A Glance at PEO in China
Social Insurances
All employees are required to contribute to local social insurances and housing fund, and only a locally registered company is allowed to do that. Social insurances varies across all cities in China, and the contribution rates are adjusted at different times throughout the year. Our PEO will help you handle this seamlessly and effortlessly.
Income Tax
Employers will calculate and pay individual income tax on behalf of employees on a monthly basis. With the revision of China’s income tax law in 2018, employers are required to track all employees’ monthly income tax deductibles in order to ensure that the employees’ income taxes are paid accurately. We will take this hassle off your hands with our PEO service in China too.
Employee Benefits
Employee benefits are a major consideration for an employee to join your team. We ensure that all employees on our PEO program will have free access to supplementary medical insurances for themselves and their dependents at no additional costs to our clients. We will also track all annual leaves and process all claims without additional charges. We want all PEO employees to fully focus on their work, while we take care of them on your behalf.
Contractual Period
We understand that our clients have varying needs for their workforce in China, and we’re able to offer highly flexible contractual periods to meet their needs. Different contractual periods poses different risks level for the PEO in China, and we’ll ensure that our clients’ interests are fully protected with the most appropriate risk mitigation plans when hiring through our PEO program.
Laws & Contracts
Chinese labor law is based on contract, and offer letters or oral commitments are often legally insufficient to establish labor relationships, and employment relationships may even be reinstated after termination. Navigating the complexity of the Chinese labor law and Chinese labor contract law can be a daunting tasks, even for local companies. Our PEO service will shield the clients from all such complexities while they focus on their core businesses.
Facilities & Equipment
Renting an office space, purchasing equipment for office use or simply setting up an internet line requires a legal entity in China. The whole process of sourcing, purchasing, invoicing and payments can be challenging if a company is not properly registered in China. Our PEO clients often engage our sourcing and purchasing services to secure all necessary office spaces or facilities to allow their PEO employees to fully execute their job functions.
Employment Laws and Regulations
Employment ContractsProbationary PeriodsLeave PoliciesTermination of employmentSeverance PaymentsSocial Security Funds
Employment Contracts in China must be drafted in Chinese, follow local legislation, written in concise language clearly listing out the following:
- Basic information for the employer and the employee
- Term of the contract including probationary periods
- Job description
- Worksite and hours
- Breaks and vacations
- Salary
- Social insurance
- Labour protection and safety
- Other provisions (minimum wage, grounds for termination, calculation of statutory severance are all included by default in Chinese Law regardless of their presence in the written contract)
If the employee works for one month without a written employment contract, the employer will be required to pay the employee double the normal salary and execute a contract immediately.
If a contract is not executed within a year, the length of the working relationship becomes indefinite, and the employer would be required to retain the employee until the employee reaches retirement age.
The maximum length of probation period is determined by the duration of the employment contract.
- Contract period is 3 months or more, but less than 1 year:
- The maximum probation period is 1 month
- Contract period is 1 year or more, but less than 3 years:
- The maximum probation period is 2 months
- Contract period is 3 years or more:
- The maximum probation period is 6 months
Statutory Annual Leaves/Holiday policies
For statutory annual leaves, the amount of paid time-off is dependent on the employee’s years of service at the current company:
- Less than 1 year: not entitled to paid annual leave
- 1-10 years of employment: 5 days annually
- 10-20 years of employment: 10 days annually
- More than 20 years of employment: 15 days annually
- For unconsumed annual leave, wmployees will be compensated accordingly.
Working on designated rest days/holidays: Compensation by cash (x2 of wages) & rotate to another day of rest
Working on public holidays: Cannot rotate to another day of rest + Compensation by cash (x3 of wages)
Maternity/Paternity Leave
All women have 98 days of paid maternity leave. They have the option to begin this leave within 15 days prior to childbirth. Women over the age of 24 are generally provided with an additional 30 days for their “late maternity leave” depending on their city and province. Paternity leave days may vary across cities, but it’s usually kept under 14 days.
Pregnant female employees have the right to take medical leave as and when as needed, employees cannot be terminated for any reasons related to the pregnancy until the day the baby is 1 year old
China’s laws require significant evidence of the employee underperforming or behaving badly before they can be terminated. An employer must give 30 days’ notice to both the to-be-terminated employee and his/her union. Severance pay of a minimum of one month’s wages for every year of service is also required.
There are stringent limits placed upon whose employment can be terminated:
- An employee who has both been continuously employed with the company for at least 15 years and is within 5 years of retirement.
- An employee awaiting the diagnosis of a work-related injury or disease.
- An employee whose work abilities have been compromised by work-related injury or disease.
- An employee that is pregnant, on maternity leave, or nursing.
- An employee who is in the midst of a medical treatment period for non-work-related injury or disease.
- One cannot terminate the person for the same reason you attempted to terminate the person with.
However, during the probation period, an employee may terminate the employment contract if he/she gives the employer three days’ notice.
- If the employee has worked for fewer than 12 months, the average wages of the months worked is sufficient.
- Periods of work that are less than one year should be rounded to half of a year:
- 1-6months of work will be regarded as half of a year.
- 7-12 months of work will be regarded as an entire year.
- E.g. If the employee has worked for 2 years and 3 months, the employee’s minimum severance compensation will be 2.5 month’s salary. If the employee has worked for 2 years 8 months, the minimum severance is 3 months salary.
- The standard of economic compensation for termination of employment is the average wage of the worker for the twelve months before the termination or termination of the employment contract。
- The maximum number of years of statutory economic compensation shall not exceed twelve years。
In China, there is a Social Security System in place that consists of 5 insurance schemes and a housing fund which is only applicable to Chinese employees.
- Employers and employees must contribute, save for circumstances where the employee’s salary is beneath a certain amount
- Rate of contribution from employer and employee varies across cities
The 5 mandatory schemes are:
- Pension insurance – to be withdrawn after retirement
- Unemployment insurance – in case of redundancy, the employee can claim unemployment benefits for a maximum of 24 months
- Medical Insurance – subsidizes part of medical expenditure occurring from non-work injuries or illnesses
- Work-related injury insurance – up till 1 million for disability. There are different disability grades with different levels of coverage.
- Maternity insurance – cover female employee’s expense of childbirth and salary. This also applies to foreign employees who have contributed to the maternity insurance scheme. Foreign and Chinese employees not participating in maternity insurance will receive their full salary paid by the company.
China’s Statutory Holidays
| Public Holidays | Date (2024) |
|---|---|
| New Year’s Day | 1 Jan |
| Chinese New Year | 10-17 Feb |
| Qingming Festival | 4-6 Apr |
| Labour Day | 1-5 May |
| Dragon Boat Festival | 8-10 Jun |
| Mid-Autumn Festival | 15-17 Sept |
| National Day | 1-7 Oct |
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