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How to calculate the employees’ payroll in China

Calculating the employees’ payroll is the common problem of the entrepreneurs and staff for the FIE company in China. China is a large country with far lower wages and also is increasingly able to make almost any product or offer almost any service for all the developed countries. According to the China Ministry’s data, a total of 30.871 new Foreign-invested enterprises were founded in the first three quarters of 2019. More and more world top 500 well-known foreign enterprises set up the headquarters or branch in Shanghai. At the same time, many Foreign SME (small and medium-sized enterprises) entrepreneurs will invest in Shanghai because of policy support towards foreign-invested enterprises by Shanghai Government. This article will tell you how to calculate the employee’s payroll and the salary algorithm in China.

Start calculating payroll

What is the Five Social Insurances and Housing Fund

Generally, If the enterprise wants to hire Chinese employees, according to Chinese Labour laws and Labour Contract Law, it needs to pay Social Insurance and Housing Fund which is called “Five Insurances and One Fund”, including Pension (Endowment Insurance), Medical Insurance, Unemployment Insurance, Maternity Insurance, Work Injury Insurance and Housing Provident Fund (only applicable to Chinese employees). Besides “Five Insurances and One Fund”, the employee himself has obligation to submit personal income tax.

By the way, If your company is based in Shanghai, you can visit the official website of Shanghai Municipal Human Resources and Social Security Bureau to deeply understand the employees’ payroll rules.

Pension (Endowment Insurance)

To solve the problem that the laborers in retirement, China introduced a national pension system that requires employers and employees to contribute.

Both employees and employers are required to contribute to the pension system. Employees contribute based on their personal wages, at a rate of up to 8%, and employers contribute a percentage of around 20% of the total wages paid to their workers. There is a specific contribution rate that varies from region to region in China. In Shanghai, the Endowment Insurance rate reduced to 16%.

Medical Insurance

In 1998, the China State Council issued a regulation on establishing a basic medical care system for employees in urban areas.

Both employees and employers are required to make contributions to the basic medical insurance system. Employees contribute 2% of their individual wages, and employers usually contribute between 6% and 12% of the total wages. In Shanghai, employers have paid 9.5% into the system.

Unemployment Insurance

Unemployment Insurance is a system that is enforced by the China State Council in 1999. It is set up by employers, individual payment of employees, and national financial subsidies to raise funds. Providing assistance to the workers whose sources of livelihood are temporarily interrupted due to unemployment. In Shanghai, for example, the employer’s rate and the employees’ rate are the same rates of 0.5%.

Maternity Insurance

According to the Special Provisions on the Protection of Female Employees, in Shanghai, female workers are entitled to 128 days of maternity leave at a rate equal to at least the average wages. To protect women, employers usually contribute 1% of the basic wages.

Injury Insurance

Injury Insurance is an important part of social insurance. When the laborers from the third person other than the employer violations of an industrial accident, accidents at work responsibility will have the dual nature of the work-related injury insurance claims and tort damages competing situation.

According to the health and safety risks of specific industries and locations, employers contribute to rates of 0.26% of the total wages in Shanghai.

Notes: The standard rates of Social Insurances will be adjusted every year.

Housing Provident Fund

The Housing provident fund was first established in 1999. The system provided a lot of help for the development of China’s housing security system through personal housing fund loans, housing fund drawings, and supports for low-rent housing.

Employees can apply for preferential rate mortgages, cover housing repair and maintenance fees and housing rent subsidies. If employees didn’t use it, the fund can be returned after retirement by the employees. The rate of the Housing Provident Fund for the employers and employees is 7% in Shanghai.

The Employment Payroll Calculator in China

In China, all employees (both local and expatriate) are required to join the local social insurance scheme, based on the same percentage of contributions. In general, China adopts an individual income tax withholding system, whereby the employer deducts the relevant payment from the employees’ monthly salary and pays the local tax bureau on behalf of their employees (within 15 days after the end of the month).

This is the Automatic Wage Calculator in Shanghai.

Company employees’ payroll – Salary Chart

Basically, the employee’s base salary needs to be noted in the labor contract with careful consideration.

For example, Peter is an entrepreneur, came from France, and he successfully registered his own company in Shanghai. Ming is an employee of the company. How does Peter calculate Ming’s payroll per month?

We make an assumption that the pre-tax salary of Ming is RMB 6,000. Below is a Social Insurance and Housing Fund chart showing how to pay the salary to Ming.

China Insurance &Housing Charge

The employer monthly needs to pay RMB 1,725.6 social insurance and RMB 420 provident fund for Ming, the total amount is RMB 2,145.6.

Ming needs to pay RMB 630 social insurance and RMB 420 provident fund, RMB 1,050 in total. After payment, how much salary does he could get indeed for the month?

salary payroll in china

As can be seen from the chart, the net salary of MING each month is RMB 4,950.

Especially for the personal income tax, the employer is responsible for withholding the individual income tax of its employees at various rates on wages.

Now, you understand how to pay wages to Chinese employees. We sincerely hope you can develop the business successfully in China.

If you need a professional and responsible agency, please do not hesitate to contact us. 

GWBMA provides professional company registration service for foreigners. We provide a one-stop service for you to start a business in Shanghai.

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Fiona

Hi, I’m Fiona Hua, CIO certificate,  Expert of Management & Human Resource. About ten years work experience in Shanghai. Familiar with business management, HR outsourcing, and tax planning. BIS provides one-stop business service for enterprises like registering companies, finding office service, Accounting and Tax, HR outsourcing, VISA & working permit, Marketing and legal services.

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