Companies typically use an Employer of Record for fast, low-risk entry, payroll management once a Wholly Foreign-Owned Enterprise (WFOE) exists, and entity setup for firms building a genuine long-term China strategy. Regional variation between cities and provinces in social insurance rates and administrative practice is a constant feature of doing this well.

Employer of Record in China

An EOR is often the only practical way for a foreign company without a Chinese entity to legally employ staff in China, since direct employment by an offshore company is not legally recognised — this makes EOR less a convenience and more a structural necessity for many first entrants. It suits companies testing the China market, hiring representative or business-development staff ahead of a WFOE decision, or maintaining a small footprint without the capital and reporting obligations of a full entity. It becomes less suitable once headcount and strategic commitment justify a WFOE with direct control over hiring, IP, and local operations.

How payroll works in China

Chinese payroll withholds individual income tax (IIT) under a progressive schedule and requires both employer and employee contributions to the "five insurances and one fund" (wuxian yijin): pension, medical, unemployment, work-related injury, and maternity insurance, plus the Housing Provident Fund. Contribution rates and salary caps/floors are set at the city or provincial level, not nationally, meaning payroll calculations differ meaningfully between, for example, Shanghai and Shenzhen. Payroll is monthly, and contributions must be paid through a local social insurance bureau registration tied to the employing entity's registered city.

Payroll frequency and reporting obligations

Monthly payroll is standard, with IIT and social insurance/housing fund contributions remitted monthly to city-level authorities. Annual IIT reconciliation is required, and employees with multiple income sources or specific deduction claims may need additional filings. Employers must register each employee with the local social insurance bureau and housing fund centre within a set window of the start date, and de-registration on termination has its own procedural requirements. Because rates and caps are revised annually and vary by city, payroll systems need city-specific configuration rather than a single national ruleset.

Key payroll nuances

There is no universal statutory 13th-month payment, but a year-end bonus is extremely common market practice, particularly ahead of Chinese New Year, and is factored into most employees' compensation expectations. Social insurance and housing fund contribution rates, caps, and floors vary by city, and using a nationally uniform assumption is one of the most common payroll design mistakes for new entrants. The employer share of contributions is substantial and needs to be modelled per city rather than as a single national percentage. Written labour contracts must be in Chinese (or a bilingual version with the Chinese version prevailing) to be enforceable in local courts.

Pay components and employer costs

Typical pay components include base salary and a widely-practised year-end bonus, often equivalent to one or more months' salary. Employer costs beyond salary include the employer share of the five insurances and housing fund, which together can add 30 percent or more on top of gross salary depending on the city, making China's employer on-cost load comparable to several Western European markets despite lower headline salaries in many roles.

Benefits and leave entitlements

Statutory annual leave is tenure-based: 5 days for employees with one to ten years of accumulated work experience, rising to 10 and then 15 days at higher tenure bands — a system based on total career experience rather than solely years with the current employer. Sick leave pay is calculated based on tenure and local regulations, typically paid at a reduced percentage of salary. Maternity leave is a statutory entitlement of at least 98 days, with some provinces extending it further, funded partly through maternity insurance. Public holidays include Chinese New Year and National Day "golden week" periods, which affect business planning significantly given their week-long nature.

Hiring and employment contracts

Written labour contracts are a strict legal requirement, and failure to sign one within a month of the start date exposes the employer to a doubled-salary penalty under Chinese labour law — a distinctly severe consequence that makes contract administration a genuine compliance priority. Probation periods are capped by law based on contract length, ranging from one to six months. Fixed-term contracts are permitted, but an employee on a second consecutive fixed-term contract generally gains the right to demand an open-ended contract. Termination without cause is difficult and typically requires statutory severance (based on tenure) or a negotiated settlement.

Entity setup in China

The Wholly Foreign-Owned Enterprise (WFOE) is the standard vehicle for foreign employers wanting full control, requiring approval and registration with the local Administration for Market Regulation, a registered capital commitment, and a registered local address. Post-incorporation, the WFOE must register for tax, open a local bank account (including a separate capital account for the initial capital injection), and register with the local social insurance and housing fund bureaus before hiring. End-to-end setup typically takes eight to twelve weeks, with bank account opening and registered address arrangements often the pacing items.

EOR vs Payroll Management vs Entity Setup — China

Frequently asked questions