Hire employees in China
What a foreign company needs to know before employing people in Mainland China: whether you need an entity, what social insurance and the housing fund really cost, how payroll and tax withholding work, what leave is mandatory, and why termination is the part that goes wrong.
Quick answers
The questions leadership teams ask first. Detail follows further down the page.
Do I need a local Chinese entity to hire?
No. Foreign companies have two compliant structures and one that is barely usable:
- Licensed Employer of Record and labor dispatch (laodong paiqian). A licensed domestic employer hires the worker, administers the five social insurances and the housing fund (wuxiyijin), withholds income tax and carries employer liability. You direct the work.
- Wholly foreign-owned enterprise (WFOE) or joint venture. A direct PRC subsidiary under the Foreign Investment Law. It can earn domestic revenue, issue tax invoices (fapiao), hire directly and sponsor foreign work permits.
- Representative office. A liaison office that cannot bill clients and cannot hire PRC nationals directly at all. It must staff through a licensed agency.
When should I use an EOR instead of setting up a WFOE?
An EOR makes sense when you are:
- Onboarding in 1 to 3 weeks rather than the 3 to 6 months a WFOE takes across incorporation, chops, banking and bureau registrations.
- Testing the market with 1 to 15 engineers, sourcing managers or technical sales staff.
- Avoiding foreign exchange registration and multi-bureau filings.
A WFOE becomes necessary once you generate domestic revenue and need to issue fapiao, once headcount passes roughly 15 to 25, once the roles are core rather than auxiliary (dispatch is capped at 10% of headcount), or if you import, export or manufacture.
What does an employee actually cost beyond salary?
Plan for roughly 25% to 38% or more on top of gross salary, set by the city rather than nationally. It covers the five social insurances, pension, medical, unemployment, work injury and maternity, plus the housing provident fund (gongjijin), matched by the employer at 5% to 12%. Contributions run on last year's average monthly wage, capped at 300% of the local average wage and floored at 60%, so the effective percentage falls on senior salaries.
How difficult is termination in China?
Hard, and expensive when done wrong. At-will dismissal does not exist. You can only end a contract on grounds listed in the Labor Contract Law: mutual agreement, proven serious misconduct, incompetence that survives training or reassignment, expiry of the protected medical period, or a genuine objective change in circumstances. Statutory severance (jingji buchangjin) is 1 month per year of service, and dismissal without lawful grounds or proper procedure entitles the employee to double severance or reinstatement.
Can Dryft Global legally employ my team in China?
Yes, through licensed local employment and dispatch partners. We issue the bilingual contract inside the 1-month deadline, register social insurance and the housing fund in the city where the person actually works, withhold income tax, issue itemised payslips, collect the separate PIPL consents your HR data needs and manage work permits for foreign nationals.
Hiring routes compared
Licensing, time to market, invoicing ability and dispatch caps drive the decision. Here is how the three routes compare.
| Factor | Direct entity (WFOE) | Dryft Global EOR | Independent contractor |
|---|---|---|---|
| Speed to onboard | 3 to 6+ months (incorporation, banking, bureaus) | 1 to 3 weeks | Immediate, with high compliance hazard |
| Legal entity required | Yes, a PRC subsidiary | No, employed via a licensed local partner | No, but the worker needs tax registration |
| Social insurance and housing fund | Your own municipal bureau accounts | Fully managed under municipal accounts | Not possible, the worker self-insures |
| Fapiao invoicing | Yes, official VAT invoices | Handled through master billing | An individual cannot issue standard fapiao |
| Permanent establishment risk | Creates a taxable corporate presence | Substantially mitigated for non-revenue roles | Severe corporate and personal tax exposure |
| Termination exposure | Direct exposure to arbitration and 2N claims | Managed under statutory procedure | Reclassification triggers retroactive claims |
| Best fit | Domestic sales and teams above 25 | 1 to 15+ engineering or commercial hires | Genuine one-off B2B suppliers only |
What an employee costs in China
China funds pensions, healthcare and housing through wuxiyijin, five insurances and one fund. Rates are set municipally, so Beijing, Shanghai, Shenzhen and Hangzhou all differ, and bureaus reset the caps and floors annually, usually between July and September.
