How to Ensure Payroll and HR Compliance in China

In China, maintaining payroll and HR compliance is essential for foreign-owned enterprises (WFOEs) to operate legally and avoid potential penalties. The Chinese labor laws are complex and continuously updated, making it crucial for businesses to stay informed and follow the regulations closely.

1.  Draw Your “Compliance Map”

Chinese employment rules come in three layers: national statutes (Labor Law, Labor Contract Law, Social Insurance Law), local implementing rules (minimum wage, social-insurance floor/ceiling, housing-fund ratio), and FX/tax circulars (SAFE, STA). A WFOE must follow the city where the employee actually works, not the city of registration. Cross-border salary payments, HQ re-charges and equity incentives must be pre-filed with SAFE as “non-trade remittances” or the money will be bounced back.

2.      The Payroll “Triple-Core” Engine

①    Gross-to-net calculator that splits pay into basic salary, variable bonus, overtime, cash allowances, 13th-month and annual incentive, then applies the 3 %–45 % seven-tier IIT.

②    Social-insurance / housing-fund module wired to the government API of 300+ cities; any deviation > RMB 1 triggers an alert.

③    Audit trail: every change is PDF-exported with blockchain time-stamp, admissible in labor arbitration under the Electronic Signature Law.

3.      One Contract, Three Pages, Zero Risk

①     Page 1: position, work location, working-time regime (standard, comprehensive or flexible).

②     Page 2: pay structure, payment date, pro-rata bonus trigger.

③     Page 3: confidentiality & non-compete; statutory non-compete compensation ≥ 30 % of average monthly salary in the 12 months before departure.

The written contract must be signed within one month of onboarding; otherwise the company owes double salary for up to 11 months.

4.      Social-Insurance “Five + One” Checklist

• Base: previous-month average wage; < 60 % or > 300 % of statutory average will be auto-corrected plus 0.05 % daily late fee.

• Back-payment allowed only within 3 months; beyond that a labor-audit procedure applies.

• Dispatched staff: contribute at the city where the employee habitually works, not the HQ city, or work-injury claims will be rejected.

• Foreigners with Class-A work permit are exempt from pension & unemployment, but employer still pays work-injury, medical and maternity.

• Housing-fund: 5 %–12 % band set by each city; employer and employee ratios may differ by ≤ 2 percentage points.

5.      Overtime & Leave Red Lines

• Maximum 36 overtime hours per month; breach = compensation at 150 % × hourly rate + RMB 500–5 000 administrative fine per employee.

• 11 statutory holidays must be paid at 300 % and cannot be swapped for time-in-lieu.

•        Annual-leave entitlement follows “social working years”, not company tenure; unused days must be cashed out at 300 % and claimed within one year.

6.      Policy Radar “3 + 1”

Three fixed windows every year: April (SI base adjustment), July (housing-fund base), December (IIT final settlement). One ad-hoc: any State Council announcement on SI premium reduction (usually effective within 24 hours). Update your payroll engine the same day.

FREE DOWNLOAD: “China Employment Compliance Quick Guide 2025” for the details.