5 Things to Consider when Employing in China
Are you building a business or expanding your enterprise overseas? China is a bustling territory where a lot of the world’s production takes place. It is a common target for companies and businessmen to consider setting up shop in China, and in the process, hiring people locally is a must. Here’s a quick list of things to consider when employing in the country.
#1: Check Requirements
According to Chinese laws, a foreigner is defined as someone who doesn’t have Chinese nationality. This law mentions that foreigners working in the country are individuals who engage in labor in exchange for compensation, and have not secured the status of a permanent resident in China.
Before hiring a person, familiarize yourself with the requirements that an individual must meet to work in China:
● Must be at least 18 years old
● Must be in good health
● Must possess professional skills, expertise, and experience required for the vacancy
● Must have a specific employer
● Must possess a passport that is valid
● Must present any international travel certificates and documentation as requested
● Must have no criminal records
#2: Follow the Legal Process of Hiring
When expanding a business in China, you should be aware of the proper procedures to be followed and avoid any illegal activities. The Chinese government has been aware that some companies tend to hire illegal foreign workers, masking the process by teaching them the local language. The local authorities put an end to employment, together with a fine of more than US$1000.
This is why following the laws in place is important. Make sure that all your employees secure the required work permits, residence permits, and visas. The government fines foreigners who hire people illegally between US$500 to $2800. For more serious cases, you can also be detained for up to 15 days in addition to the fine.
#3: Types of Social Insurance
You can divide the Chinese social security system into two categories: (1) social insurances, and (2) the housing fund.
Here are the five types of social insurances:
Pension
For this, both employee and employer contribute monthly. The pension can be drawn upon only after working at least 15 years. The employee’s part will be put into a personal account, which will be considered as a personal asset.
Work Injury
This insurance covers the employee and is paid for by the employer completely. It can cover medical expenses as well as wages for up to 12 months.
Medical
This is heavily subsidized by the state. Still, both workers and employers have to contribute. It won’t cover all treatments and expenses, and the employee’s dependents are not included in the coverage.
Unemployment
Contributed by both employer and employee, this is considered as obligatory insurance. It covers unemployed urban employees for up to two years.
Maternity
This is contributed by the employer. The insurance covers medical expenses and loss of earnings for at least 90 days.
#4: Labor Contracts
A labor contract is required to be signed by both employee and employer. The contract must not exceed a duration of five years. It can, however, be renewed under the provisions of Chinese laws.
Here are the important parts that need to be included in the said labor contract:
● Probation periods, the term of the contract, and date of signing
● Job title and description, and the location where the work will be performed
● Address details, signatures, and official identification of both employee and employer
● Working conditions and labor protection
● Benefits, compensation, and insurance information
● Disciplinary rules and breach of contract provisions
● Termination conditions
● Training bonds, non-compete agreements, non-disclosure agreements, and other provisions
#5: Individual Income Tax (IIT) Qualification
To determine the portion of the employee’s income that will be subject to government taxation, there are several factors that should be considered. These factors were studied to categorize employees into different classes, which identify the bracket that they belong to in terms of individual income tax qualification.
● CLASS ONE: These are workers living in the country for less than 90 days in a tax year. The 90 days can be continuously or cumulatively acquired, and are usually for foreigners working in the country.
● CLASS TWO: These are employers living in China for over 90 days but less than a whole tax year. This subjects them to taxation on all income earned in the country, whether for foreign or Chinese companies, for all work performed in the country. Overseas work is exempt.
● CLASS THREE: These employers reside in China for over a year, but less than 6 years. All China-sourced income and all income paid by a Chinese employer is subject to taxation.
● CLASS FOUR: These are individuals living in China for more than 6 consecutive years. At this point, even foreigners will be under the same taxation liabilities as Chinese citizens.