Employee Management in China: The Trinity of Labor Contract, Social Security, and Individual Income Tax

Posted by Written by Cherry Tao and Jamie Jiang Reading Time: 6 minutes

We discuss the ‘trinity concept’ employed by China authorities to oversee and ensure company compliance with employee management, particularly in Tier-1 cities. This concept comprises three fundamental pillars: the labor contract, social security contributions, and individual income tax.

With the implementation of the Administrative Supervision Measures for Social Insurance Funds (Ministry of Human Resources and Social Security (MOHRSS) Order No.48) on March 18, 2022, labor authorities in major first-tier cities in China (such as Beijing, Shanghai, Guangzhou, Shenzhen, and Hangzhou) have been placing more emphasis on ensuring the alignment of employees’ labor contracts, social security payments, and the withholding of individual income tax (IIT). That means the workplace clauses in the labor contract, the city where the employee participates in their social security, and the city where the IIT is filed should be consistent with each other. The trinity management method (三位一体管控措施) has emerged as a significant concern in employee management within companies in China. In this article, we will delve into the practical implementation of this policy, explore the potential implications of non-compliance, and examine the professional solutions offered.

How is the trinity method applied by China authorities to monitor employee management?

Over the past year, the following four characteristics have been observed in the implementation of the policy.

Local jurisdiction, universal coverage

The trinity management method is implemented by China’s local labor authorities in charge. It is a common policy in all regions to conduct targeted interviews with companies and issue orders for timely rectification. These interviews are not limited to specific types of companies, such as state-owned enterprises (SOEs) or private enterprises. Notably, leading companies across various industries have been the initial target for such interviews.

No formal notice

As the consistency of the workplace in the labor contract, the social security city, and the IIT declaration city is a practice that should be followed according to Chinese labor laws and regulations, there is no official document specially released for the trinity management method. Rather, local authorities tend to notify businesses in comparably unofficial ways. For instance, in Beijing, notifications from the municipal social security center were shared through various districts or counties’ official WeChat accounts. Similarly, in Hangzhou, the dissemination of meeting instructions related to the “trinity” requirement is commonly done through sessions or seminars attended with business representatives.

Enhanced supervision with improved technologies

With digitalization expanding to government sectors as well, the local labor and social security authorities and tax authorities have more technical tools and data to cross-check if the reimbursement clauses in the labor contract, the social security contributions, and the IIT payment amount are consistent with each other. It’s harder and risky to still use different base amounts for social security payment and IIT withholding.

Increased scrutiny of eligibility for claiming benefits

Almost all cities have implemented varying degrees of post-insurance scrutiny measures to ensure the trinity management policy is properly implemented.

For example, when claiming work-related injury benefits or medical insurance treatment, there will be certain kind of review. Some cities, such as Shanghai, review the base amount of labor contract, social security contribution, and IIT payment when examining employee’s application material for residence permit. In cities like Shenzhen, there are reviews on the consistence of employer’s name on the labor contract and that for the social security contribution, when deciding the employee’s eligibility for talent subsidy application. Additionally, in certain cities, such as Beijing, there will be a review of the employer’s name on the labor contract and that for the social security contribution when deciding the eligibility of relevant employees’ children for some public schools.

What are other legal consequences for violating employee management norms under the trinity scope of supervision?

In addition to reviews and corrections as required by relevant authorities and access to certain benefits, Article 32 of the MOHRSS Order No.48 stipulates in its Item 1 that where a person fabricates the conditions for social insurance participation by providing false personal information or labor relations, using forged, altered, or embezzling someone else’s identity certificate, presenting false certification materials, or employing other fraudulent means, and illegally obtains social insurance benefits, they shall be dealt with in accordance with the provisions of Article 88 of the Social Insurance Law of the People’s Republic of China. According to Article 88 of the Social Insurance Law, the social insurance administrative department can order the repayment of fraudulently obtained social insurance benefits and impose fines ranging from two to five times the defrauded amount. This is the first time that MOHRSS has mentioned in an official document that “fabricating labor relations” and “fabricating social security eligibility” for joining social security schemes will be regarded as illegal behaviors.

What are the possible solutions for businesses to address the trinity management policy?

Based on the above discussions, it is evident that an increasing number of cities are imposing stricter scrutiny on the alignment of the labor contract, social security payments, and IIT withholding. The proper implementation of the trinity management method is now closely linked to eligibility for various benefits, and relevant authorities have developed more technical methods to enforce compliance, resulting in intensified legal consequences for violations. It is of utmost importance for companies and HR departments to prioritize and actively plan for compliance in this aspect.

