Payroll in China: A Comprehensive Guide for 2026

Introduction

Payroll in China requires withholding Individual Income Tax (IIT) on a progressive scale, remitting contributions, and meeting minimum wage rates that vary across 31 provincial systems. Foreign companies cannot run payroll in China without a registered entity or a licensed Employer of Record (EOR).

An employer in Beijing uses a different contribution base than one in a lower-tier city, and a missed annual reset triggers 0.05% daily late fees. Companies that attempt payroll without a registered entity or EOR face administrative fines and potential criminal liability.

In this guide, we cover salaries and minimum wages, working hours and overtime, leave entitlements, payroll taxes including IIT and the Five Insurances, and how foreign companies can manage China payroll without setting up a local entity.

What does the payroll process in China involve?

If you’re running a startup or SME, you likely haven’t encountered international payroll processes yet. While many components of the payroll process are similar no matter which country you’re operating in, China does have some unique and complex aspects.

When processing payroll in China, you need to keep the following in mind:

• Compensation: Gross pay, net pay, plus any employee benefits you’re offering workers in China.
• Taxes and deductions: Mandatory contributions to China's Five Insurances and One Housing Fund, covering pension, medical insurance, unemployment insurance, work injury insurance, maternity insurance, and the housing provident fund, administered by the Ministry of Human Resources and Social Security (MOHRSS) and Local Social Security Bureaus.
• Payroll cycles: When in the month you’ll pay your workers and how frequently.
• Working hours: New regulations have recently changed the Chinese work culture for the better, which we’ll go on to explain.
• Holidays: Paid time off and public holidays.
• Leave: Maternity leave and sick leave, for example.

As with many other countries, the laws surrounding payroll in China are woven through multiple pieces of legislation. Hong Kong and Macau are Special Administrative Regions with their own distinct legal systems. Mainland China's payroll and employment laws do not apply in either territory.

What do you need to know about payroll in China?

China offers a huge range of talent at a comparably lower cost than other global regions. Because of this, the country has long been a popular choice for foreign businesses.

Salaries and wages in China

Employees and contractors in China will expect to be paid in Yuan Renminbi/CNY/¥.

There is no state-mandated minimum wage in China. However, regional governments in China are required to update their minimum wages at least once every two years. Regional minimum wages change frequently. Businesses should verify the current minimum wage for the specific province and city where their employees are based before making any offers.

The minimum wage can also vary within provinces. While the province is responsible for setting the minimum wage, there isn’t a set wage across the entire province. Each is broken down into districts of different levels, and those districts have their own minimum wage rates.

With such a complex system for deciding minimum wage, businesses looking to hire Chinese workers should consult with the experts to ensure they provide the correct wage based on the worker’s location.

Many companies offer their employees a 13th-month salary payment; however, this is not required by law.

Working hours and overtime

China is world-renowned for its hard work ethic, but despite what you may assume, they enforce strict guidelines when it comes to how much an employee can be made to work.

No more “996”

Some businesses in China have been criticized for promoting the “996 work culture”, where employees are required to work from 9 am to 9 pm, six days a week.

And, in fact, China’s top court and labor ministry have recently detailed 10 court decisions related to labor disputes relating to this practice. These cases covered a wide range of sectors, from tech to construction, and each case had the same result: the employers lost their case.

This has provided businesses operating in China with a stark and clear warning. The “996 work culture” is not only a poor practice, but it is actually illegal.

As such, businesses looking to hire Chinese workers should respect the maximum working hours as stated in China’s labor laws.

New regulations for the standard working week

The standard working week is around 40 hours per week, with employees working 8 hours per day.

Overtime payments

Overtime pay is capped at 36 hours on top of the employee’s contracted hours in a single month. Overtime rates vary depending on when the overtime is performed.

• Weekdays - 150% of hourly rate
• Weekends - 200% of hourly rate
• Holidays - 300% of hourly rate

Severance pay

Severance rules differ depending on the reason for termination. Employees terminated without fault under Article 40 of the Labor Contract Law, for reasons such as incompetence after retraining or a material change in circumstances, must be given 30 days' written notice or one month's pay in lieu of notice, plus statutory severance.

Employees terminated for cause under Article 39, covering serious misconduct, criminal conviction, or serious breach of company rules,  can be dismissed immediately, with no notice period and no severance payment required.

What are the leave entitlements for employees in China?

Chinese leave is quite different from how other countries manage PTO (paid time off).

Public holidays and PTO

China has 13 statutory public holidays per year across seven occasions, including Spring Festival (Chinese New Year), National Day, Labor Day, Qingming, Dragon Boat Festival, Mid-Autumn Festival, and New Year's Day.

The Spring Festival and National Day breaks are extended to week-long periods by rescheduling certain weekend days as workdays around the holiday window. Because employees receive a significant amount of statutory holiday time, statutory paid annual leave entitlements are relatively modest by international standards.

Paid annual leave in China is based on cumulative working years across all employers, not just years with the current company. The entitlement is: 1–10 cumulative years: 5 days per year; 10–20 cumulative years: 10 days per year; 20+ cumulative years: 15 days per year.

Sick pay in China

Generally, employers are required to give paid sick leave to all employees. Sick pay can vary depending on how long an employee has been with the company, ranging between 60% to 100% of their base wage.

