How to hire employees in China through an employer of record (EOR) [2024]

Published

Jul 21, 2023

Hiring in China can be an exciting venture, as you can tap into a wide pool of talent—the country’s workforce totals 740.4 million people. However, navigating the country's complex labor laws and administrative processes can be a daunting task, especially if you plan to hire full-time employees rather than contractors. To bring on full-time workers as a foreign company, Chinese laws require you to either establish a legal entity in China or hire through an employer of record (EOR).

Learn more about What is an Employer of Record (EOR)?

Here’s a step-by-step guide for hiring through an EOR in China.

Step by step: How to hire through an employer of record in China

Step #1: Decide between a Chinese EOR and a legal entity

Debating whether to hire your new employee in China through an EOR versus setting up your own entity? Your decision should factor in your company’s current resources, size, and plans to scale. 

  • Legal entity in China. Establishing a legal entity from the ground up takes time and money. The process includes choosing a business structure, registering with the government, and opening a local bank account, plus consulting with Chinese labor law experts to ensure compliance with the country’s tax and labor laws. After that, you’ll be responsible for running all of the payroll, benefits, and taxes for your Chinese employees.
  • Chinese EOR. This third-party service operates as a legal employer on a company’s behalf, meaning that you won’t go through the process of setting up your own legal entity. You’ll be able to more quickly hire full-time Chinese employees if you use an established EOR. What’s more, China EORs handle all compliance with Chinese laws for payroll, contracts, taxes, and benefits. As part of their service, the Chinese employer of record will calculate and withhold taxes, onboard and manage employees, and run payroll.

Pros and cons of EORs vs. setting up a legal entity

Not only can registering a legal entity take months, but once established, it requires an understanding of national and local labor laws, and you must also be able to navigate tax compliance. Missteps could incur fines, legal action, or bans from operating in the country. EORs simplify the employee hiring process, from employee onboarding to payroll and taxes. 

EOR

Legal entity

Cost & Implementation

✔ Less time-consuming to set up.

✔ You can start hiring within days instead of months.

✘ Becomes costlier as your headcount increases.

✘ Takes up to six months to set up—and requires registration fees. 

✔ More cost-effective once you’ve hired enough employees in a foreign country.

Hiring

✔ Quickly set up new hires, often within one to 14 days, depending on the provider.

✔ Supports large-scale expansion in a new market.

Compliance

✔ Manages all of your compliance work for you, takes on liability, and provides localized employment contracts. 

✘ Can’t tailor certain policies, and other HR/legal processes, to the needs of your business.

✘ Requires expert knowledge of local regulations and tax laws and internal legal resources, as your company is liable for all legal and compliance infractions. 

✔ Can tailor certain policies, and other HR/legal processes, to the needs of your business.

Payroll & Benefits

✔ Quickly pay and insure employees around the world.

✔ Taxes are filed for you.

✘ Must manually keep track of statutory deductions and employee entitlements for every hire.

Step #2: How to choose the best EOR for your business

Before you choose a platform, consider the EOR services you will need and how much you plan to grow your global hiring presence.

  • Is the EOR service active in the countries in which you need to hire? The first and perhaps most obvious consideration when choosing an EOR for global expansion.
  • Does the EOR own its own entities in the countries it services? If the EOR does not own the entities, it means they are partnering with a local or third-party provider.
  • How does the EOR protect your sensitive and confidential information? Your EOR needs to have the appropriate data protections in place, as well as secure technology that eliminates potential disclosures of private information, to remain compliant with Chinese data privacy laws.
  • Does the EOR offer automated solutions? You may want to look for an employer of record service that automates the busy work like onboarding and benefits enrollment and other common HR and IT tasks.
  • What is the EOR’s support model? It’s essential that your EOR has support staff that are both easy to contact and experts in the regulations of the countries in which you are hiring.

Get the full checklist in our guide: What is an EOR?

Step #3: How to hire and onboard your Chinese employees

Once you’ve researched China employers of record and picked one that works for your needs, it’s time to begin the onboarding process. Here’s what you’ll need from your new Chinese employees:

  • Name (matching the account where you’ll deposit their pay)
  • Nationality
  • Date of birth and date of hire
  • Contact information, including their mailing address in China and their email
  • National ID number
  • Amount to be paid in the people's renminbi (RMB), also known as Chinese Yuan (CNY)
  • Direct deposit information

Because of China's strict Personal Information Protection Law, only collect necessary data and use encryption and other security measures to collect and store that data.

Next, you need to send out an employment agreement that outlines key working conditions, such as notice periods, annual leave, and employee benefits. This agreement needs to be issued within one month of their first day at work. Otherwise, you may be penalized by having to pay fines. Remember: All your labor contracts should be translated into Standard Chinese or else they could be found invalid. (Though both Cantonese and Mandarin are commonly spoken in the country, the dialects share the same writing system.) 

