When you are thinking about hiring someone working for you in China, your first question might be how can I hire these employees and pay them legally in China? This article helps you to understand different ways to hire and pay your remote employees in China.

Is it compliance to pay remote employees in China directly from overseas entity?

We don’t suggest foreign companies to pay their remote employees or contractors in China directly due to the compliance issues listed below:

1. Tax compliance issue

Many international companies would pay their employees or contractors in China directly from the overseas company without declaring or contributing any income tax on their behalf, resulting in a tax compliance challenge and risk. Read the below articles to understand the difference of hiring full time employees and contractors in China.

2. Permanent establishment issue

If foreign companies directly pay their employees or contractors in China, this will be easily triggering the permanent establishment issue where the foreign company will be required by the Chinese government to set up their own legal entity in China.

3. No employment relationship or business relationship protection

Since there is no employment relationship with the employees, or business relationship with the contractors in China, it is very difficult for foreign companies to manage their remote employees and contractors in China. Foreign firms will also lose control if their employees are not performing properly or are working with many corporations at the same time. Companies will also have to deal with the issue of confidentiality and intelligence property.

4. No mandatory social security contribution for full time employees in China.

If you pay remote employees in China through your overseas corporation, you will be unable to enroll them in the China social security system, which will also trigger the compliance issue, as all full-time employees in China are required to participate in the China social security system. In the meanwhile, Chinese employees are reluctant to join the company who are unable to contribute the social security for them.

How can I pay remote employees in China if we have no legal entity in China?

Using a China EOR or China PEO vendor allows you to effortlessly hire and pay remote employees or contractors in China while being compliant.

If you do not have a registered company in China or are in the process of establishing one, the best way to lawfully pay employees in China is through a Chinese EOR or PEO service provider. While employees are working for your oversea company in China and managed directly by your oversea company, the EOR or PEO vendor in China will operate as the employer of record to hire your employees, complete all of the mandatory hiring processes in China, and pay your employees on a monthly basis. To ensure employment compliance in China, China PEO and China EOR solutions typically provide the services described below.

  • Complete onboarding and offboarding procedure based on each city’s local regulation.
  • Sign China labor contract with your full-time employees, or part-time contract with contractors.
  • Individual income tax declaration and contribution.
  • Mandatory China social security contribution – 5 social insurance and 1 housing fund contribution for full time employees in China.
  • China payroll processing and salary disbursement
  • Expense reimbursement.

Read the article to learn:

5 Steps to engage a PEO in China.

How to Calculate Employee Salary in China? [China Payroll Guide]

Benefits of paying remote employees in China through a China EOR & China PEO agency?

  • No registered company in China required.
  • Fully compliance with the local laws and regulations.
  • Ensure tax and mandatory social security compliance
  • Avoid the PE, mandatory risks.
  • Quick and flexible. Employees can onboard and get paid within 2 weeks.
  • How can I pay remote employees in China through our own legal entity in China?

For foreign investors who want to doing business in China and test the China market, pay your employees through a China EOR or PEO agency is a smart approach. For foreign companies who want to have a long-term business in China, set up a legal entity in China and hire employees directly through the legal entity shall be a appropriate method.

Things you shall consider when hire and pay employees through your own legal entity.

  1. You shall set up a WFOE in China to ensure you are able to hire employees and pay employees directly. Representative office in China is not allowed to hire and pay employees directly.
  2. Ensure you have your bank account, corporate tax account, corporate social security account fully settled before hiring and pay employees in China.
  3. You shall pay employee once a month in RMB.
  4. You shall withhold the individual income tax and contribute to the tax bureau monthly.
  5. You shall contribute the social security based on the city policy where your employee is based on the monthly basis.

Given the complexities of China payroll and necessary social security policies, it is strongly advised that international companies hire a China payroll service provider to handle their employees’ monthly payroll in order to prevent compliance issues.