Salary Structuring and Payment of Employees in China

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By Adam Livermore

June 9 – Foreign investors in China have become more ambitious over the years in terms of the kind of projects they are carrying out. We are seeing a gradual shift from low-value added manufacturing enterprises to high-value technology and service operations. One of the main challenges investors have to adapt to is the hiring and maintaining of skilled workers.

This was not a serious consideration when operating a factory with a staff of 90 percent blue-collar workers – there has been and will be (for the next few generations at least) a plentiful supply of such unskilled or semi-skilled labor. However the market for skilled, experienced white-collar workers in China is extremely competitive. Although the Chinese education system is producing millions of university graduates each year, most of them do not possess the skills or mindset to make an immediate contribution. Training is time consuming and expensive, while staff turnover is high as employees are headhunted or simply see better opportunities.

In such an environment foreign investors are faced with two dilemmas: paying employees too little will lead to high staff turnover, lack of business continuity and a knowledge drain from the company; paying employees too much will reduce competitiveness and encourage under-performing staff to stay with the company. This second problem has been exacerbated by the recently implemented labor contract law, which makes it much harder for an employer to terminate labor contracts for under-performing staff.

The solution for employers is to develop a more sophisticated, flexible salary structure. It should take into account that employers need to reward employees based on their differing kinds of contributions to the company. Salary structures should also be optimized so that employees do not pay unnecessarily high amounts of individual income tax. Offering various kinds of allowance in addition to base salary to meet the varying personal circumstances of employees should also be considered, as well as analyzing how critical it is to retain each employee for the next several years.

Designing such a compensation structure is not very difficult. What can be more challenging is to keep details of salary payments to individual employees confidential. When it becomes public knowledge within the company that certain employees are earning far more money than others of a similar rank, working relations can become “disharmonious.”

The best way of maintaining the confidentiality of employee salary information is to reduce the number of people involved in the processing to an absolute minimum. Outsourcing of payroll related work with just one contact in your HR division to handle information exchange is the best option. Payroll processing companies will maintain a secure server for the transfer of this confidential data and will have an automated processing system customizable to meet the salary structure designed by the company.

Such companies will provide payslips to employees on special paper which ensures no other employees will be able to open and reseal envelopes. They can make individual income tax returns on behalf of the company. They can even handle transfer of individual salary information in customized files to the bank so that the finance team simply sees the total payroll amount instead of the individual transactions. We recommend using a foreign bank for processing of payroll as they tend to have more sophisticated methods for handling these transactions. For instance Citibank requests a text file that can be loaded into its processing mainframe directly with very little manual input necessary. Domestic banks usually simply take an Excel sheet and the implication is that there will be manual re-input which could lead to information leaks and processing errors.

The structuring of salaries and handling of payments is only one aspect in the larger topic of workforce management in China. Subsequent articles will focus on issues relating to individual income tax, the labor contract law, outsourcing of non-core operations and mandatory benefit payments. All of these factors should be understood clearly by investors if they hope to build a strong, stable workforce that can effectively compete in the Chinese marketplace.

Dezan Shira & Associates provides payroll processing services to companies in China, with a specific payroll division in place to handle such work. This includes our specifically trained staff and customized Microsoft software capable of handling outsourced tax filings, mandatory welfare and payroll from 50 to 15,000 China based personnel. For more information please contact Adam Livermore.

14 thoughts on “Salary Structuring and Payment of Employees in China

    Arin says:

    Hi

    I have been offered a job with a company based in Qingdao China for a package of 10000 RMB per month – the designation of a manager and would be handelling a team of 10 member initially – i have got 5 years of specific industry experience of that of the company and have been selected based on my past experience and expertise – i am from India and have no idea of the salary structure here in China – please advise – its urgent

    thanks iin advance

    Arin

    Malcolm says:

    Hi Arin,

    You are pay very high compare to my staff in China. Manger only getting not more than RMB5000 per Month

    Waheed says:

    I am looking at employingbsome sales staff in mainland china.
    Can i pay them a gross wage, and then they can pay their own insrance and pension type contributions.
    Or do I have to pay them as nett, and send the balance to the local tax office?

    Vivek says:

    Iam a Payroll domain Guy, I intrested in knowing about china payroll process. Can you please from where i can understand the process flow in china payroll.

    Riaz says:

    Hi

    I am a Banking Business Analyst with over 8years of experince in Bank and IT industry.I am offered a basic slary as 325000 RMB per Annum plus Insurance.Please suggest if it is good.

    Regards

    Riaz

    @Riaz, well to be honest I don’t know, we’re not HR consultants, we deal in law/tax issues. You have a tax bill on top of that, as well as welfare obligations, so you need to strip those out to see how much you get in your pocket, and how that compares with what you’d get in your home country I guess. You could discount a bit for receiving a quasi China education, and living costs here may be lower. I guess if you’re happy with it – go for it!
    When I started out 20 years ago in China I got RMB48,000 a year. So you’re doing much better than me! Best wishes – Chris

    Riya says:

    can you please provide information on salary structure in china for a business developer of a representative law firm in china? what is the salary to be offered and salary break up, cost to company and other details

    Peggy says:

    Can you tell me if there is a Government Salary Structure for Public employees in China? If yes, where might I go to obtain a copy?

    @Riya: you need to talk to one of our payroll staff about this, as this depends on so many factors etc. Please email to Adam.livermore@dezshira.com.
    Best wishes
    Chris

    @Peggy: In China, the salary structure of public employees includes the following:

    Basic Salary
    Allowances
    Subsidies
    Bonuses

    The State implements a salary survey system, under which regular surveys are conducted to compare the salary standards between public employees and enterprises employees. The survey results will be used as the basis for adjusting salary standards for public employees. However, as the economic and social developments in different parts of China vary considerably, there is no uniform salary standard for public employees across the country and it is usually up to the local governments to formulate relevant standards. Please ask us if you need such data and we’ll see what we can do. We have a Payroll Services Division who may be able to take on this research.

    Best regards;
    Chris

    paul says:

    Hi my name is paul, i got transfer to shanghai and i am going to stay for one year in chaina, i am goignt o join a 5* hotel and i am going to stay in the hotel itself. company is going to pay me 4000 rmb and for my personal laundry they are going to pay me 1200 rmb food is free
    so is it a right move for me. i am going as a management trainee and later after a year i will get a position of Service manager.
    wgat do u suggest i am 33 years old guy.

    @Paul – well its not well paid but you get your accommodation and food for free and you get to learn all about working in an hotel in China. I’d say go for it. There’s plenty of opportunity for growth in China’s hotel industry.
    Best regards;
    Chris

    Anshu says:

    How to get Connected with China employee. I basically want to get Connected with someone from HenGan International Employees, Fujian Province China.

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