An EOR makes things easy by automatically localizing and distributing employment agreements so that every Chinese hire will have a legally compliant contract. This includes statutory requirements for probationary periods, working hours, minimum wage, benefits, and termination policies.

For example, let’s say you hire two full-time Chinese employees who live in different provinces. In addition to Chinese national laws, there are local rules, meaning that these two different employees may be bound to different regulations. For example, minimum wage may vary depending on that region’s economic development. When you use an EOR for these Chinese hires, the EOR will generate separate employment agreements to account for the differences.

In China, you should also have employees read and sign an employee handbook. This is considered a legal document in China and includes terms and regulations for the workplace.

If you don’t use an EOR, you will need to register your employee with the State Taxation Administration, the local Social Insurance Bureau, and the Housing Fund Bureau. If you use an EOR, they will take care of this registration for you.

You can onboard new hires anywhere, end to end, with Rippling.

Step #4: Run payroll

After you’ve collected a new hire’s information, both parties have signed employment agreements, and you’ve registered with the appropriate governmental institutions, an EOR will pay your Chinese employees in CNY/RMB and also withhold legally required taxes. This includes contributions to:

  • Federal income tax (there are no local taxes for personal income in China)
  • Pension fund
  • Unemployment fund
  • Medical fund
  • Occupational fund
  • Maternity fund

Frequently asked questions about hiring through an EOR in China

How much does an employer of record service cost?

Typically, EORs employ one of two pricing structures:

  • Percentage of payroll, plus any applicable taxes
  • Fixed monthly fee per employee

Whichever method the EOR uses, there may be additional administrative fees, onboarding charges, and other costs for supplemental features. Remember that you don’t need to use an EOR for your whole workforce. Instead, you can choose to segment its use to specific countries or for certain employees, and will only be charged for the employees who fall under the EOR.

What is the difference between an EOR and PEO?

Professional employer organizations (PEOs) co-employ a company’s workforce and provide administrative services, including paying employees, handling compliance, and filing payroll taxes. The company and PEO are jointly responsible for the workforce. A PEO does not, however, allow you to hire in other countries where you haven’t set up a local entity. 

An EOR allows companies to work with employees in other countries without setting up a legal entity. EORs are the sole employer of the portion of your workforce you use it for and, as such, assume all the associated liabilities. 

Does an EOR protect your sensitive and confidential information?

Outsourcing your payroll management to an EOR can spare you time and compliance risk. However, sharing your data with companies who use third-party vendors could leave you vulnerable to data breaches from manual uploads, which is a major risk in China, as the country has strict data privacy laws. 

Seek out EORs that prioritize data protection, including:

  • Compliance with industry-standard privacy regulations in different countries
  • Secure infrastructure with around-the-clock maintenance
  • Carefully vetted personnel

You can also establish a data processing agreement (DPA) with a payroll service that mandates sound privacy practices and provides legal protection. 

Does an EOR help with Chinese tax filings?

Yes, EORs can automatically calculate and file taxes for your employees in China. 

As an employer without an EOR, there are specific steps you’d need to take, including submitting an annual individual tax return (form B) and individual income tax credit details to the local authorities. 

What are the mandatory benefits for Chinese employees?

The following benefits are mandatory in China:

  • State-administered benefits include retirement benefits, medical care, and unemployment. Employers contribute to social security.
  • Workers’ compensation
  • Maternity and paternity benefits
  • Sick leave
  • Paid leave/vacation, which ranges between 0 and 15 days depending on the length of the employee’s service
  • Public holidays, which include New Year’s Day, the Spring Festival (known as Chinese New Year), the Qingming Festival, Labor Day, the Dragon Boat Festival, the Mid-Autumn Festival, and National Day

What are the employer costs for full-time employees in China?

Social security contribution rates are based on a percentage of that month’s salary for the employee and vary depending on the region. Employers are responsible for deducting the following from their full-time employees’ paychecks. Find some examples below:

City: Shanghai

Social security type

Employee pays

Employer pays

Pension

8%

16%

Medical (which includes maternity leave)

2%

10%

Work-related injury

0%

0.16% to 1.52%

Unemployment

0.5%

0.5%

Total owed

10.5%

26.66% to 28.02%

City: Guangzhou

Social security type

Employee pays

Employer pays

Pension

8%

14%

Medical (which includes maternity leave)

2%

6.85%

Work-related injury

0%

0.2% to 1.4%

Unemployment

0.2%

0.8%

Total owed

10.2%

21.85% to 23.05%

City: Beijing

Social security type

Employee pays

Employer pays

Pension

8%

16%

Medical (which includes maternity leave)

2%

9.8%

Work-related injury

0%

0.2% to 1.9%

Unemployment

0.5%

0.5%

Total owed

10.5%

26.5% to 28.2%

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.

last edited: August 16, 2024

Author

The Rippling Team

Global HR, IT, and Finance know-how directly from the Rippling team.