Sick pay rates vary by city. The figures below reflect common practice and are consistent with Shanghai's regulations, which many other cities use as a reference. For employees taking 6 months (or less) sick leave, rates are as follows:

• Under 2 years of employment - 60% regular wages
• 2–4 years - 70% regular wages
• 4–6 years - 80% regular wages
• 6–8 years - 90% regular wages
• 8+ years - 100% regular wages

What are the tax and deduction obligations for Payroll in China?

Foreign businesses looking to hire Chinese workers must abide by China’s tax laws, which include (but are not limited to) Individual Income Tax (IIT), social security, and payroll tax.  

Individual Income Tax (IIT)

The Ministry of Finance (MOF) and the State Taxation Administration (STA) have confirmed extensions of the following key IIT preferential policies, most recently through Announcements 29, 30, 25, and 32 issued in August 2023. All four policies are now extended through December 31, 2027:

• Tax-exempt treatment for expatriate benefits in kind (housing allowances, language training, children's education)
• Preferential tax treatment for annual one-time bonuses (separate calculation from comprehensive income)
• Preferential tax treatment for equity-based incentives of listed companies
• Tax-exempt policy where a resident taxpayer's annual comprehensive income is up to RMB 120,000, and the additional tax payable does not exceed RMB 400

Social security and payroll tax

Social security contributions in China vary by city and are updated annually. As a general reference, employees typically contribute around 10.5% of gross salary (pension 8%, medical insurance 2%, unemployment insurance 0.5%), while employer contributions typically range from 26% to 33% of gross salary depending on the city and industry classification. Both figures exclude housing fund contributions, which add a further 5% to 12% per side.

The standard rate for corporate and income tax is 25%, though that rate can be reduced to 15% for businesses operating within specific industries.

Employers are responsible for handling all tax deductions.

China's payroll tax framework requires employers to calculate and withhold Individual Income Tax (IIT) on a progressive scale that reaches 45%, remit contributions to the Five Insurances and One Housing Fund, and track contribution bases that are reset annually at the city level across 31 separate provincial systems.

Skuad supports payroll processing and statutory compliance from a single platform, so your finance and HR teams don't need to monitor annual base resets or manage IIT filings independently across multiple cities.

Here is what Skuad helps with:

• Payroll processing in 70+ currencies with automated IIT withholding and monthly statutory remittance
• Statutory contribution workflows across supported markets, covering applicable social insurance and housing fund obligations
• Employment contract generation across 160+ countries, aligned with local labor laws and statutory requirements
• Payroll records and payslip generation in line with local reporting requirements, with support for year-end tax reconciliation
• Background verification covering identity, employment history, and criminal records before onboarding

For a detailed breakdown of what hiring in China actually costs across salary ranges, the Skuad employee cost calculator gives you a real, employer-side view.

See the full cost of hiring in China with Skuad's cost calculator

How to start building your team with Payroll providers in China?

Now that you have your Chinese employee or team ready to work, it’s time for you to focus on managing their payroll.

Running payroll in China means navigating employment contracts, IIT withholding across a seven-bracket progressive scale, Five Insurances and Housing Fund contributions that vary by city, overtime rules, annual leave entitlements, and a monthly remittance cycle with deadlines set by the State Taxation Administration, all before a single employee does their actual work.

Skuad supports the operational complexity of running payroll in China, employment contract generation, statutory contribution workflows, payroll processing in 70+ currencies, compliance monitoring, and work permit support for foreign nationals, so your team can focus on the work, not the paperwork.

Companies across technology, logistics, e-commerce, and professional services use Skuad to support their first China hire, stay aligned with contribution base changes as they happen, and scale their China workforce without building local HR infrastructure from scratch.

Book a demo to see how Skuad gets your first China hire on payroll

FAQs

1. What does running payroll in China involve for foreign employers?

Running payroll in China requires calculating gross pay, withholding Individual Income Tax (IIT) on a progressive scale up to 45%, and remitting contributions to the Five Insurances and One Housing Fund. Rates vary by province and city, and contribution bases are reset annually by local authorities.

2. What are the total payroll costs for employers in China?

Employer payroll costs in China typically range from 30 to 40% of gross salary, covering pension, medical insurance, unemployment insurance, work injury insurance, maternity insurance, and the housing provident fund. Exact rates vary by city, with Shanghai and Beijing carrying higher contribution ceilings than lower-tier provinces.

3. Can a foreign company run payroll in China without setting up a local entity?

Foreign companies generally cannot run payroll directly in China without first establishing a registered entity such as a Wholly Foreign-Owned Enterprise (WFOE). The standard alternative is working through an Employer of Record (EOR) or a licensed Foreign Enterprise Service Company (FESCO), which employs workers compliantly under their existing registration.

4. What are the penalties for payroll non-compliance in China?

Non-compliance with payroll and social insurance obligations in China can trigger fines, back payment orders, and labor arbitration under the Labor Contract Law. Failure to make social insurance contributions carries late fees of 0.05% per day. Repeated violations or intentional wage withholding may result in criminal liability.

5. How does an EOR compare to a WFOE for running payroll in China?

A Wholly Foreign-Owned Enterprise (WFOE) typically takes three to six months to register through the State Administration for Market Regulation, requires ongoing audits and capital commitments. An Employer of Record (EOR) can typically begin China payroll in one to two weeks, with no entity setup required.

6. Are expatriate employees taxed differently on payroll in China?

Foreign nationals working in China are generally taxed under Individual Income Tax (IIT) on the same progressive scale as local employees. Certain expatriate-specific preferential IIT policies apply, covering tax-exempt benefits and preferential treatment for annual bonuses, subject to review by the Ministry of Finance and State Taxation Administration.