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How to: Recruit employees in China

Hiring employees in China

The employment of staff offers fundamental challenges that all foreign companies or Representative Offices entering China need to master. What rules and regulations apply to creating labor contracts? How do employees and employers pay social benefits and taxes? What differences exist between employing locals and foreigners?
Since Representative Offices or foreign companies that have no legal entity in China aren’t allowed to hire local staff directly, how can they employ staff? Can HR outsourcing help solve these issues?
These questions, and more, tax companies as they begin the hiring process.

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Apart from the usual employment requirements, such as signing contracts with employees, meeting salary standards, and paying salaries on schedule, employers in China must also:

⦁ File their staff employment and dismissal records with relevant government bureaus
⦁ Maintain an employee’s “personnel file” – a unique Chinese document that records all of the employee’s academic and employment history – which transfers from one employer to the next when the employee changes jobs
⦁ Withhold and pay individual income tax on behalf of their employees
⦁ Make monthly contributions to their employees’ social benefits and housing funds

Most of the above processes are complicated by the involvement of several government bureaus, which require tedious paperwork. Foreign companies starting operations in China, and unfamiliar with the system, may choose to rely on HR service providers or HR specialists to give them guidance.

The Employment Contract

Under the People’s Republic of China’s (PRC) Labor Law, all companies are required to sign employment contracts with their employees. While limited liability companies are allowed to sign employment contracts directly with local PRC staff, Representative Offices or foreign companies with no legal entity in China must engage licensed HR service providers in the administration of these contacts. While there is no standard contract form, the agreement should include:

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⦁ Term of contract & probation period
⦁ Job title and description
⦁ Labor protection and working conditions
⦁ Compensation
⦁ Termination conditions
⦁ Breach of contract provisions & disciplinary rules
⦁ Other provisions such as Training Bond, Non-disclosure agreement, and Non-compete agreement

Note that employers can choose to structure employment as “international secondment.” In the case of international secondment arrangements, employees can have their employment structured in a home country. A Chinese employment contact is not necessary in this case, although local HRs often practically do sign them.


Nature of Employment

Employees may be hired on a permanent or temporary basis. Temporary employment can be of fixed-term or task-based term. Permanent employment can be without a specified term. Also, if the term of employment contract is 3 months to 1 year, the probation period can be maximum of 1 month. If the term of employment contract is 1 year to 3 years, the probation can be maximum of 2 months. If the employment contract has no fixed term, the probation can be maximum of 6 months. If the employment contract is of a fixed term or less than 3 months, there is no probation period.

The Employee Personnel File & Employment Booklet

Every employee in China has a personnel file, as discussed above, as well as a proof of employment history. Unlike the personnel file, regulations on the proof of employment history vary across regions. In Shanghai, employers must maintain the employees’ employment booklet during the employment period. Foreign companies must engage a local labor agency to maintain these files.

Basics of Compensation

Compensation is typically divided into four elements: base pay, incentives/bonuses, allowances and benefits.

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⦁ Base Salary is paid monthly and varies from 12-14 months. A 13-months pay scheme is common in China, with the additional month’s pay issued during the Spring Festival month. Due to the shortage of managerial talent, competitive salaries are required to attract and retain good employees.

⦁ Incentive Pay, tied to individual performance, can be paid monthly, quarterly, or annually. The concept of performance-based variable pay is now welcomed by many companies and Chinese employees, especially within China’s first-tier cities – Shanghai, Beijing, and Guangzhou. Current incentives include: individual performance plans, team performance plans, cash profit sharing plans (payouts based on organizational profitability), comprehensive performance plans (awards based on the performance of the company, team and individuals), sales bonus plans, sales commissions, and special recognition awards.

⦁ Employee Allowances are a somewhat unique and very important form of compensation in China. Although foreign-invested companies are not obliged to provide them, cash allowances are often valued higher than salaries by employees and include transportation, meals, clothing, and childcare allowances.

⦁ Benefits fall into two categories: mandatory and supplemental. Mandatory benefits contributions by both employers and employees are stipulated by the China Labor Law and comprise a significant portion of the total compensation.

There are several different types of terms that can be included in contracts. Contracts may be set for a fixed term or an open-term agreement. An employee who has worked for a company for over 10 years is entitled to an open-term contract.

Individual Income Tax

Depending on their salary, all employees in China pay Individual Income Tax on their income. The employer is responsible for deducting the Individual Income Tax from the salaries every month and submit the tax deduction to the tax authority. This is only an employee contribution and applicable to both expat and Chinese employees.

Mandatory Benefits

Mandatory Benefits contributions are made by both employer and employee and applicable to both expat and Chinese employees. Mandatory Benefits contributions consist of 5 mandatory insurance schemes (pension fund, medical insurance, industrial injury insurance, unemployment insurance and maternity insurance) + a housing fund ( only applicable to Chinese employees).

The following explains the contributions in Shanghai , it varies from city to city:

⦁ Pension Insurance
Employer contribution: 21%, Employee contribution: 8%

⦁ Medical Insurance
Employer contribution: 11%, Employee contribution: 2%

⦁ Unemployment Insurance
Employer contribution: 1.5%, Employee contribution: 0.5%

⦁ Work-injury Insurance
Employer contribution: 0.5%, Employee contribution: Not required

⦁ Maternity Insurance
Employer contribution: 1%, Employee contribution: Not required

⦁ Housing Fund
Employer contribution: 7%, Employee contribution: 7% (Equal contribution by both)

Public Holidays in China

Currently, seven official public holidays are observed in China every year. The detailed holiday periods would be adjusted per year.

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⦁ New Year’s Day, 1 day off (January 1st)
⦁ Spring Festival, 3 days off (the 1st, 2nd, and 3rd day of the first month of the lunar calendar)
⦁ Tomb Sweeping Festival, 1 day off (the Tomb Sweeping Festival of the lunar calendar)
⦁ Labor Day, 1 day off (May 1st)
⦁ Dragon Boat Festival, 1 day off (the Dragon Boat Day of the lunar calendar)
⦁ Mid-Autumn Festival, 1 day off (the Mid-Autumn Day of the lunar calendar)
⦁ National Day, 3 days off (October 1st, 2nd and 3rd)

Additionally, Half Day leave for Women is granted on International Women’s Day on March 8th and Half Day leave for Youth (age 14 years to 28 years) is granted on Youth Day on May 4th

Paid Annual Leave for employees

⦁ The employee has more than 1 and less than 10 years of cumulative work experience: 5 days annual paid leave
⦁ The employee has more than 10 and less than 20 years of cumulative work experience: 10 days annual paid leave
⦁ The employee has more than 20 years of cumulative work experience: 15 days annual paid leave

The National Statutory Holidays and rest days shall not be included in the Annual leave.

Employment Termination

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Employers need to Pay severance (Severance payment = One month’s salary × Years of service) unless the Employee failed to satisfy the Conditions of the recruitment under the probation or seriously Violated Company Regulations or committed a Civil Crime and the Employer has Clear Evidence to prove the same. Else, the employer needs to give a 30-day advance notice to the employee and part ways with mutual consent. The employer may pay one month salary over and above the severance pay in case the employer does not want to serve a 30-day advance notice period. 


Maxxelli has years of experience with the employment of Chinese or foreign employees in China. Do you have any questions?  Feel free to contact us at

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