| Component | Employer share | Notes |
|---|---|---|
| Basic pension (yanglao) | 16.0% | National baseline rate |
| Basic medical, maternity merged in | 8.0% to 10.0% | Varies by city. Maternity insurance is folded into medical in most cities |
| Unemployment (shiye) | 0.5% to 0.8% | Varies by city |
| Work injury (gongshang) | 0.16% to 1.52%+ | Set by industry hazard tier. Employee pays nothing |
| Housing provident fund (gongjijin) | 5.0% to 12.0% | Employer matches the employee's rate. City and employer policy |
| Statutory subtotal (wuxiyijin) | ~25.0% to 38.0%+ | Base capped at 300% of the local average wage, floored at 60% |
| Commercial health and accident cover | ¥8,000 to ¥15,000 a year | Market standard for professional and technology roles |
| Annual medical checkup (tijian) | ¥1,000 to ¥2,000 a year | Expected in every serious offer |
| High-temperature allowance | ¥150 to ¥300+ a month | Statutory in summer months for qualifying roles |
| Total employer on-cost | ~26.8% to 29.2%+ | On the senior package modelled below |
For a senior engineer on ¥600,000 gross, budget roughly ¥761,000 to ¥775,000 all-in once social insurance, housing fund, commercial cover and workstation support are counted. Ask us for a city-specific cost model with the current caps applied.
Payroll and tax
Salary must be paid at least monthly on a fixed payday named in the contract, and every employee gets an itemised payslip showing base pay, overtime premiums, allowances, their own social insurance and housing deductions, withheld income tax and net pay. Income tax is filed and remitted through the tax administration's system by the 15th of the following month. Social insurance and the housing fund go to the municipal bureaus on local deadlines, and must be paid in the city where the employee physically works, not where your entity is registered. That one rule is the most common source of non-compliance for distributed teams.
Individual income tax
Tax is progressive from 3% to 45%, withheld monthly under a cumulative method so the effective rate rises through the year. Employees deduct a flat ¥60,000 a year, their own social contributions, and six special additional deductions covering children's education at ¥2,000 a month per child, continuing education, serious illness costs, mortgage interest or rent, elder care at ¥3,000 a month and infant care at ¥2,000 a month per infant. Year-end bonuses may still qualify for a preferential separate calculation rather than being aggregated into monthly income. Anyone in China for 183 days or more in a calendar year is a tax resident.
Statutory minimum wage
There is no national minimum wage. Provinces and municipalities set their own monthly minimum for full-time staff and an hourly minimum for part-timers, revised every one to three years, which is why the floor in Shanghai (around ¥2,690) differs from Beijing (around ¥2,420). Two related rules catch employers out: probation pay cannot fall below 80% of the post-probation salary, and it can never fall below the local minimum.
Leave and mandatory benefits
- Paid annual leave. 5 working days for 1 to 10 years of cumulative lifetime work history, 10 days from 10 years and 15 from 20. It counts service with every previous employer, verified through social security records, not tenure with you. Leave you fail to grant is paid out at 300% of daily wage.
- Public holidays. 11 statutory days, bundled by the State Council into Golden Weeks with compensatory working weekends (tiaoxiu). Work on a statutory holiday is paid at 300% and cannot be swapped for time off.
- Sick leave. A protected medical treatment period (yiliao qi) of 3 to 24 months depending on cumulative work history and tenure. You cannot dismiss during it. Sick pay is set municipally and must not fall below 80% of the local minimum wage.
- Maternity. 98 calendar days as the national baseline, paid through maternity insurance, plus a provincial extension of 30 to 60 or more days. Shanghai reaches 158 days in total.
- Paternity. 10 to 30 calendar days depending on the province. Beijing and Shanghai sit at 15.
- Parental leave. 5 to 10 working days a year for each parent until the child turns 3.
- Working time. 8 hours a day and 40 a week with one full rest day. Overtime is capped at 36 hours a month and paid at 150% on a workday, 200% on a rest day, 300% on a public holiday. Comprehensive or flexible hour systems for executives and field staff need prior municipal labor bureau approval. You cannot declare someone exempt in a contract.
- Year-end bonus. The 13th month payment is customary but discretionary unless your contract or employee handbook promises it.
Termination and notice periods
Every exit in China has to map to a statutory route. Get it right and the cost is predictable. Get it wrong and you are defending a 2N claim in labor arbitration, a mandatory step before any court hears the case.
| Route | Notice and severance |
|---|---|
| Mutual agreement (Art. 36) | No statutory notice. Negotiated package, commonly N or better |
| Non-fault dismissal (Art. 40) | 30 days' written notice or 1 month pay in lieu, plus N severance |
| Economic redundancy (Art. 41) | Consultation and reporting to the labor bureau, plus N severance |
| Disciplinary dismissal (Art. 39) | No notice and no severance, but you must prove the ground |
| Probation | Only if you prove the person fails documented recruitment conditions |
| Unlawful termination (Art. 87) | 2N damages, or reinstatement if the employee demands it |
- How N is calculated. One month of salary per year of service. Six months to a year counts as a full year, under six months as half. Where monthly pay exceeds 3 times the local average wage the base is capped there, and tenure is capped at 12 years.
