How to Calculate an Employee’s Payroll in China? (Part II)

October 5, 20192:01 pm
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Are you planning to run a business in China? Starting company in foreign country could be daunting, especially if you are not familiar with its customs and laws regarding employment. In this three-part article, you can learn how to calculate an employee’s payroll in China.

Part I can be read here.

Part II: Mandatory Benefits: Social Insurance & Housing Fund

Hiring an employee in China may generally increase 35-40 percent more than the employee’s monthly gross salary because of the mandatory benefits contribution.

  • What is the mandatory benefits in China?

Mandatory benefits shall be contributed by both employer and employees in China and it shall be consistent of the six social insurances and the one housing fund. The below chart helps you to understand the employee and employer’s portion of the mandatory benefits.

The Chinese mandatory benefit contribution is a very complex system. In China, each individual province and city has their own contribution policies and bases. As a foreign company operating in China, compliance to the PRC laws is extremely important. Foreign company should be very familiar with the policies of the place where your company has its presence and be very careful about the policy updates and changes.

So how is the mandatory benefits calculating every month? First, you must learn and understand the definitions of contribution base, contribution rate, and the calculation formula. Understanding these definitions is a vital part in paying for your employee’s mandatory benefits.

Read also: The Disadvantages of Payroll Outsourcing

  • What is the mandatory benefits Contribution Base?

When you hire a new employee, you must declare your employee’s mandatory benefits contribution base during the first month via the local government system. The contribution base will then be adjusted in each individual city for each year.

For new employees: 1st month’s salary will be their contribution base

For normal employees (2nd year of contribution): employee’s monthly average salary of the previous year will be their contribution base.

Both are limited by: Maximum and Minimum base

The maximum and minimum contribution bases differ from city to city, thus the base will be announced by the local government annually. Taking Shanghai 2019 Contribution Base as example:

Maximum contribution base: CNY 21,396

Minimum contribution base: CNY 4,279

  • What is the mandatory benefits Contribution Rate?

The contribution rate is also differs by city. Below is an example of the Shanghai contribution rate for both employer and employee in 2019.

Mandatory Social BenefitsBy EmployerBy Employee
Pension Insurance20%8%
Unemployment Insurance0.5%0.5%
Medical Insurance9.5%2%
Work-Injury Insurance0.2-1.9%
Maternity Insurance1%
Housing Fund7%7%
  • What is the mandatory benefits Calculation Formula?

Contribution Amount= Contribution Base x Contribution Rate

The following is the contribution amount for one employee’s basic gross salary of RMB 10,000 in Shanghai as an exmaple.

Mandatory Social BenefitsBy Employer (RMB)By Employee (RMB)
Pension Insurance2,000800
Unemployment Insurance5050
Medical Insurance950200
Work-Injury Insurance25.6
Maternity Insurance100
Housing Fund700700

Author Bio

Joy Shen is a Managing Director of HROne China. She is a strategic and business focused professional with extensive experience in multicultural environments. Joy has expertise in assisting foreign entities expanding their business in China market, with an extensive know-how in China market entry, foreign direct investment, employment relationship & practices, China payroll & benefits.

Connect with her on LinkedIn.