What are the statutory compensations in China?

INTRO

This article mainly covers various payroll and salary-related regulations and policies in China, including currency for payroll, minimum wage, tax, allowances, and annual salary review.

Currency

Q: What is statutory Payroll Currency in China? Can we agree the Remuneration with employee or contractor in USD/EUR for the employment in China?

A: No, you cannot. When processing payroll for your EOR Employee or EOA Contractor in China, payment to the individual needs to be made in the country's official currency, the Chinese yuan, aka The Renminbi (Chinese: 人民币; pinyin: Rénmínbì; lit. 'People's Currency'; symbol: ¥; ISO code: CNY; abbreviation: RMB) is the official currency of the People's Republic of China.

It’s illegal to agree the Salary Rate/Contractor Fee denominated in USD on Employment or labor Contractor service agreement.

In Mainland China, the contractual rates must be denominated and settled in CNY, according to China Foreign Exchange Control Act.

References

→ Foreign Exchange Control Regulations of the People's Republic of China

Article 7 Within the territory of the People's Republic of China, the circulation of foreign currencies is prohibited and no settlement shall be made in foreign currencies.

13th Pay

Q:Is 13th Month's Pay statutory in China?

A thirteenth salary, or end-of-year bonus is not considered a legally mandated form of compensation in China. However, many employers do offer this type of payment as an incentive to reward high-performing employees during the previous year. If you would like to provide such an incentive to your team members, please classify it as "non-recurring Pay".→ Where can I input non-recurring income for employees?

And you probably would like to understand Tax Benefit Policy for Annual One-Off Bonus

Tax-free Allowance

Q:Any Allowance we shall entitle to the employee which will be taxes exempted for the individual?

Perhaps unlike many other East Asian countries, in China, every resident is obligated to declare the amount of personal income tax exemptions applicable to their individual and familial circumstances. All taxable income will be reported by the withholding agent or employer, and the PRC tax authorities will calculate their current and cumulative personal income tax liability based on the declared number of exemptions. In case an employee fails to file for tax exemptions, they still have the opportunity to rectify it during the annual tax return period. → How are payroll taxes(Individual Income Taxes) handled for employment in China

Net Deal

Q; Is it possible to agree "Net Deal" with any individuals in any pattern of workforce engagement? Or is it possible for Horizons to predicting the income taxes burden.

A: From the compliance and regulated procedure of taxes burden, as the withholding agent, hiring entity is not allowed to agree "Net Deal" with individual in China or predict the income taxes burden for employee → How are payroll taxes(Individual Income Taxes) handled for employment in China

Minimum Wage

Q: What is the minimum Wage policy in China?

A: According to the Chinese Labor Law and relevant regulations of the State Council, this regulation is formulated. Different administrative regions within provinces, autonomous regions, and municipalities directly under the central government may have different minimum wage standards, which are announced around January each year. In 2024, The Ministry of Human Resources and Social Security has released the minimum wage standards for all provinces, autonomous regions, and municipalities directly under the central government in China (as of January 1st, 2024). According to monthly minimum wage standards, Shanghai ranks highest at 2,690 yuan nationwide.

Annual Increment

Q: Is it mandatory to do annual Salary review or any statutory increment in China?

A: In China, there is no specific legal requirement mandating companies to conduct annual salary reviews or provide statutory increments unless the employee's income is lower than the statutory minimum announced . However, it is also common practice for many organizations to review employee salaries on an annual basis as a means of ensuring fair compensation and retaining talent.

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