Employer of record in China

Expanding your business overseas is a promising venture, especially if it's a land of opportunity like China, but it may come with a fair set of challenges. After all, compliance with Chinese labor laws and managing payroll in China can take time to work through.

Think of the time and effort spent dealing with unfamiliar regulations and managing cross-border payments. Errors can result in fines and disruptions, affecting your team and financial health.

In this blog post, we'll look into the benefits of using an employer of record (EOR) in China, explore the key considerations for selecting the best EOR service, and provide a step-by-step guide on leveraging this powerful solution to build and manage your workforce easily and confidently.

China at a glance

Currency:

Renminbi (RMB).

Official languages:

Mandarin, also known as Putonghua.

Employer taxes:

25%.

Public holidays:

7.

Key considerations for hiring in China

When expanding to China, companies face several unique challenges that make partnering with an employer of record in China essential for success:

Understanding Chinese cultural nuances

China's business culture operates on relationship-based principles that differ significantly from Western practices. With over 5,000 years of history influencing modern workplace dynamics, cultural missteps can cost companies talented employees and damage business relationships.

Key cultural elements like guanxi (relationship networks) and significance of face (reputation and dignity) directly impact hiring success, employee retention, and business growth. Chinese employees expect respect for hierarchy, indirect communication styles, and relationship-building through business meals and gift exchanges.

An employer of record in China brings deep cultural knowledge and local HR expertise to help your company build strong relationships with Chinese employees.

Your EOR partner guides you on appropriate communication styles, gift-giving customs, hierarchy respect, and regional business practices that are essential for success in the Chinese workplace.

The Hukou household registration system

China's Hukou creates a two-tier labor market that significantly impacts hiring strategies and employee costs. With over 280 million migrant workers affected by Hukou restrictions, this system links access to education, healthcare, and social benefits to a person's registered location rather than where they actually work.

Urban talent pools become limited due to the restricted mobility of rural workers, while employees without local Hukou often demand higher compensation to offset reduced benefits access. This creates complex challenges for employers trying to attract and retain talent across different Chinese cities.

An employer of record in China understands how the Hukou system affects recruitment strategies and compensation planning.

They help you create competitive packages that account for Hukou status, guide you on supporting employees with registration transfers when appropriate, and develop retention strategies that address the challenges faced by migrant workers in your target cities

China workforce

China represents one of the world's largest business opportunities, with a GDP exceeding $17 trillion and a workforce of over 780 million people. The country's rapid digital transformation and growing middle class make it an attractive market for international companies seeking expansion.

However, this massive talent pool comes with intense competition for skilled workers, especially in tech hubs like Beijing, Shanghai, and Shenzhen, where multinational companies compete with local giants like Alibaba and Tencent for top talent.

An employer of record in China helps international companies tap into this massive market without the complexity and cost of establishing a local legal entity. Your EOR provides market insights on competitive salaries, helps you position your company attractively to Chinese talent, and gives you immediate access to local recruitment networks.

EOR vs. legal entity in China

Employer of record in China

An employer of record is a service provider that acts as an employer for payroll, benefits, compliance with employment laws and regulations, and employee data privacy.

EOR services in China can help foreign companies expand their workforce without establishing a legal entity there. The EOR manages payroll data protection, tax withholding, social insurance contributions, and other HR-related tasks on your behalf.

Pros

• You can enter the market quickly (2-4 weeks vs. 3-6 months).
• There is a reduced administrative burden.
• You get full compliance management.
• There are lower upfront costs.
• You have the flexibility to scale up or down.

Cons

• There is limited control over HR policies.
• There is potential cost inefficiency for large teams (50+ employees).
• There are ongoing service fees.

Legal entity

A legal entity, such as a wholly foreign-owned enterprise (WFOE) or a joint venture (JV), is a formal business structure registered in China. Establishing a legal entity allows a foreign company to have complete control and ownership of its operations in the country.

As a legal entity, the company can directly hire employees, enter into contracts, and conduct business activities in compliance with Chinese laws and regulations. However, setting up a legal entity involves more complex legal, tax, and regulatory requirements than using an EOR.

