Employer of Record in China

Navigating the complexities of employment in China requires a thorough understanding of its unique labor laws, social security contributions, and tax regulations. For companies looking to expand into this dynamic market, a direct hiring approach typically involves establishing a local legal entity, a process that can be time-consuming and resource-intensive. However, several alternative pathways exist for engaging talent in China without the significant upfront investment of setting up a subsidiary.

When considering how to bring on employees in China, companies generally have a few primary options. You can opt for the traditional route of establishing your own legal entity within China, which provides full control but also carries the highest administrative burden. Alternatively, you can partner with an Employer of Record (EOR), a service that manages all local employment responsibilities on your behalf. A third option involves hiring individuals as independent contractors, though this comes with strict guidelines in China to avoid misclassification risks. For a streamlined approach to global expansion, consider partnering with an EOR like Rivermate.

How an EOR Works in China

An Employer of Record (EOR) acts as the legal employer for your workforce in China, handling all the intricate details of local employment while you retain full control over day-to-day management and strategic direction. Specifically, an EOR in China takes care of:

• Legal Compliance: Ensuring adherence to all Chinese labor laws, including contracts, working hours, and termination procedures.
• Payroll Processing: Managing local payroll, including calculating and remitting salaries, individual income tax, and mandatory social security contributions (pension, medical, unemployment, work-related injury, maternity insurance).
• Benefits Administration: Facilitating the mandatory housing provident fund and managing any supplementary benefits you wish to offer.
• HR Administration: Handling onboarding, offboarding, leave management, and other essential HR tasks.
• Visa and Work Permits: Assisting with the necessary documentation and processes for obtaining work visas and permits for foreign employees.

Benefits of Using an EOR in China

Engaging an EOR service offers substantial advantages for companies aiming to establish a presence in China without the challenges of entity setup:

• Rapid Market Entry: Hire employees in China quickly, often within days or weeks, bypassing the lengthy process of local entity registration.
• Reduced Risk and Compliance: Mitigate the significant legal, financial, and HR compliance risks associated with navigating China's complex and evolving labor laws.
• Cost Efficiency: Avoid the substantial costs and administrative overhead involved in setting up and maintaining a local subsidiary.
• Access to Top Talent: Recruit and hire talent from across China without geographical limitations or the need for a physical office.
• Simplified Global Operations: Consolidate your international payroll and HR functions under a single, compliant partner, allowing your internal teams to focus on core business objectives.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in China includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in China.

China's tax system, overseen by the State Taxation Administration, imposes various obligations on employers and employees, including social security contributions, income tax withholding, and reporting requirements. Employers must contribute to social security programs such as pension (around 16%), medical (8%), unemployment (0.5%), injury (0.2-1.9%), maternity (0.5%), and housing funds (5-12%) based on regional rates. Employers are responsible for monthly withholding and remittance of Individual Income Tax (IIT), which is calculated using progressive brackets with rates up to 45%, and must be filed by the 15th of the following month.

Employees benefit from deductions like a 5,000 CNY basic allowance and additional expenses for education, healthcare, housing, and elder care, which reduce taxable income. Employers must also conduct annual IIT reconciliations to ensure compliance. Failure to meet reporting deadlines or accurately remit taxes can lead to penalties. Foreign workers are taxed on China-sourced income, with potential benefits under tax treaties, while foreign companies face complex obligations including CIT and VAT. Staying updated on regulations and seeking professional advice is vital for compliance.

China's salary landscape varies significantly by industry, role, and region, with high-demand sectors like technology, finance, and manufacturing offering premium compensation. For example, software engineers in Shanghai earn between CNY 300,000 and 600,000 annually, while financial analysts in Beijing earn between CNY 250,000 and 500,000. Coastal cities generally provide higher salaries compared to inland areas.

Minimum wages are region-specific, with Shanghai at CNY 2,690/month and Beijing at CNY 2,530/month, requiring employers to comply with local regulations. Compensation packages often include bonuses (performance, statutory, or year-end), allowances (housing, transportation, meals, communication), and are paid monthly via direct bank transfer. Employers must withhold individual income tax and social security contributions, with detailed payslips mandatory.

Salary growth is expected in high-tech and healthcare sectors, especially in coastal and developing inland regions, influenced by economic policies and technological advancements.

China's vacation and leave policies require employers to adhere to minimum standards for annual leave, public holidays, sick leave, and parental leave, with regional variations. Annual leave depends on cumulative working years: less than 1 year (0 days), 1-10 years (5 days), 10-20 years (10 days), and over 20 years (15 days). Employees must take their leave; if not, employers must compensate at 300% of regular wages for untaken days, with pro-rata entitlements for part-year employment.

