For companies expanding into the Mainland of China, hiring employees is typically one of the next steps in building local operations. Whether you’re planning to bring in local employees or relocate overseas managers, it is important to understand the employment structure and requirements that apply.
In this guide, we look at the main areas involved in managing employees in the Mainland of China, including employment contracts, onboarding, payroll, statutory leave, social insurance and severance.
If you need support in any of these areas, get in touch with our Hawksford team to discuss the requirements that apply to your business.
- Workforce planning and employment structure
- Employment contracts and probation
- Employee onboarding and workplace policies
- Running payroll
- Withholding individual income tax
- Social insurance and Housing Provident Fund
- Employee benefits and statutory leave
- Foreign employees and international mobility
- Employee termination and severance
1. Workforce planning and employment structure
When you are building a team in the Mainland of China, one of the first decisions is how those employees will be engaged. In our experience, this is best considered alongside your wider market entry plans because the structure you choose can affect payroll, social insurance, tax, immigration and how easily you can scale the team later.
The main legislation employers should be aware of includes:
- The Labour Law of the People’s Republic of China
- The Labour Contract Law of the People’s Republic of China
- The Social Insurance Law of the People’s Republic of China
Foreign-invested businesses operating in the Mainland of China must adhere to these rules when hiring staff locally.
Direct employment
If you have plans to start a business in the Mainland of China, direct employment will often be the most straightforward option for building a long-term local team. Your China entity will become the employer and take responsibility for the employment relationship, including payroll, statutory contributions and day-to-day employment administration.
Under the Labour Contract Law, a written employment contract must be put in place. We explain more about employment contracts below.
Additional local requirements may also need to be considered if you plan to hire across different cities or provinces.
Employer of Record arrangements
An Employer of Record (EOR) arrangement can be useful if you need people on the ground before your own employing entity is ready. A local provider may assist with hiring the individual and handling employment administration while the employee works with your business operationally.
We generally find that an EOR can work well as an interim arrangement, particularly during the early stages of expansion. As your team in the Mainland of China grows, however, direct employment may become the more appropriate long-term structure.
Service agreements
A service agreement may be suitable if your business intends to engage an individual or service provider in the Mainland of China as an independent contractor. The agreement would usually cover the services to be provided, fees, responsibilities, intellectual property, confidentiality and how the arrangement can be ended.
However, the nature of the working relationship is also important. If the individual is managed and works in a manner that resembles an employee, there is a risk that the arrangement could be regarded as an employment relationship. This may have implications for areas such as remuneration, statutory benefits, social insurance and termination rights.
For this reason, service agreements should be considered carefully in light of the individual’s role and how they will work with your business in the Mainland of China.
Cross-border assignments and secondments
If you’re transferring employees from another group company into the Mainland of China, the structure needs more careful planning. You will need to establish which entity remains the contractual employer, which entity manages the employee, as well as how salary and other employment costs are allocated between the relevant companies.
Chinese Mainland employment law can become relevant even where an employee has been transferred from an overseas group company.
Immigration should also be considered at the same time. Foreign nationals working in the Mainland of China generally need the appropriate Foreigner’s Work Permit and, for longer-term employment, a work-type residence permit.
2. Employment contracts and probation
Once you have decided how your employees will be engaged, the next step is making sure the employment terms are properly documented. Employment contracts are closely regulated in the Mainland of China.
Written employment contracts
Under the Labour Contract Law, an employment relationship should be documented through a written employment contract. If an employee begins work before signing the contract, you generally have one month from their start date to finalise the written agreement.
The contract is typically signed by the employee and executed using your authorised signature and/or company chop. Both parties should retain a copy. Many companies use a Chinese-language or bilingual version so the contract can be more easily relied on for local employment administration and dispute resolution.
As the employer, you will also need to make sure that the contract accurately reflects the employee’s role and the way they will work. The Labour Contract Law requires employment contracts to address prescribed matters including the contract term, job duties and place of work, working hours, remuneration, social insurance and occupational protection.
If the contract remains unsigned for more than one month but less than one year after employment begins, you may become liable for double salary for the relevant period. This statutory consequence is intended to encourage employers to formalise the employment relationship promptly and provide employees with clear written terms.
If no written contract has been concluded after one year, the employment relationship is generally treated as open-ended from that point. This does not necessarily create a problem, but it means there is no automatic expiry date, so any future termination will need to follow the applicable statutory grounds and procedures.
