How should a gross amount for a net bonus be calculated in China?
When offering a net bonus to an employee in China—meaning the employee receives a specific amount after tax—it’s important to calculate the corresponding gross amount to ensure that tax obligations are fully covered by the employer. In China, income tax is progressive and cumulative, meaning the tax rate applied can vary depending on how much the employee has earned throughout the year.
Recommended Gross-Up Estimate
To ensure the employee receives the intended net amount, it is recommended to increase the bonus by approximately 40% when calculating the gross amount.
For example:
If the employee is to receive RMB 10,000 net, you should enter approximately RMB 14,000 gross in the system. This buffer typically accounts for applicable income tax and social insurance deductions.
Why Gross-Up by 40%?
The 40% estimate is used because:
China’s tax system is progressive: higher income means higher tax rates.
Tax is calculated on a cumulative yearly basis: employees are taxed more heavily later in the year as total income increases.
Other sources of income (e.g. part-time work or freelance projects) may push employees into higher tax brackets.
Employers do not have access to all sources of employee income, so exact net-to-gross amounts cannot be guaranteed.
How to Implement the Bonus
Let the employee know that a special gross-up bonus will be provided to ensure the net amount is fully delivered.
Add the grossed-up amount directly to the payroll platform as non variable pay so it appears in the next pay run.
Any difference due to actual tax rates will be handled through the regular payroll process.
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