Key public holidays include New Year's Day, Spring Festival (7 days), Qingming, Labor Day (5 days), Dragon Boat, Mid-Autumn, and National Day (7 days). When holidays fall on weekends, compensatory days are typically provided. Sick leave requires a medical certificate, with pay rates varying by region and tenure. Parental leave includes 158 days of maternity leave (extended in some regions) and 10-30 days of paternity leave, with benefits generally equivalent to regular salary. Additional leave types such as bereavement (1-3 days), marriage, study, and sabbaticals are available but vary regionally and are not always statutory.

In China, employers are legally required to provide the "Five Insurances and One Fund," covering pension, medical, work injury, unemployment, maternity insurance, and housing fund contributions. Contribution rates vary by region but generally range from 0.2% to 20%, with employers contributing more than employees. Compliance involves registration with local authorities, and failure to adhere can lead to penalties.

Beyond mandatory benefits, many companies offer voluntary perks such as supplemental medical insurance, life and accident insurance, extra paid leave, health checkups, training, meal and transportation allowances, and housing subsidies. These enhance employee satisfaction and competitiveness in the job market. Employee expectations increasingly include comprehensive health coverage, especially supplemental health insurance, which can include private hospitals and international coverage.

Retirement benefits consist of mandatory pension contributions and optional supplementary plans like enterprise annuities, which are tax-advantaged and managed by professional funds. Industry and company size influence benefits offerings: tech firms often provide extensive packages, while SMEs may focus on work environment and development opportunities. Large multinationals tend to align benefits with global standards, emphasizing health, retirement, and employee support programs.

Employment agreements in China are essential for defining the rights and obligations of employers and employees, and must comply with the Labor Law and related regulations. They serve as legal documentation of the employment relationship and help prevent disputes. Employers should carefully draft contracts to meet legal requirements, especially given the complexity of Chinese labor law.

There are mainly two types of employment agreements:

Compliance with legal standards is critical, including mandatory provisions on employee rights, termination procedures, and contract duration. Properly structured agreements help ensure legal adherence and protect employer interests in China’s regulated labor environment.

Remote work in China is expanding, influenced by technological progress and changing employee expectations, with a focus on work-life balance. As of 2025, China lacks a comprehensive national remote work law, but existing labor laws—such as the Labor Law and Employment Contract Law—apply, requiring clear employment contracts, equal wages, social insurance contributions, and workplace safety measures, including data protection.

Key flexible arrangements include full-time remote, hybrid, compressed workweeks, flextime, and job sharing. Employers should develop clear policies, ensure effective communication, performance management, and provide necessary technology and training. Data privacy is critical, with cybersecurity, encryption, access controls, and compliance with China's Personal Information Protection Law (PIPL) being essential. Employers are also advised to establish equipment and expense reimbursement policies, covering items like laptops, home office setup, internet, and utilities.

In China, employment termination must comply with strict legal procedures to avoid disputes and penalties. Notice periods vary based on contract type and tenure, with typical durations ranging from 30 days to three months, depending on the employee's length of service. Severance pay is calculated as the employee's average monthly salary over the past year multiplied by their years of service, with a cap at three times the local average salary for the months exceeding the average.

Terminations can be with cause or without cause. For cause, reasons include violations of company rules or criminal activity. Without cause, employers must provide notice or pay in lieu, especially during restructuring or employee incapacity. Procedural compliance involves documentation, formal meetings, and timely severance payments, alongside issuing a termination certificate.

Employees are protected against wrongful dismissal during pregnancy, maternity leave, or injury treatment, and have the right to dispute dismissals through legal channels. If a termination is deemed unlawful, employees may be reinstated or awarded compensation, emphasizing the importance for employers to follow lawful procedures meticulously.

China's economy is increasingly adopting flexible work arrangements, leading to a rise in freelancers and independent contractors. For businesses, understanding the legal, contractual, and tax frameworks is crucial to avoid misclassification and ensure compliance. Distinguishing between employees and contractors involves examining factors like control, integration, and economic dependence. Misclassification can result in penalties, including back payments and fines.

Engaging contractors requires well-drafted service agreements, governed by contract law, not labor law. These should outline the scope of work, deliverables, payment terms, and IP rights. Without explicit IP clauses, contractors retain ownership, posing risks for businesses. Contractors manage their own taxes, typically under "Income from Provision of Independent Personal Services," with tax rates varying by income level. They aren't covered by mandatory social insurance, unlike employees, and must arrange their own insurance.

Independent contractors are prevalent in sectors like technology, creative industries, consulting, marketing, and education, where specialized skills and project-based work are common. This flexible staffing solution is efficient for businesses needing specific expertise.

Foreign nationals wishing to work in China must obtain a work permit and visa before employment. The primary work visa is the Z visa, suitable for long-term employment, while other visas like the M visa are for short-term activities. Employers are responsible for ensuring their employees have valid authorization, and employees must comply with visa regulations to avoid penalties such as fines, detention, or deportation.

Key visa details are summarized below:

The process involves securing an employment offer, obtaining a work permit, and then applying for the Z visa. Regulations can be complex and subject to change, emphasizing the importance for employers to stay informed and ensure compliance for their foreign staff.