Hiring Employees in China: A Complete Guide for International Employers

China stands as a powerhouse in the global talent market, attracting international businesses with its vast, highly skilled workforce and dynamic business environment. 

The country’s rapid economic growth, robust infrastructure, and focus on innovation make it a prime destination for foreign companies seeking to expand their operations. Hiring in China provides access to a deep pool of technical, managerial, and specialized talent, often at a competitive cost compared to other major markets.

For foreign companies, the advantages go beyond talent. China’s strategic location in Asia, strong supply chain networks, and government incentives for foreign investment create a favorable landscape for international hiring. 

Navigating China’s regulatory framework, however, requires careful planning and a clear understanding of local employment practices. This guide covers everything you need to know to hire compliantly and efficiently in China.

How to Hire Employees in China

Assess Your Hiring Needs

Before entering the Chinese market, it’s critical to evaluate your business’s hiring requirements:

• Full-time vs. Project-Based Support: Determine if your needs are ongoing (requiring permanent staff) or short-term (better suited for contractors or project teams).
• Local Compliance Requirements: Chinese labor law is strict. All employment relationships must be formalized with written contracts, and compliance with social security and tax laws is mandatory.
• Onboarding Speed vs. Long-Term Control: If you need to hire quickly, options like Employer of Record (EOR) services can help. For more control and a long-term presence, setting up a local entity is preferred.

Hiring Options in China

You have two primary options for hiring in China:

• Set Up a Legal Entity: Establish a Wholly Foreign-Owned Enterprise (WFOE) or other business entity to directly employ staff. This gives you full control but involves significant setup time, costs, and ongoing compliance.
• Partner with an Employer of Record (EOR): An EOR acts as the legal employer on your behalf, handling payroll, compliance, and HR administration. This allows you to hire quickly without setting up a local company.

EOR vs. Legal Entity: Side-by-Side Comparison

Feature	Employer of Record (EOR)	Setting Up a Legal Entity
Speed to Hire	Fast (weeks)	Slow (months)
Setup Costs	Low	High
Compliance Responsibility	EOR handles	Your company handles
Control Over Employees	Moderate	Full
Scalability	Easy to scale up/down	More rigid
Long-Term Market Presence	Limited	Strong
Suitable For	Testing market, small teams, rapid deployment	Long-term growth, brand building

For more information on global hiring models, see Employer of Record: Complete Guide for Global Employers and The Need for EOR/PEO/AOR for Global Expansion.

Understanding Worker Classification

Employees vs. Contractors in China

China’s labor system draws a clear line between employees and contractors. Misclassifying workers can lead to significant legal and financial risks.

Aspect	Employee	Contractor
Contract Type	Written labor contract (mandatory)	Service agreement
Social Security	Employer must contribute	Not required
Tax Withholding	Employer withholds and pays taxes	Contractor manages own taxes
Control	Employer directs work, hours, location	Contractor has autonomy
Termination	Strict rules, severance required	Flexible, as per contract

Legal Implications and Risks of Misclassification

• Mandatory Written Contracts: All employment relationships must be formalized within one month; failure results in double salary penalties.
• Social Security Contributions: Employers are obligated to contribute to six social insurance funds for employees. Contractors are not covered, but misclassifying employees as contractors to avoid these costs is illegal.
• Tax Compliance: Employers must withhold and remit income tax for employees. Contractors are responsible for their own taxes.
• Enforcement: Chinese authorities actively investigate misclassification. Penalties include back payments, fines, and reputational damage.

For a deeper dive, check out Freelancers, Independent Contractors, and Consultants: Exploring Opportunities and Challenges.

Hiring Costs and Payroll

Hiring Costs Overview

• Wages: China uses a regional minimum wage system. For example, the national baseline is CNY 2,420/month, but cities like Beijing have higher rates (e.g., 26.4 RMB/hour).
• Social Insurance: Employers must contribute to pension, medical, maternity, work injury, unemployment, and housing fund. Contribution rates and caps vary by location.
• Additional Costs: Severance, bonuses, allowances, and compliance with statutory benefits can significantly increase total employment costs.