However, in practice, many businesses do not have a physical entity registered in corresponding local jurisdictions to handle local employees’ social security and IIT payments. Based on our on-the-ground practices, we have identified three possible solutions.

Solution 1: Mutual agreement with the employee to re-sign their labor contracts

In this solution, no new entity will be established in the corresponding local jurisdiction. Instead, companies are encouraged to engage in negotiations with relevant employees to amend their labor contracts. A new labor contract will be signed between the headquarters and the employee, where the headquarters will be responsible for handling the employee’s social security and IIT at the location of the headquarters. The advantage of this solution is that it adds almost no extra cost to the business. However, it might be challenging to persuade relevant employees to accept this solution, as they may be seeking access to certain social benefits by complying with the trinity management policy.

Solution 2: Setting up new entities in various local jurisdictions

In this solution, companies will need to register new entities in corresponding jurisdictions where they have employees operating on the ground. These new entities will then be responsible for handling relevant employees’ social security and IIT payments. This solution prioritizes employees’ demands to participate in social security and pay IIT in the local jurisdiction. However, it will substantially increase the management costs for businesses to maintain the basic compliance of these entities.

Solution 3: Using PEO professional employer services

In addition to the aforementioned two solutions, there is another approach where businesses can fulfill employees’ demands to participate in social security schemes and pay IIT in local jurisdictions without setting up a new entity.

Under this solution, businesses can opt to purchase professional employer services from third-party professional employer organizations (PEOs). These organizations offer comprehensive HR and employment solutions, allowing businesses to outsource various employment-related functions while ensuring compliance with labor laws and regulations. To elaborate, the business will enter into an agreement with the third-party PEO, which has branches in cities where their employees are located. The third-party PEO will handle the relevant employees’ labor contracts, social security, and payroll through their local branches. Entering into an employer services agreement with a third-party organization will centralize the management of their employees’ labor contracts, social security, and payroll, providing a streamlined and efficient solution. This solution has several advantages:

  1. Simplified HR management: By outsourcing the management of employees’ labor contracts, social security, and payroll to a third-party organization, businesses can streamline their operations. This can free up their valuable time and resources, allowing the company to focus on its core business activities.
  2. Better compliance: Third-party organizations specializing in employer services have up-to-date and in-depth knowledge of labor laws, social security regulations, and payroll requirements. They are equipped to handle complex compliance issues and ensure that all obligations are met accurately and timely.
  3. Cost-effective solution: Partnering with a third-party organization eliminates the need for businesses to invest in establishing and maintaining separate departments or hiring additional staff to handle contract management, social security administration, and payroll processing. This can result in cost savings for the company.
  4. Reduced legal risks: By entrusting these critical functions to a specialized organization, businesses can mitigate legal risks associated with contract management, social security compliance, and payroll obligations. The third-party provider assumes responsibility for ensuring adherence to relevant regulations and minimizing potential liabilities.
  5. Scalability and flexibility: As businesses expand their operations and hire more employees in different regions, this arrangement allows for easy scalability and adaptability. The third-party organization can adjust their services to accommodate changing needs, such as adding new employees, managing payroll across multiple locations, or handling diverse employment contracts.

Overall, this approach offers businesses the advantages of streamlined operations, specialized expertise, cost savings, reduced legal risks, scalability, and improved employee experience. By entrusting these crucial functions to a reliable third-party organization, companies can focus on their core business while ensuring compliance and efficiency in managing employee contracts, social security, and payroll.


The trinity management of labor contracts, social security contributions, and IIT has become a prominent trend across China, particularly in first-tier cities. In this new context, businesses can no longer solely sign labor contracts with their employees while handling their social security contributions and IIT payments through separate local entities. Companies are advised to carefully study the new requirements and explore suitable solutions as soon as possible, to avoid facing heightened scrutiny from relevant authorities.

Dezan Shira & Associates (DSA) specializes in offering comprehensive employer services, including contract administration, social security administration, tax calculations, and compliance management. We have in-depth knowledge of relevant laws and regulations, ensuring that all obligations are met accurately and in accordance with the applicable requirements. For more information about our PEO services, please contact China@dezshira.com.


About Us China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com. Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, Dubai (UAE), and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.