Hiring employees in China: payroll, social insurance and work permits

The mistake almost every first-time employer makes is to budget the salary and discover the on-costs in the first payroll run. In Beijing the gap between gross salary and total employer cost is wide enough to change a hiring decision, and none of it is optional: social insurance registration is required from the first month, not from the end of probation.

The five contributions, and the fund#

Contributions are calculated on a monthly base — normally the employee’s prior-year average monthly salary, within a floor and a ceiling published each July. The rates below describe the Beijing structure; the exact percentages are set by the municipal government and should be confirmed for the current year before you build a budget.

Add the employer columns and the on-cost lands between roughly 30% and 40% of gross, depending on the work-injury class and the housing fund rate chosen. A company on the 5% housing fund rate pays less and is less competitive in a market where candidates read the fund rate as part of the package.

What a RMB 20,000 salary actually costs#

At the mid-point of those ranges, a gross monthly salary of RMB 20,000 costs the employer about RMB 26,300–27,700, and pays the employee roughly RMB 14,700–15,900 net after social insurance, housing fund and IIT withholding. The spread comes from the housing fund rate and from the employee’s own deductions.

That is the number to put in a hiring plan: total cost, not gross salary. It also explains why the first payslip usually arrives with questions — the employee sees about 10.5% deducted for social insurance plus their own housing fund contribution, and a net figure well below the number printed in the offer letter.

Individual income tax: cumulative, not flat#

IIT on employment income is withheld monthly on a cumulative basis: each month’s withholding is calculated on year-to-date income, less year-to-date deductions, less the standard monthly allowance of RMB 5,000, less special additional deductions. The practical effect is that the effective rate rises through the year, so a December payslip is smaller than a January one at the same salary.

Special additional deductions are claimed by the employee through the tax app, and they are worth checking rather than assuming: children’s education, infant care, continuing education, housing loan interest or housing rent but not both, elderly care and serious illness. A foreign employee may also claim treaty relief where an arrangement provides it, which is one of the few places where a treaty changes the monthly number rather than the annual one.

The contract, and the clauses that matter#

• A written contract within one month of the start date. An unsigned probation period is not a probation period; the statutory protections apply from day one regardless.
• Probation limits: up to one month for a contract under a year, two months for one to three years, six months for three years or more. Probation can be set only once, and pay during it cannot fall below 80% of the agreed salary.
• Notice and severance: 30 days’ notice or one month’s pay in lieu, plus statutory severance of one month’s salary per year of service (N), or N+1 where no notice is given.
• Non-compete: enforceable only with monthly compensation paid after termination, and only for a limited period. A non-compete clause with no compensation is generally not enforceable.
• Social insurance from month one, probation included. Deferring it is the most common cost-saving shortcut and the one that later surfaces as a back-payment demand with surcharges.

Hiring a foreign national: the permit sequence#

A foreign employee cannot lawfully start work on a tourist or business visa, and the permit is issued to the company rather than to the person — so the entity has to exist first. The sequence in Beijing:

1. Employer account on the foreigner work permit system, using the company licence and the legal representative’s details.
2. Work permit notification (外国人工作许可通知), typically 10–15 working days, graded A, B or C. Category B, the usual route, requires a bachelor’s degree and two years of relevant experience.
3. Z visa applied for abroad with the notification. This is the step that depends on the employee rather than on you.
4. Entry, medical check at a designated clinic, and the work permit card issued in Beijing.
5. Residence permit within 30 days of entry, from the exit-entry administration. Working beyond that window without it is overstaying.

Budget four to eight weeks end to end, and start the process before the intended start date rather than after the offer is accepted. Degrees and criminal-record certificates issued abroad usually need legalisation or an apostille, and that is where the calendar is lost.

Four payroll mistakes that get expensive#

1. Running payroll without registering social insurance, on the assumption that a small team is exempt. It is not, and back contributions are assessed with surcharges.
2. Engaging staff as “contractors” who work set hours under direction. Labour arbitration looks at the substance of the relationship, not the label on the invoice.
3. Paying a director’s fee to an overseas account without withholding. Remuneration for work performed in China is China-source income regardless of where it is paid.
4. Skipping the annual IIT reconciliation for staff with two income sources or a mid-year start. The reconciliation is due by 30 June and the penalty attaches to the individual, which damages the employment relationship more than the tax does.