Read more:  Understanding Total Cost of Employees: Calculation and Management Factors.

Payroll Setup Steps

1. Register with Local Authorities: Set up accounts with tax and social security bureaus.
2. Draft Labor Contracts: Ensure all mandatory clauses are included.
3. Calculate Payroll: Factor in base salary, allowances, bonuses, and employer contributions.
4. Withhold and Remit Taxes: File and pay individual income tax monthly.
5. Remit Social Insurance: Pay both employer and employee portions to local authorities.
6. Maintain Records: Keep detailed payroll and employment records for compliance.

Income Tax Rates

• Individual Income Tax (IIT): Progressive rates from 3% (up to RMB 36,000/year) to 45% (above RMB 960,000/year).
• Employer Responsibility: Withhold IIT from employee salaries and remit monthly.

Learn more about Individual Income Tax in China.

Payment Methods

• Direct Deposit: Most common, paid in CNY to a local bank account.
• Bank Transfers: Used for both employees and contractors.
• EOR Payroll: EOR providers handle all payments, compliance, and reporting on your behalf.

For a global perspective, read How to Pay International Employees.

Using Global Payroll Services

• Benefits: Streamlines payroll across countries, ensures compliance, and reduces administrative burden.
• Key Features: Automated tax calculations, multi-currency support, and integration with HR systems.
• Compliance: Ensures local tax and social security rules are followed.

Explore How Tarmack Streamlines Global Payroll and Compliance for Enterprise Growth.

How to Properly Hire and Pay Contractors

• Service Agreement: Clearly define deliverables, payment terms, and IP ownership.
• No Employer Control: Contractors must maintain independence in how they work.
• Tax Compliance: Contractors are responsible for their own tax filings.
• Avoid Disguised Employment: Do not direct contractors as you would employees.

Find out the Best Ways to Pay International Independent Contractors.

Compliance Risks

Incorrect Payroll Contributions

• Risk: Underpayment or late payment of social insurance leads to fines and back payments.
• Solution: Use automated payroll systems and double-check local contribution rates.

Permanent Establishment Risk

• Definition: Having employees or agents in China may trigger a taxable presence, increasing corporate tax obligations.
• Mitigation: Consult local experts and consider EOR solutions to minimize exposure.

Understand the potential Compliance Challenges When Establishing an Entity Overseas: Tips to Overcome.

Statutory Benefits

• Mandatory: Pension, medical, maternity, work injury, unemployment, and housing fund.
• Recent Changes: New illness and disability benefits for enterprise employees, including monthly allowances for those completely disabled due to illness or non-work-related injuries.

Misclassification Risks

• Penalties: Misclassifying employees as contractors can result in double salary, back social security payments, and fines.
• Prevention: Always use written contracts and follow local definitions of employment.

Provincial/Regional Law Variances

• Variation: Minimum wage, social security rates, and leave entitlements differ by city and province.
• Action: Always check local regulations before hiring.

Overview of Main Types of Intellectual Property Rights Relevant for Employers

• Patents: Protect inventions and technical solutions.
• Trademarks: Secure brand names and logos.
• Copyrights: Cover original works (software, designs, content).
• Trade Secrets: Protect confidential business information.
• Employer Ownership: Employment contracts should clarify IP ownership for work created during employment.

What you need to know about Managing Intellectual Property (IP) Through EOR: Key Considerations for Businesses.

Onboarding Process

Before Their First Day

• Prepare Written Contracts: Include all mandatory clauses.
• Register with Authorities: Set up tax and social security accounts.
• Collect Documentation: Gather ID, bank details, and proof of qualifications.

On Day 1

• Sign Labor Contract: Ensure both parties have a copy.
• Orientation: Introduce company policies, code of conduct, and safety procedures.
• Provide Equipment: Issue computers, phones, or other necessary tools.

During Their First 90 Days

• Probation Period: Typically up to six months. Grounds for dismissal are broader, and salary can be up to 80% of the contracted rate.
• Monitor Performance: Provide feedback and document evaluations.
• Confirm Social Security Enrollment: Ensure all contributions are being made.

