As an employer in China, you have obligations regarding tax and welfare contributions for your Chinese staff – the following sets out the various taxes you are obliged to pay on their behalf.
Tax
Employees pay Individual Income Tax on their earnings. It is the employer’s responsibility to calculate and deduct each employee’s contribution from their wages or salaries every month. The company then submits the tax deduction to the tax authority. The company’s role in this is purely administrative. The company itself does not need to make a separate contribution on behalf of Chinese employees.
Different kinds of welfare contributions
Welfare contributions are a different matter. Employers must make contributions on behalf of each Chinese employee to China’s social insurance system, known as the “Five Insurances,” plus a housing fund. The Five Insurances comprise a pension fund, medical insurance, industrial injury insurance, unemployment insurance and maternity insurance.
Below is an outline of what the employer and employee respectively contribute to each fund.
Pensions
What employer contributes: Varies from region to region, but usually equivalent to around 20 percent of employee’s salary.
How employer benefits: No direct benefits for employer.
What employee contributes: Eight percent of salary.
How employee benefits: Upon retirement, employees who have contributed to their personal pension fund for at least 15 years can receive a pension based on the total amount they have contributed personally in their working life. If personal fund runs dry, the employee can receive a pension drawn from the public fund (which employer contributions are directed into).
Medical insurance
What employer contributes: There are regional variations, but it’s usually equivalent to between seven and 12 percent of the employee’s salary.
How employer benefits: No direct benefits for employer.
What employee contributes: Regional variations, but usually two percent of the employee’s salary.
How employee benefits: If the employee is sick or injured, a percentage of their treatment costs is covered by medical insurance (how much depends on what they are being treated for). Employees also carry a health insurance card; its value is equivalent to the total contributions they have made to their personal medical insurance fund to date. The money on the card can be used to pay for medicines and hospital out-patient costs.
Industrial injury insurance
What employer contributes: Ranges between 0.4 and three percent of employee’s salary (varies based on type of work).
How employer benefits: If an employee is injured at work, their medical care is covered by this fund. However, the employer must continue to pay the employee’s salary for as long as they are unable to work (up to a maximum of 12 months).
What employee contributes: No contribution required.
How employee benefits: If the employee is injured at work, their medical care will be covered by the industrial injury insurance fund (as well as the medical insurance fund).
Unemployment insurance
What employer contributes: Usually two percent of employee’s salary.
How employer benefits: No direct benefits for employer.
What employee contributes: Usually one percent of salary.
How employee benefits: Employee will receive unemployment benefits for up to 24 months if they are made redundant (but not if they quit their job). Employee must have been making contributions to Unemployment Insurance fund for at least one year continuously to qualify for benefits.
Maternity insurance
What employer contributes: Usually equivalent to between 0.5 and one percent of employee’s salary.
How employer benefits: Employer does not need to pay employee’s salary during employee’s maternity leave (usually three months).
What employee contributes: No contribution required.
How employee benefits: Employee receives a fixed sum for each month (paid for by maternity insurance fund) during their maternity leave. Alternatively, they can receive a lump sum to help cover cost of birth. Fathers may also apply for compensation during paternity leave (up to 15 days, but allowance depends on region).
Housing fund
What employer contributes: Usually equivalent to between seven and 13 percent of employee’s salary.
How employer benefits: No direct benefit for employer.
What employee contributes: Usually equivalent to employer’s contribution (though there are regional variations).
How employee benefits: Fund contributes to employee’s house purchase.