given based on whether the employee’s work qualities and attitude meets the employers’ satisfactory. Employers can decide to reward their employees with monthly, quarterly or yearly bonuses which also need to be stated in the labor contract.
The structure of the compensation plan must be specific to each role in the employment. For instance, some employees should be paid partly based on their work performance, while others require a fixed salary. Employers should seriously consider the amount of income tax that will be deducted from the gross salary. Employees also need to pay attention to how the increase of bonus structure will affect the taxes in the employment.
Generally speaking, if the employee is a foreigner, the salary must be high enough so that the employee can balance his/her living standard in his/her home country, also to meet the condition of their visa application. However, a Chinese employer is usually signed to the comprehensive plan, including a basic salary slightly higher than average in order to maximize the retention of employees. Employers can also provide the usual 13th month salary in China, as well as “red envelope” money or gift cards around the Lunar New Year.
Medical coverage for Chinese employees
In order to understand China’s statutory benefits, here is a quick summary of the difference between China’s social security and PICC commercial insurance.
- Chinese Social Security includes five types of insurance: basic endowment insurance, basic medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance.
- In terms of medical insurance, China Social Security does not include employee family members. If an employee is sick and needs to go to a hospital, the employee should use their social security card and go to certain approved hospitals allowed by social security cards. The previous social security (medical category) savings will be deducted if the balance is insufficient, you must pay the bill before applying for reimbursement.
- The commercial insurance becomes helpful. Employees can be reimbursed for up to 90% of clinical payments (up to a daily maximum amount of 550RMB), which rate is higher than most conditions under China’s Social Security policy, which renders between 65% and 90% reimbursement rate (differentiated by age and work status in the working location).
Individual Income Tax and Employer Contributions
Compliance with Chinese regulations is a key factor in establishing a long-term presence in the local area. Therefore, foreign employers need to understand the tax system surrounding the hiring of foreign or Chinese employees.
The following Chinese social security contributions are paid jointly by employees and employers:
- Social Insurance: Regulated by the Ministry of Human Resources and Social Security (MOHRSS). There are five categories: basic old-age insurance, basic medical insurance, work injury insurance, unemployment insurance and maternity insurance.
- Housing Fund: Housing Fund allows Chinese workers to save money
In most parts of China, income tax and Chinese social security payments are deducted from the employee’s salary package (total salary + allowance) every month. However, in Shanghai, foreign employees and their employers are not required to pay Chinese social security payments.
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