Fixed-term and open-ended contracts
Employment contracts in the Mainland of China generally fall into three categories under the Labour Contract Law of the People’s Republic of China:
| Employment contract type in the Mainland of China | How it works | Key consideration for employers |
|---|---|---|
| Fixed-term contract | Runs for an agreed period and ends on a set date | Can work well where you need someone for a defined period. However, after two consecutive fixed-term contracts, you may need to offer an open-ended contract if the statutory conditions are met. |
| Open-ended contract | Has no set end date and may suit a long-term employment relationship | Can provide continuity for established employees. It may also be required in some cases, including after ten years of continuous service or certain repeated fixed-term contracts. |
| Contract based on completion of a specific task | Ends when the agreed task or project is finished | The task and what counts as completion should be clearly set out. A probation period cannot be included. |
One question companies often ask us is whether an open-ended contract means the employee cannot be terminated. It does not. However, because there is no automatic expiry date, any termination will need to follow the applicable statutory grounds and procedures.
Probation periods
Probation periods are permitted in the Mainland of China, but the maximum length depends on the term of the employment contract. Under the Labour Contract Law, the limits are:
| Employment contract length | Maximum probation period |
|---|---|
| Less than three months | No probation permitted |
| Three months to less than one year | One month |
| One year to less than three years | Two months |
| Three years or more | Six months |
| Open-ended contract | Six months |
| Contract based on completion of a specific task | No probation permitted |
Bear in mind that an employee can only be placed on probation once with the same employer. The probation period must form part of the employment contract and cannot be set out as a separate standalone arrangement.
There are also specific requirements around pay during probation. Under the Labour Contract Law, probationary salary must meet the applicable statutory thresholds, including the requirements relating to the lowest salary for the same position within the company and 80% of the salary agreed in the employment contract. It must also not fall below the applicable local minimum wage.
Importantly, probation should not be treated as a period during which employment can be ended freely. A valid statutory ground is still required for termination. Employers should therefore define recruitment conditions clearly in advance and retain evidence showing why an employee does not meet those conditions if termination during probation is being considered.
Contract renewal and changes to employment terms
When considering whether to renew a fixed-term employment contract, you should review the employee’s length of service and previous contracts to determine whether an open-ended contract may now be required.
The expiry of a fixed-term contract may also give rise to statutory economic compensation, depending on the circumstances.
If you need to change the employee’s contractual terms during the employment relationship, this should also be handled carefully. Under Article 35 of the Labour Contract Law, an employer and employee may amend the terms of an employment contract where they reach agreement, and the amendment should be made in writing, with both parties retaining a copy. This is especially important when changing matters such as an employee’s role, place of work, remuneration or other contractual terms.
3. Employee onboarding and workplace policies
Effective onboarding in the Mainland of China should include more than the administrative steps of starting employment. Employees should also understand your expectations around conduct, attendance, working hours and other workplace requirements.
Employee handbooks
A point we often emphasise to employers is the value of having a clear employee handbook covering areas such as attendance, leave, conduct, confidentiality, use of company systems and disciplinary procedures.
In the Mainland of China, the way these rules are introduced is important. Under Article 4 of the Labour Contract Law, employers must follow consultation requirements for rules that directly affect employees’ interests and ensure those rules are communicated or made known to employees. If you already have a global handbook, it should be reviewed and adapted for local requirements before being introduced to employees in your China entity.
For a more detailed look at what to include, see our guide to employee handbooks in the Mainland of China.
Working hours and attendance
Overtime, rest arrangements and alternative working-hours systems are regulated, so your policies should reflect both the legal requirements and how your employees work.
Under the standard working-hours system, employees generally work no more than eight hours per day and 40 hours per week. Alternative arrangements, including irregular working-hours and comprehensive working-hours systems, may be available for certain roles or operating models, subject to the applicable conditions and approval requirements.
Your attendance policy should clearly explain normal working hours, how attendance is recorded and what employees are expected to do if they are late or absent. It should also align with your leave and overtime policies so that these rules are applied consistently.
Overtime also needs close attention. Under the Labour Law, where working hours are extended for production or business needs, you will generally need to consult with the trade union and employees. Overtime is generally limited to one additional hour per day. In special circumstances, this may be extended to three hours per day, provided employees’ health is protected, with total overtime generally limited to 36 hours per month. The applicable overtime compensation requirements must also be observed.
