For both entrepreneurs and multinational companies, China has been either a mystery or obsession for several decades. This country was deeply misunderstood regarding labor force, product quality and human dignity, compared with International labor standards.
Nowadays, as the world gets to know more and more about China’s legal system, although in the meantime trade war may raise certain concern, this is actually the best timing for the world to learn about the true facts of manufacturing in China, and how should your company work with government and employees regarding payroll and employment
This is actually what really today this article would like to talk about and elaborate on, the employment and payroll in China. Through this article, we will talk about the employment and you can learn more about concise information regarding the challenges and advantages for you to move part of your operations to China.
Regulations regarding employment in China
In China, most principles follow some of the most widely used principles provided by the International Labor Organization, which include the right for each of all employees to be part of an organization or union, age restrictions( minimum 16 years old) and limitations, also the principle of equality in compensation.
There are some other national regulations which include guidance in maximum hour of work every week(44 hours), overtime limitations and costs, employee rights such as family, maternity and paternity leaves. In addition, several international conventions has been ratified and some domestic laws have been strengthened regarding these matter.
Though most guidelines have uniform and mandatory legal standards in all the country, compensation, severance and maternity leave etc. are not the same.
Please be aware that the standards for Guangzhou are not the same as Beijing, just to name two popular industrial sectors which have difference treatment in different province or city.
The wage system relies on following three aspects:
- Location: in every province, there are difference from wages to leaves
- Profession of industry: there is a different minimum wage for every profession in China and salaries are greatly influenced by the line of work and tasks
- Regulated professions:some professionals who require a license to practice are only allowed to work for domestic companies and those companies which the government owns equity, along with other requirements
These would greatly increase the possibilities of making mistakes when a company domiciled overseas trying to comply with salaries and compensation. Therefore, you are strongly suggested to get advisory within China or hire a company which can handle these matter for you entirely professionally.
In addition, through your research of these matters, you can make an informed decision regarding where to locate your business and calculate your costs and logistics in advance.
Note: A foreign company should only hire employees in the city where the branch office is located.
Wages and other costs
As wages are actually rather steady within China, almost all provinces have raised their minimum wages between 2015 and 2019 for all job classes. These changes are done both for full-time and part-time workers. In some provinces for example , Hunan, has a uniform minimum wage for all job classes.
In the meantime, overtime compensation and extra costs have more detailed principles which are identified as follows:
- During weekdays, overtime salary should arises to 1.5 times for every extra hour
- During weekends, overtime salary should arise to 2 times for every extra hour
- During holidays, overtime should be 3 times the payment for every extra hour
Following are mandatory as part of the workers’ rights regarding extra costs:
- medical and maternity fund
- unemployment and retirement insurance
- retirement pension fund payment
All mentioned above would varies on the location of the company.
Some of these costs would have a 100% increase in selected province while some of these do not exist or not charges, for example, Medical Treatment fund is not collected in Guangzhou
Being the biggest portion of these extra costs, retirement pension takes around 30% of the salary and this number varies from province to province.
When it comes to employment termination, it is critical to define the difference between just cause termination and unjustified termination. The general rule states that employer shall pay 1 month of salary for every year that the employee has been working in the company. The wage calculated in this way is the last salary that the employee had on the last 6 months of employment.
When a work-related injury happen, a settlement for worker’s compensation and medical expenses must be made.
Decision of your company structure in China
Just as what’s mentioned above, it could be quite costly, complicated and time consuming to start your bushiness in China although this should not be a major problem. Therefore, have a good understanding of the basics of company formation can help you form the proper structure in China.
This decision would also solve your payroll/employment mystery as you need to choose wisely when you register and gets approval by the Chinese government.
There are three types company structure can be created, which are quite different from each other and have different scopes and limitations .
For a Joint Venture, you need to have a team member who is a Chinese citizen to be your Chinese link or partner.
For a Wholly Foreign Owned Enterprise (WFOE or WOFE), which is the most versatile structure while not the most common one, it is rather complicated to establish.
For a Representative Office, it has quite a lot limitations regarding product selling, service provision and profit generation while it is comparatively easy to settle. Experts would say it doesn’t feel like have a real company in China by having a Representative Office.
As a matter of fact that not every company can deal with these complications and neither do they want to be fully liable in China, they would go to PEO’s (Professional Employer Organization) or EOR’s (Employee of Record) for their services.
These service providers can play the role as employers and being different from each other in the same time, they will not only provide advisory, but also take care of almost everything. This could includes payrolls, workers compensation, insurances, tax filing, and other related costs and the stress you can get from these tasks.
We can clearly come to the conclusion that deciding to move part of your production to China is no more than 10% of the actual company formation. However these legal setbacks would be way less important when the lower salaries, the better logistics, and the size of the market are existing as very attractive incentives.