Operating in China can be an enormous opportunity for a company, but it’s also a considerable challenge. Chinese legal and regulatory processes are notoriously complex and change often. Without payroll outsourcing it can be a real headache to ensure that you’re compliant with every aspect of the law regarding payroll. The potential fees and fines for falling foul of these laws could seriously damage your company’s ability to function.
Whether you already have a presence in China and are looking to expand or are considering entering the Chinese market, payroll outsourcing can be a crucial tool to explore.
By outsourcing your payroll to a service provider like INS Global, you can benefit from the expertise and knowledge of a company that understands the ins and outs of the Chinese market, while also streamlining your company’s operating structure at a critical point in its growth.
The Advantages of Payroll Outsourcing
From finding people knowledgeable in Chinese regulations, to constantly managing and updating payroll to ensure continued safety for your company and your employees, actively maintaining your payroll takes a lot of time.
Working with a payroll outsourcing service provider can cut through the hassle and the red tape during that crucial growth period.
Organize your payroll into one helpful monthly payment to help you keep track of all of your employees and their requirements. By outsourcing your payroll, you’ll also be minimizing your workforce and saving money by having your employees work on tasks that directly benefit your growth while ensuring an enhanced level of legal compliance.
Ensure Legal Compliance
China’s regulations are constantly changing and there’s a lot at risk if you’re working on outdated information. A payroll outsourcing provider like INS Global is a key ally in ensuring that you and your business are kept up-to-date on all of these changes.
Expanding into a new market isn’t cheap. Chinese regulations covering social insurances and contributions will already be increasing your spending, so why risk hefty fines and fees on top of that?
An established PEO (Professional Employment Organisation) which can provide you with payroll outsourcing services is an excellent source of expertise and information about how to succeed in China. They will make the most of the technology and the human knowledge available to those who have spent years working in China to help you grow in the strongest possible way.
Establishing an agreement with a payroll outsourcing provider allows you to minimize a potentially cumbersome payroll department. Instead of managing multiple staff at a critical time in your company’s development, why not streamline all of your payroll and HR needs into one point of contact?
As a bonus, most payroll outsourcing providers will also provide other essential services to aid your growth in China such as PEO/EOR, recruitment, invoicing, or company incorporation services. By establishing a relationship with one local partner, you can access every HR service you need to succeed.
These advantages mean that you will have the peace of mind needed to focus on other tasks. Expanding in the Chinese market is a challenging prospect by any measurement and at any time. Still, by working with a local partner and making the most of their payroll outsourcing services, you can rise to the challenge in the best possible way.
Income Tax & Social Security in China
Mandatory Benefits in China: An Introduction
Taxes and mandatory social insurance contributions in China can increase the necessary spending on employees in China by up to 35-40%. Recent moves to incentivize more childbirth through more extended maternity and parental leave mean that this figure is likely to continue to rise. It’s vital to understand the costs of hiring employees in China and how they factor into business considerations.
The most significant expenses any company will face when organizing payroll for an employee in China (and often the hardest to understand) are the social security “contributions” towards an employee’s insurance and welfare.
These are most commonly grouped as the “5 Insurances”, but recent developments have seen this more fittingly changed to the “5 insurances and 1 Fund”. Each city and province in China may have its own way of calculating the amount necessary for each of these contributions. The penalties for incorrect management of these payments can be harsh. To learn more about this, click on this Statista page.
What are the contributions?
Employer rates: around 16%
Employee rates: around 8%
Employer rates: 5%-12%
Employee rates: around 2%
Employer rates: 0.5%-1%
Employee rates: around 0.5%
Employer rates: 0.5-2%
Employer rates: 5%-12%
Employee rates: 5%-12%
As you can see from the information above, hiring an employee in China becomes a serious undertaking in terms of additional cost and in the time and money spent ensuring that you are fully compliant with each of these payments.
In addition, depending on the contract , it is also considered standard for a company to organize their employee’s individual income tax. This is calculated as:
Individual Income Tax Payable= Monthly Taxable Income x Applicable Tax Rate – Quick Deduction
China has established individual tax payments on a scale related to average monthly income. The brackets for the scale are:
These figures may also change regularly and without warning, making it necessary to understand the ins and outs of the Chinese labor system.
Organizing and managing these taxes and contributions is a complicated task, so an increasing number of companies in China are turning to payroll outsourcing companies to ensure that they’re following regulations.
Compensation & Severance Considerations
A good employer-employee relationship is always the most desirable. Unfortunately, it’s not always possible for this relationship to end well. You may come to the time when you will have to terminate an employee’s contract or organize compensation in the event of some unfortunate unforeseeable circumstance. In matters of compensation and job security, Chinese labor law typically works quite heavily in favor of the employee, and the employer may find themselves in costly or drawn-out proceedings.
In these situations, it’s fortunate to have an agreement with a local company that can handle these issues for you. An experienced PEO like INS Global can arrange for compensation and severance payments to be made as part of payroll outsourcing services. This will give you better peace of mind, as well as minimizing potential problems.
How to Outsource Payroll in China
The first step to benefitting from payroll outsourcing is to find a trustworthy local PEO in China, such as INS Global.
A consultant from INS Global can speak with you to discuss your needs and requirements. Together, you can agree on a service that best suits your company individually.
PEOs in China can provide you with a whole range of services to suit your needs, from simply organizing payroll for your employees to recruiting, hiring, and managing your employees in China on your behalf as an EOR.
Whatever your needs, our team will provide you with 24/7 individualized service at every step of the way. You can streamline your structure from day 1 by working with one point of contact.
Once you’ve established an official relationship, INS Global can then take charge of:
– Monthly payroll
– Employee’s mandatory social contributions
– Organizing and declaring Individual Income Tax
– Keeping you up-to-date on regulation changes
Additional Potential Considerations
Some payroll outsourcers may make it more complicated to access your payroll records quickly due to privacy concerns or industry-specific software. While you may prefer the more hands-off approach that you can take by outsourcing payroll, it’s important to find a payroll outsourcing service that will keep you up-to-date and aware.
It’s always important to think about the cost of a payroll outsourcing service and balance it against the potential savings in time and money that you will benefit from by entering into such an agreement. Consulting with an experienced provider is the first step to understanding payroll outsourcing costs and making sure that you find the best service to match the needs and character of your company.
More and more companies looking to expand in China are turning to payroll service providers to save time, money, and hassle. For many companies and their employees in China, this service is a quick and easy way to ensure a safe and secure expansion.
To contact an INS Global consultant today and find out more about payroll outsourcing, PEO or recruitment services in China, click here.