China Payroll Outsourcing Services

When registering a company in China, foreign companies often consider payroll outsourcing (sometimes companies search for ‘compensation outsourcing China’ or ‘mandatory benefit outsourcing China’ to find this service, depending on their needs) to navigate local regulations efficiently and ensure compliance.

In this guide, we set out everything you need to know about payroll outsourcing in China and identify the top 5 providers. 

What Is Payroll Outsourcing?

Payroll outsourcing in China refers to delegating payroll processes to a third-party service provider. This encompasses calculating employees’ wages, withholding taxes, social security and handling contributions, and necessary payroll-related documentation.

A China payroll solution is usually used where an international company has a subsidiary in China or wishes to set one up. A China Professional Employer Organization (PEO) solution may be more appropriate for companies without local subsidiaries. 

The Top 5 China Payroll Outsourcing Providers

• MS Advisory is a long-established China payroll outsourcing partner and provides the most cost-effective payroll solution. For a provider that is equally committed to payroll compliance and affordability, MS Advisory is our pick. 
• Deloitte is an internationally renowned consultancy, accounting, and payroll provider with subsidiaries worldwide. It is ideal for any business interested in a premium payroll service. 
• PwC is one of the ‘Big Four’ Accountancy and Consulting firms with a long presence in China. PwC is a valuable partner for larger businesses that seek Audit and Business Advisory support alongside payroll. 
• Horizons is a leading China Employer of Record (EOR). Horizons can also support companies with a subsidiary in China and wish to outsource their payroll services. 
• Remote is an international EOR platform with subsidiaries worldwide, including China. For comprehensive payroll support through a cutting-edge platform, Remote is an excellent choice. 

Benefits of Payroll Outsourcing

Outsourcing payroll to a payroll services provider can benefit entities operating within China’s economy.

• Reduces Overhead Costs: Outsourcing the entire payroll process can reduce the expenses associated with maintaining an in-house payroll department.
• Ensures Compliance: Expert service providers stay abreast of the frequently changing regulatory landscape, mitigating non-compliance risk in running monthly payroll.
• Enhances Efficiency: Outsourcing payroll administration frees up a company’s internal resources, allowing them to focus on core business operations and the well-being of Chinese employees.

Given the intricacies of China’s economic and regulatory environment, outsourcing payroll functions can be a strategic move for businesses aiming to streamline their operations and maintain a clear focus on growth and development within the market.

In-House versus Outsourcing Payroll

Legal and Compliance Framework

Navigating the legal and compliance framework for payroll outsourcing in China requires understanding the intricate tax systems, strict employment laws, and varied local tax obligations. Companies must ensure adherence to these frameworks to maintain legal compliance and avoid penalties.

1. China’s Tax System and Compliance

China’s tax system encompasses a variety of corporate taxes, including income tax, corporate tax, and local taxes. Multinational corporations must comply with the statutory requirements for tax filings and payments. It is imperative to grasp the intricacies of tax regulations regarding expatriates and domestic employees. The country’s compliance structure mandates detailed documentation and regular reporting to tax authorities.

2. Employment Laws and Regulations

Employers in China are subject to stringent employment laws and regulations. They must establish legal entities in the country to legally hire staff and adhere to rules that dictate terms of employment, insurance regulations, compensation, and termination. Legal compliance regarding labor contracts is vigorously enforced, and any deviation may lead to substantial fines and legal disputes.

3. Understanding Local Tax Obligations

Local tax obligations vary across different regions in China. Businesses must remain informed about the local tax requirements that may affect their payroll processes. This includes local income tax rates and ensuring correct insurance contributions. Understanding and adhering to these local stipulations is critical for companies to operate within the bounds of Chinese law.

China Payroll Alternative: Professional Employer Organizations (PEO)

PEO in China presents a strategic solution for companies looking to hire employees in China without establishing a legal entity. They serve as the ‘Employer of Record,’ handling complex administrative tasks and compliance with local employment laws.

1. Benefits of Partnering with a PEO in China

Partnering with a PEO in China can offer significant advantages:

• Compliance with Local Laws: PEOs ensure that employment practices conform to Chinese regulations, reducing legal risks.
• Cost-Effective: By outsourcing HR functions, companies can save on the costs of running an in-house HR department.
• Ease of Market Entry: Businesses can enter the Chinese market swiftly, as the PEO handles the intricacies of hiring and employee management.
• Focus on Core Business: Employers can concentrate on their primary business operations, with the PEO managing HR-related tasks.

2. PEOs versus Traditional Employment Models

When comparing PEOs to traditional employment models, several differences emerge:

• Liability Sharing: Unlike traditional models, in which the employer bears all employment liabilities, a PEO shares certain employment-related liabilities.
• HR Outsourcing: While traditional models typically involve in-house HR management, PEOs take over HR functions entirely.
• Market Presence: Setting up a legal entity in China can be a long process; however, a PEO allows companies to have an immediate presence and start operations more quickly.
• Flexibility: PEOs offer companies more flexibility to scale their workforce up or down in China without the legal and financial burdens of restructuring a legal entity.

Key Payroll Components in China

The payroll management process in China encompasses specific calculations and statutory requirements that employers must adhere to. Effective payroll management ensures compliance with Chinese laws while accurately compensating employees. Companies that offer payroll outsourcing in China ensure these critical points are met.

1. Salary and Wage Calculations

Every company in China needs to calculate salaries and wages for its employees rigorously. This involves determining gross and net pay after considering mandatory deductions like taxes, social insurance contributions, and the housing fund. The standard payroll cycle frequency is monthly, strictly adhering to compliance requirements set forth by Chinese labor laws.