Pros

• You have full control.
• There is local market credibility.

Cons

• Establishing a legal entity is a complex process.
• There are high compliance costs.
• There is limited flexibility in business structure.
• There is potential for increased administrative burden.

» Discover which is best: EOR vs PEO

Work permits

China has strict requirements for foreign workers, with different permit categories based on skills and experience. The Ministry of Human Resources and Social Security (MOHRSS) and the State Administration of Foreign Experts Affairs (SAFEA) regulate work permits in China.

Here are the different types of work permits you'll encounter:

• Class A: high-level experts: This permit is for award winners, established entrepreneurs, Youth Talent Project participants, those identified in China's talent plan, and those taking scarce, government-encouraged jobs.
• Class B: professionals: This permit is only for holders of bachelor's degrees with at least two years of working experience, a master's degree from a mainland China university, or a master's degree from a top 100 global university. Foreign-language teachers need a bachelor's degree, two years of work experience, and native language proficiency.
• Class C: lower-skilled workers: This is for those entering China for seasonal employment, internships under a government agreement, or as domestic helpers of Class A employees.

Application process

• Applications must be made in person in China.
• Employers submit the work permit application to the MOHRSS for the foreign worker.
• The application should include necessary documents such as a job offer letter, educational qualifications, and proof of experience.
• Once the MOHRSS approves it, it's forwarded to the SAFEA for final approval and issuance.
• Processing typically takes 15-30 working days.
• Costs range from $200-800 USD, depending on nationality and permit type.

With an employer of record in China, you don't need to handle the complex work permit application process yourself. Your EOR manages all documentation, applications, and follow-up with government authorities, ensuring your employees get proper work authorization quickly and compliantly.

EOR payroll and taxes in China

Payroll cycle: Monthly

13th salary: Mandatory

Social insurance contributions (mandatory)

Employers and employees must contribute to five insurance schemes:

1. Pension insurance: Supports retirement income.
2. Medical insurance: Covers healthcare expenses.
3. Unemployment insurance: Provides support during unemployment.
4. Work injury insurance: Covers workplace accidents.
5. Maternity insurance: Financial support for maternity leave.

Housing fund contributions are also mandatory in most cities.

Tax compliance requirements:

1. Monthly payroll tax filings.
2. Quarterly social insurance reporting.
3. Annual individual income tax reconciliation.
4. VAT registration is required if annual turnover exceeds 100,000 RMB.

Minimum wage

The minimum wage in China varies by region and is adjusted periodically. Shanghai's monthly minimum wage, RMB 2,690/US$370 per month, is the highest among 31 provinces, while Beijing's hourly minimum wage is RMB 26.4/US$3.7 per hour.

An EOR in China handles all payroll processing, tax calculations, and regulatory filings, ensuring your employees are paid correctly and on time while maintaining full compliance with Chinese tax authorities.

EOR employee contracts

Employment contracts in China must include:

• The employer's and employee's personal information.
• The employee's job title and responsibilities.
• The regular working hours, rest days, and any overtime arrangements.
• Salary and benefits.
• If applicable, the duration and terms of the probation period.
• The terms of employment.
• The conditions under which either party can terminate the employment.
• Clauses regarding the confidentiality of company information.
• Restrictions on the employee's ability to work for competitors.
• A clause stating that both parties will comply with all relevant laws and regulations.

Mandatory employee benefits

Chinese employees are entitled to several mandatory benefits under Chinese labor law. These benefits include:

• Social insurance contributions.
• Paid leave entitlements.
• Housing fund contributions.
• Public holidays with overtime pay.
• Minimum wage protection.
• Health and Safety workplace standards.
• Severance pay, when applicable.

You will need to familiarize yourself with these mandatory benefits and ensure compliance with Chinese labor laws and regulations.

An employer of record in China ensures all employment contracts meet local legal requirements and that your employees receive all mandatory benefits, protecting your company from labor disputes and penalties.