- Some people cannot be dismissed at all. Article 42 blocks non-fault and redundancy dismissals for anyone under occupational disease observation, disabled by a work injury with you, inside the medical treatment period, pregnant, on maternity leave or in the nursing year, or with 15 years of service and within 5 years of retirement age.
- Your handbook only counts if it was adopted properly. Dismissing for serious breach of company rules fails unless those rules went through democratic consultation with the employee congress and were published and acknowledged in writing.
- The union gets consulted. Where a trade union exists it must be notified before a termination, and a formed union costs 2% of total payroll.
- Contracts have a 1-month clock. No written contract within a month of the start date and you owe double salary for every month worked without one, up to 11 months. After a full year the contract is deemed open-ended.
Can I use independent contractors?
Rarely, and never for anyone who works like an employee. Chinese law separates subordinate employment (laodong guanxi) from a civil service contract (laowu guanxi), and the practical obstacle comes first: an individual cannot issue a standard commercial fapiao without registering with the local tax bureau, so your invoices and deductions are exposed from day one. Beyond that, arbitration tribunals apply a three-part subordination test from the labor ministry's 2005 circular: whether both parties hold lawful qualifications, whether the worker is subject to your attendance rules, reviews and management, and whether the work is integral to your core business and paid as regular remuneration. If so, it is employment whatever the paperwork says, and you owe backdated social insurance and housing fund, unpaid overtime, statutory leave, potentially double salary for the missing written contract, and severance on exit. Labor dispatch is the regulated alternative, with its own limits: dispatched staff may only fill temporary, auxiliary or substitute positions, and may not exceed 10% of headcount.
The legal framework in brief
China's employment regime is statutory, written nationally and implemented city by city through local labor bureaus. The instruments you will hear most:
- Labor Contract Law (2008, revised 2012). The definitive statute on contracts, probation, dispatch and termination. Strong employee protections and strict formalities.
- Labor Law (1995). The 40-hour week, overtime caps, minimum wage architecture, occupational health and protections for female workers.
- Social Insurance Law (2011). Universal participation in the five insurances, with employer collection, reporting and contribution duties.
- Labor Dispute Mediation and Arbitration Law. Makes arbitration before a local commission a mandatory step before the People's Courts.
- Regulations on Paid Annual Leave (State Council Decree 514). The 5, 10 and 15 day leave ladder based on lifetime work history.
- Interim Provisions on Labor Dispatch (2014). The three-nature rule and the 10% headcount ceiling on dispatched workers.
- Civil Code and Employment Promotion Law. Article 1010 requires concrete anti-harassment measures, and discrimination on gender, ethnicity, disability or religion is banned.
- PIPL, Data Security Law and Cybersecurity Law. Separate written consent is required for sensitive HR data, for passing data to payroll vendors and insurers, and for any transfer of employee data out of Mainland China.
Where the talent is
China graduates millions of STEM professionals a year, and the depth in software, hardware, AI and advanced manufacturing is unmatched at scale. Bilingual engineering and management talent sits in the Tier 1 and New Tier 1 cities, but legal, payroll and bureau processes all run in Mandarin. Wage levels and contribution formulas differ sharply between tiers, so the city you hire in changes the cost of the hire.
| Region | Talent and industry concentration |
|---|---|
| Beijing | Software engineering, AI and deep tech, fintech, enterprise SaaS, corporate headquarters |
| Shanghai | Multinational headquarters, cross-border finance, biotech, luxury retail, automotive and EV research |
| Shenzhen and Guangzhou | Hardware engineering, IoT, microelectronics, robotics, supply chain, cross-border e-commerce |
| Hangzhou | Cloud computing, digital payments, e-commerce platforms, consumer technology |
| Chengdu and Wuhan | Software research hubs, semiconductor design, game development, shared services |
| Suzhou and Nanjing | Industrial automation, clean tech, biopharma, precision manufacturing, electronics |
China Implementation Kit
This page tells you the rules. The kit tells you what to do, in what order, and what goes wrong when you skip a step. Built from Dryft's onboarding checklist for China.
- Step-by-step implementation checklist, from hiring route selection to first payroll
- Municipal mapping: contribution caps, floors and housing ratios by city
- Bilingual contract template notes, with Mandarin primacy and the 1-month deadline
- Probation limits by contract length, and the 80% pay floor
- Employee handbook adoption, consultation and written receipt
- Working hour system selection and labor bureau applications
- PIPL separate consent language for HR data and cross-border transfers
- Payroll, withholding and social insurance filing calendar
- Foreigner's work permit and residence permit sequence
- Every official Chinese authority with direct links
This guide is general information, not legal, tax or immigration advice. Chinese labor law, social insurance administration and data protection rules operate on a national and municipal structure, with distinct local rules and enforcement practice. Confirm current figures with a qualified adviser or with Dryft before acting. Last reviewed September 2026.
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