• Gross Pay: Total remuneration before deductions.
• Net Pay: Amount received by employees after deductions.

2. Mandatory Benefits and Contributions

Employers must enroll their employees in China’s social insurance scheme, which comprises medical insurance, pension insurance, work-related injury insurance, unemployment insurance, and maternity insurance. Additionally, contributions to the housing provident fund are required by law, with both employer and employee making a percentage-based contribution, which varies depending on the city.

• Social Insurance Contributions: Split into five insurance types.
• Housing Fund: A savings account for housing purposes; contribution rates vary by location.

3. Handling Bonuses and Incentives

In China, bonuses and incentives play an integral role in the total compensation package for employees. They must be handled with precision and proper taxation. Bonuses may include annual end-of-year payments, performance bonuses, or other incentive-based remunerations. Employers must ensure these are processed according to the applicable tax laws and recorded accurately in the payroll system.

• Annual Bonuses: Typically distributed during Chinese New Year.
• Performance Bonuses: Awarded based on employee or company metrics.

Specific Considerations for Outsourcing in China

Payroll outsourcing in China requires a nuanced approach due to its unique business environment and regulatory framework. Companies must navigate cultural nuances, expatriate employee needs, and stringent data privacy regulations.

1. Cultural Considerations in HR and Payroll

Recognizing local customs and business practices is crucial when companies in China outsource pay. In the Chinese market, guanxi—the concept of building networks and relationships—plays an integral part in business dealings. Companies must ensure their payroll outsourcing partners understand the importance of maintaining harmony and face, facilitating smoother interactions, and complying with local labor laws.

2. Addressing the Needs of Expatriate Employees

The complexity of payroll for expatriates in China requires specialized knowledge. Expatriate employees often have different contractual agreements, benefit packages, and tax implications. When expanding into China, payroll outsourcing services must be capable of customizing their services to accommodate these variations, ensuring foreign employees receive accurate and timely remuneration according to Chinese and international regulations.

3. Data Privacy and Protection in HR Processes

Data privacy in China is a critical concern, especially with the coming into effect of the Personal Information Protection Law (PIPL). Payroll outsourcing services must demonstrate a robust understanding of these regulations to protect sensitive employee data. It is essential for companies outsourcing their HR processes to verify that their partner has strong cybersecurity measures in place to prevent unauthorized access or breaches, thereby maintaining confidentiality and compliance within the Chinese market.

By acknowledging these considerations, companies can more effectively manage their HR and payroll functions while upholding the required standards within China’s dynamic business landscape.

How China Payroll Services Work

Payroll outsourcing in China encompasses critical administrative functions fundamental to a company’s operation. Specific functions usually include:

1. Payroll Processing and Administration

The payroll outsourcing service ensures that staff are paid on time and accurately, reflecting their work hours and benefits. Payroll administration also includes issuing clear and detailed invoices and pay slips, thus providing transparency for the company and its staff.

2. Social Security Contributions and Tax withholding

A China payroll service will cover all compulsory social contributions and employee income tax withholding. A payroll partner will manage payments in China’s social insurance system, which covers five categories: pension, unemployment, medical insurance, work-related injury insurance, and maternity insurance. Additionally, a housing fund contribution is mandatory for employers and employees to support the accumulation of funds for housing purposes. They ensure accurate and timely social contributions, legal compliance, and employee satisfaction.

3. Record Keeping and Reporting

Maintaining accurate record-keeping and reporting is crucial for compliance and financial management. All payroll-related records, such as time sheets, pay slips, and tax filings, must be diligently archived. Reporting services cover preparing tailored reports essential for financial analysis, budgeting, and audits. This component is particularly significant, given the complexity of tax and regulatory processes in China, which demand a high level of precision and up-to-date knowledge.

Selecting a Payroll Services / Payroll Management Partner

When engaging in payroll outsourcing in China, companies must carefully assess providers and establish a solid working relationship with their chosen service partner. Companies that have been in China for years—such as Horizons—often score best in independent tests due to their proximity to regulators and access to local expertise.

1. Evaluating Payroll Outsourcing Providers

Choosing the right payroll outsourcing provider is critical for foreign companies operating in China. One should look for a provider with a deep understanding of the Chinese payroll landscape, ensuring they can navigate local regulations, labor laws, and tax structures. Explicitly, companies should:

• Verify Expertise: Ensure the provider has experience with local and expatriate payroll management.
• Check Compliance: The provider must align payroll structures with China’s complex regulatory environment.
• Assess Support: Consider the provider’s ability to issue individual pay slips, maintain leave entitlements, and manage net remuneration payments efficiently.

The provider must be capable of handling an organization’s specific needs, especially when the growth phase demands scalable solutions.

See our assessment of the top 5 China payroll outsourcing companies above to evaluate the top players. 

2. Building a Relationship with Your Service Provider

Once a competent provider is identified, forging a trusting partnership ensures smoother payroll operations. Companies should set up a clear point of contact to facilitate communication and resolve concerns quickly with the service provider, such as INS Global, a firm with expertise in the area. Building this relationship involves:

• Regular Interaction: Regular meetings and updates provide transparency and foster mutual understanding.
• Contact Us Mechanism: A clear and accessible ‘contact us’ mechanism simplifies troubleshooting and maintains service continuity.

Engagement with a provider for payroll outsourcing in China goes beyond the initial setup; it involves a continuous dialogue to keep pace with a business’s changing regulatory landscape and internal demands.