Working hours and overtime regulations

China has specific regulations governing working hours and overtime that all employers must follow:

Standard working hours:

1. 40 hours per week, typically Monday to Friday.
2. Maximum 8 hours per day.
3. At least one full rest day per week.
4. Standard hours: 9:00 AM to 6:00 PM with a lunch break.

Overtime regulations:

1. Maximum 3 hours of overtime per day.
2. Maximum 36 hours of overtime per month.

Overtime compensation rates:

1. 150% of the regular wage for weekday overtime.
2. 200% for weekend work (if no compensatory leave given).
3. 300% for work on statutory holidays.

An employer of record in China ensures full compliance with working time regulations, properly calculates overtime payments, and maintains accurate records to protect your company from labor disputes.

Annual leave and public holidays

Paid annual leave entitlements:

1. 5 days for employees with 1-10 years of service.
2. 10 days for employees with 10-20 years of service.
3. 15 days for employees with 20+ years of service.

Sick leave and parental leave:

1. Sick leave: 3-24 months, depending on tenure, 60-100% salary.
2. Maternity leave: 18 weeks of paid leave for mothers.
3. Paternity leave: Varies by province, typically 7-30 days.

Workplace culture and business practices

Understanding Chinese workplace culture is essential for successful employee relationships:

Chinese workplace culture emphasizes hierarchy, relationship-building, and respect for tradition. Organizations maintain clear structures with formal communication styles and multiple approval levels for decisions. The concept of guanxi (relationship networks) is essential, with employees preferring indirect communication and face-saving approaches.

Business customs include punctuality, proper business card exchange, gift-giving protocols, and relationship-building through business meals. While remote work is becoming common, all arrangements require written agreements and team collaboration remains highly valued.

Your employer of record in China provides cultural training and guidance to help your managers work effectively with Chinese employees and build strong, productive teams.

Non-disclosure agreements (NDAs)

Non-disclosure agreements

NDAs focus on protecting confidential information and trade secrets by establishing a legally binding agreement between parties to keep certain information confidential and restrict its disclosure to third parties.

Typically, two parties use them: a company and an employee, two businesses, or a client and a service provider. NDAs are essential for maintaining confidentiality and preventing the unauthorized disclosure or use of sensitive information.

Non-competition agreements (NCAs)

NCAs, on the other hand, go beyond the protection of confidential information and include provisions related to non-competition. They restrict employees from engaging in certain competitive activities, such as working for a competitor or starting a competing business, for a specified period after leaving their current employment.

Companies design NCAs to protect their business interests and prevent employees from using confidential information to compete unfairly.

Using an EOR to onboard new employees in China

Before the first day:

• The EOR will handle all the legal and regulatory requirements for hiring in China, ensuring compliance with local labor laws and regulations.
• They will manage the recruitment process, including background checks, document verification, and visa/work permit processing.
• The EOR will set up global payroll, benefits, and other HR-related systems specific to the new employee's location in China.

The first day:

• The new employee will receive a comprehensive onboarding and training program that covers company policies, procedures, and cultural norms.
• The EOR will introduce the new employee to the workforce management OS and any relevant HR systems they will use.
• The employee will be officially added to the company's HR records and systems, with the EOR acting as the legal employer on record.

The first week:

• The new employee will continue to receive training and support from the EOR, ensuring a smooth transition into their role.
• They will have access to the workforce management OS and HR systems, allowing them to familiarize themselves with the tools and processes.
• The EOR will facilitate HR-related tasks, such as setting up benefits, leave policies, and payroll deductions.

Beyond the first week:

• The EOR will continue to provide ongoing HR support and management, handling any issues or changes related to the employee's status, benefits, or compensation.
• The workforce management OS will be used to track the employees' attendance, performance, and other relevant data.
• The HR integration system will ensure seamless communication and data sharing between the foreign company and the EOR, facilitating efficient workforce management.