Offer Letter Essentials

• Job Title and Description
• Compensation Package
• Work Location
• Start Date
• Probation Period Terms
• Statutory Benefits
• Termination Conditions

NDAs and Confidentiality

• Importance: Protects company secrets and IP.
• Best Practice: Include NDA clauses in employment contracts and require separate signed agreements for sensitive roles.

Running Background Checks

• Permitted: Background checks are allowed but must comply with privacy laws.
• Scope: Verify education, employment history, and criminal records (where legally permitted).

Here are the Top Eight Best Practices for Onboarding International Employees: How EOR Can Help.

Remote Employee Management

Managing remote employees in China requires a thoughtful approach to technology, legal compliance, and IP protection.

• Computer Access: Provide secure, company-issued devices with up-to-date security software.
• App Access: Use enterprise-level tools for communication, project management, and file sharing. Ensure compliance with Chinese data privacy laws.
• IP Protection: Use NDAs, clarify IP ownership in contracts, and restrict access to sensitive information as needed.
• Types of IP Rights: Patents, trademarks, copyrights, and trade secrets should be protected through clear policies and legal agreements.

Read more:  How to Manage Employees Remotely and Globally and Building Organizational Culture in Remote Teams.

Labor Law Compliance

Key Working Condition Requirements

• Working Hours: Standard 40-hour workweek over five days.
• Overtime: Must be compensated according to law; cannot be waived by contract.
• Minimum Wage: Varies by region; must be paid in CNY.
• Statutory Leave: Paid annual leave after 12 months’ work experience, plus public holidays and sick leave.
• Social Security: Six types of insurance are mandatory.

For more details, check out Employment Compliance and Its Importance.

Working Conditions by Employment Type

• Full-Time Employees: Covered by all statutory protections and benefits.
• Part-Time/Project-Based: May have different entitlements but still require written contracts and compliance with wage and hour laws.

No At-Will Employment

• Restriction: Employers cannot terminate employees at will; valid legal grounds and proper procedures are required.

Trade Unions and Collective Bargaining

• Rights: Employees have the right to join trade unions and participate in collective bargaining.
• Employer Responsibility: Cooperate with unions and respect collective agreements.

Learn more about Labor Laws in China.

Termination Guidelines

Acceptable Termination Reasons

• Legal Grounds: Serious misconduct, incompetence, redundancy, or mutual agreement.
• Documentation: Employers must provide evidence and follow due process.
• Severance: Required by law, calculated based on years of service and local regulations.

Notice Periods and Legal Protections

• Notice: Employees must receive at least 30 days’ notice or payment in lieu.
• Protections: Special protections apply to pregnant employees, those on medical leave, and union members.
• Non-Fixed Term Contracts: After two fixed-term contracts, employees are often entitled to a non-fixed (lifetime) contract, making termination more complex.

Learn more about Terminating Employees in China and Suggested Script for Terminating an Employee Professionally and Respectfully.

Benefits of Hiring in China

Foreign companies hiring in China enjoy several strategic advantages:

• Access to a Large, Skilled Talent Pool: Deep bench of technical, managerial, and specialized professionals.
• Cost Efficiency: Competitive salary levels relative to other major economies.
• Time Zone Benefits: Overlapping hours with Asian and global markets support round-the-clock operations.
• Robust Infrastructure: Advanced logistics, internet, and transportation networks.
• Government Incentives: Tax breaks, grants, and support for foreign investment in key sectors.
• Innovation Ecosystem: Thriving technology and manufacturing clusters.

Hire in China the Right Way

Hiring in China offers significant opportunities for international companies, from access to high-quality talent to strategic market advantages. Success depends on understanding and adhering to China’s strict labor laws, choosing the right hiring model, and implementing robust HR and payroll processes. Whether you opt for an EOR or set up a legal entity, compliance and local expertise are essential.

Ready to hire in China or need help navigating local compliance? Contact Tarmack today to learn how we can simplify your global hiring and payroll.

For more on information about navigating global hiring challenges, see Going Global: Choosing a Global EOR Partner – The Right Move for Your Business and Top 20 Countries Where You Definitely Need an EOR Service.