Hiring in China means taking on a set of tax and social contribution obligations that are more complex than in most markets. Costs vary by city, contribution bases shift annually, and registration requirements apply before you can put anyone on payroll. If you’re a foreign company planning to hire in China, here’s what you need to know about your obligations as an employer.
Social insurance contributions
China’s mandatory social insurance system is made up of five insurance programs plus a separate housing fund. Employer contribution rates aren’t applied to an employee’s actual salary. They’re applied to a regulated contribution base, which adds a layer of calculation that catches many foreign employers off guard. Here’s how each component works.
The five insurance categories
Employers are required to contribute to five insurance programs on behalf of each employee:
- Pension: 14–16% of the contribution base, with some cities (including certain tiers of Beijing) reaching 20%
- Medical insurance: 3–10%, with Shanghai sitting at approximately 8.5–10%
- Unemployment insurance: 0.5–0.8%
- Work injury insurance: 0.16–1.3%, depending on the industry risk classification assigned to your business
- Maternity insurance: 0.5–3%; note that this is being progressively merged into medical insurance as of 2026, but the rollout isn’t yet nationwide
In Shanghai, the combined employer cost for the five insurance programs runs approximately 33.7–35.5% of the contribution base, before accounting for the housing fund.
Employees also contribute from their own salaries: 8% to pension, 2% to medical insurance, and 0.2–0.5% to unemployment insurance. Total employee deductions typically range from 10–22% depending on the city.
The housing fund
The Housing Provident Fund is mandatory and administered separately from the five insurances. Both employer and employee each contribute 5–12% of the employee’s contribution base. Funds are deposited into individual employee accounts and can be used toward housing purchases or rentals. The exact rate within the 5–12% range is set locally and can vary by employer size or industry.
How the contribution base works
Contributions aren’t calculated on actual salary. Each city sets a contribution base range tied to the prior year’s average urban employee salary in that city. The range runs from 60% to 300% of that average figure.
If an employee’s salary falls below the 60% floor, contributions are calculated on the floor amount. If their salary exceeds the 300% ceiling, contributions are capped at the ceiling. This means a high-earning employee doesn’t necessarily cost proportionally more in social insurance than a mid-range one.
Local governments update these figures annually, typically effective July 1. You’ll need to track the current contribution base limits for each city where you have employees, since they differ across Shanghai, Beijing, Shenzhen, and other locations.
Iit withholding obligations
As an employer in China, you’re responsible for withholding Individual Income Tax (IIT) from employee salaries each month and remitting it to the tax authorities. This is a compliance obligation, not a discretionary one.
The standard monthly deduction is CNY 5,000 (CNY 60,000 annually). IIT is calculated on taxable income after that deduction, with progressive rates ranging from 3% to 45%. Your obligation as an employer is to calculate and withhold the correct amount each month based on the employee’s cumulative income for the year. The rates themselves are set by the government; you’re not deciding what employees owe, you’re collecting it on the tax authority’s behalf.
Failure to withhold correctly can result in penalties for the employer, so accurate payroll calculations and timely remittance are non-negotiable.
Minimum wage by city
There’s no single national minimum wage in China. Rates are set at the provincial or municipal level and updated periodically. As of January 1, 2026, the rates for China’s two largest employment markets are:
- Shanghai: RMB 2,740/month; RMB 25/hour
- Beijing: RMB 2,540/month; RMB 27.70/hour
These figures apply to standard employed workers. If you’re hiring in other cities, you’ll need to check the applicable local rate, as figures vary considerably across provinces and municipalities.
Registering as an employer
Before you can legally put an employee on payroll in China, you need to complete three registrations:
- Social Insurance Agency: You must register with the local Social Insurance Agency in the city where the employee is based. This registration is required before making any social insurance contributions.
- Housing Fund Management Centre: Separate registration is required with the local Housing Fund Management Centre before making housing fund contributions.
- Tax authority: You must register with the relevant tax authority for IIT withholding purposes before running payroll.
All three registrations are city-specific, so if you hire employees in multiple cities, you’ll need to complete this process in each location. There’s no single national registration that covers payroll obligations across China.
Hiring in china through an Employer of Record
Many foreign companies don’t have a legal entity in China, and setting one up takes time, capital, and ongoing administrative overhead. Without a registered entity, you can’t legally employ staff directly. An Employer of Record (EOR) solves this by acting as the legal employer on your behalf.
Under this model, the EOR handles registration, payroll, social insurance contributions, housing fund payments, and IIT withholding in each city where your employees are located. You direct the work; the EOR handles the compliance. This is particularly useful given how much China’s social insurance rules vary by city and how frequently contribution base figures are updated.
Book a demo to see how RemotePass handles Chinese payroll and social insurance compliance.
Frequently asked questions
Do social insurance rates apply to the employee’s full salary?
No. Contributions are calculated on a regulated contribution base, not the employee’s actual salary. Each city sets a floor and ceiling for the contribution base, tied to the local average wage. If an employee earns above the ceiling, contributions are capped at the ceiling amount. If they earn below the floor, the floor applies.
Do employer social insurance rates differ by city?
Yes, and sometimes significantly. Each city sets its own rates within national guidelines. Shanghai and Beijing have different rates, and smaller cities may differ further. The specific rates within ranges like the pension rate of 14–16% depend on local government decisions, so you’ll need city-level figures for wherever your employees are based.
What happens if you don’t withhold iit correctly?
The employer bears responsibility for correct withholding and timely remittance. Under-withholding can result in penalties for the company, not just the employee. If you’re running payroll directly, you need processes in place to calculate cumulative income correctly throughout the year, since IIT in China is assessed on a cumulative annual basis rather than a simple monthly flat rate.
Can a foreign company hire in china without a local entity?
Not directly. Chinese labor law requires that an employee have a legal employer registered in China. Foreign companies without a local entity typically use EOR services to employ staff compliantly. This avoids the need to establish and maintain a wholly foreign-owned enterprise (WFOE) or other local structure before you’re ready to commit to that level of investment.