» Stay compliant, avoid employee misclassification in China

How EORs protect companies' IP in China

To protect their intellectual property (IP) when employing people in China from abroad, companies can take several measures:

• Require employees to sign NDAs that specify the confidentiality of the company's IP and outline the consequences of unauthorized disclosure.
• Include clauses in employment contracts that address IP ownership and confidentiality obligations.
• Train employees on the importance of IP protection and best practices for safeguarding confidential information.
• Limit access to sensitive information to only those employees who need it for their job responsibilities.
• Regularly monitor and audit access to sensitive information to detect and prevent unauthorized access or use.
• Use secure technology solutions, such as encryption and access controls, to protect digital IP.
• Implement physical security measures to protect physical IP, such as prototypes or documents.
• Be prepared to take legal action against employees or third parties who violate IP rights.
• Work with legal professionals familiar with Chinese IP laws to ensure compliance and enforce IP rights when necessary.
• Understand and respect Chinese cultural norms and business practices to build trust and reduce the risk of IP theft.

How EORs comply with local labor laws in China

Foreign companies can comply with labor laws in China and avoid potential legal issues by following these country-specific considerations:

• Familiarize yourself with Chinese labor laws and regulations, which can vary by region and are subject to change.
• Ensure all employees have written employment contracts that comply with Chinese labor laws.
• Obtain the necessary work permits and visas for foreign employees working in China. Ensure compliance with immigration laws and regulations.
• Adhere to the minimum wage requirements set by local governments. Minimum wage rates vary by region and are adjusted periodically.
• Follow the standard working hours and overtime regulations. In China, the standard working hours are 8 hours per day and 40 hours per week.
• Enroll employees in mandatory social insurance programs, including pension, medical, unemployment, work-related injury, and maternity insurance.
• Provide a safe working environment and comply with health and safety regulations.
• Comply with the statutory maternity and paternity leave requirements.
• Follow the legal procedures for terminating employees, including providing notice and severance pay where required.
• Be aware of the role of trade unions in China and ensure compliance with regulations related to union activities.
• Maintain accurate records of employee working hours, wages, social insurance contributions, and other relevant information as required by law.

Your EOR in China maintains relationships with local labor bureaus and government agencies to ensure your company stays ahead of regulatory changes and avoids costly compliance violations.

Offboarding employees in China

Terminating employees in China can be complex, and foreign companies must comply with local legal considerations. Here are the key steps to ensure compliance:

• Ensure that the termination is for a valid reason allowed under Chinese labor laws, such as poor performance, serious misconduct, or redundancy.
• Provide the required notice period specified in the employment contract or under Chinese labor laws.
• Calculate and provide severance pay as required by Chinese labor laws. The severance pay amount depends on the service length and reason for termination.
• Seek advice from legal counsel experienced in Chinese labor laws to ensure compliance with local regulations.
• Document the reasons for termination, the steps taken to address any issues, and the termination process. This documentation may be required in case of legal disputes.
• Conduct exit interviews to gather feedback from departing employees and address any concerns they may have.
• Notify the local labor bureau of the termination, as Chinese labor laws require.
• If the terminated employee is a foreign national, ensure their residence permit and work visa are canceled following Chinese immigration laws.
• Ensure that all final payments, including wages, bonuses, and any outstanding benefits, are made to the terminated employee on time.

Your EOR handles all termination procedures professionally and compliantly, reducing legal risks and maintaining positive employer branding.

» Let Papaya be your international payroll solution

Use an EOR to hire employees in China today

Hiring employees in China can be challenging, requiring understanding of the country's complex labor laws and regulations. Careful planning and specialized knowledge are essential to ensure compliance and avoid legal repercussions, financial penalties, and reputational damage.

Papaya's expertise and deep understanding of China's legal landscape and cultural nuances help simplify your company's payroll, recruitment, and compliance procedures. Papaya's technology enables the management of all EOR workers from a single platform, ensuring complete visibility of your entire workforce.

Partnering with Papaya's employer of record service in China will empower you to confidently work through the challenges of entering the dynamic Chinese market with payroll risk management and ensure a smooth, successful transition.

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