4. Running payroll
Once employees are on board, you need a payroll process that reflects both their contractual remuneration and the statutory requirements that apply in the Mainland of China. The components of an employee’s payroll will depend on their employment contract, remuneration structure and working arrangements. Common elements include:
| Payroll component in the Mainland of China | What employers should know |
|---|---|
| Base salary | The employee’s regular contractual salary. It should reflect the employment contract and comply with applicable local minimum wage requirements. |
| Commissions | May form part of remuneration for sales or performance-based roles. The calculation method, eligibility criteria and payment timing should be clearly documented. |
| Bonuses | May include contractual, performance or annual bonuses. Employers should establish whether the bonus is guaranteed or discretionary and consider the applicable individual income tax treatment. |
| Allowances | May include housing, meals, transport or other employment-related payments. The payroll and tax treatment depends on the nature of the allowance and the applicable rules. |
| Overtime pay | Where overtime compensation is required, it should be calculated according to the employee’s working-hours system and applicable statutory rates. Accurate working-time records are important. |
You also need to make sure wages are paid in line with the applicable rules. Under the Labour Law and the Interim Provisions on Wage Payment, wages should generally be paid in legal currency on the agreed payment date. For employees paid monthly, wages must be paid at least once a month. If the agreed payment date falls on a statutory holiday or rest day, payment should generally be made on the preceding working day
Payroll records
Importantly, good payroll records can help support your compliance position if questions arise over salary, overtime, deductions or other payments.
Under the Interim Provisions on Wage Payment, employers must maintain written records of wage payments, including details such as the amount and date of payment and the employee receiving the wages, and retain these records for at least two years. Employers must also provide employees with an individual wage statement when wages are paid.
Beyond the statutory minimum, your payroll records should clearly show how each employee’s pay was calculated. This may include base salary, commissions and bonuses, allowances, overtime, statutory deductions and the final amount paid.
You should also keep payroll data consistent with employment contracts, attendance records and any changes to remuneration. This can support day-to-day payroll administration and provide useful evidence if a pay-related dispute arises.
5. Withholding individual income tax
You will also generally be responsible for withholding individual income tax (IIT) from employees’ salaries and reporting it to the tax authorities.
Under the Individual Income Tax Law of the People’s Republic of China and the applicable withholding rules, employers paying salary to resident individuals generally calculate IIT using the cumulative withholding method and submit withholding filings on a monthly basis.
Your responsibilities may also extend to the annual IIT reconciliation process, including providing employees with relevant income and withholding information and supporting employer-related requirements where applicable.
Our guide to annual IIT reconciliation in the Mainland of China explains this in more detail.
6. Social insurance and Housing Provident Fund
Social insurance and the Housing Provident Fund (HPF) are also important employment costs to factor into your payroll and workforce planning.
Under the Social Insurance Law of the People’s Republic of China, employers must register employees and make the required social insurance contributions. The system covers basic pension, medical, work-related injury, unemployment and maternity insurance, with employee registration generally required within 30 days of employment starting.
Contribution rates and bases vary by location, so the total employment cost can differ depending on where an employee is based. Foreign employees are also generally required to participate in social insurance, although exemptions may apply under certain bilateral social security agreements.
The HPF is a separate housing savings system. Employers are generally responsible for registering eligible employees, withholding the employee contribution and making the corresponding employer contribution. Local contribution requirements also vary.
A 2026 update is also worth noting. Amendments to the Regulations on the Administration of Housing Provident Funds announced in August 2026 will take effect on 20 September 2026. Under the amended rules, employee and employer contribution rates must each be at least 5%. Contributions are generally calculated by reference to the employee’s average monthly salary for the previous year, subject to the applicable contribution base and local requirements.
7. Employee benefits and statutory leave
Employee leave entitlements in the Mainland of China are partly set at national level, while some requirements vary by province or municipality. The main leave requirements include:
| Employee leave type in the Mainland of China | Key employer consideration |
|---|---|
| Annual leave | Under the Regulation on Paid Annual Leave of Employees, employees who have worked continuously for at least one year are generally entitled to five, ten or 15 days of paid annual leave depending on their cumulative working years. Service with previous employers can count when determining entitlement. |
| Public holidays | Under the Measures for National Holidays and Memorial Days, employees are entitled to 13 statutory public holiday days each year from 1 January 2025. Employers should also check the State Council’s annual holiday calendar as longer holiday periods can include adjusted weekend working days. |
| Sick leave and medical treatment period | Employees with a non-work-related illness or injury may be entitled to a protected medical treatment period of generally three to 24 months, depending on their total working history and service with the employer. Sick-pay requirements can vary by location. |
| Maternity leave | The Special Provisions on Labour Protection for Female Employees provide a national minimum of 98 days, including up to 15 days before childbirth. Additional leave may apply for difficult or multiple births, with further maternity leave available under local rules. |
| Paternity and childcare leave | Entitlements vary by province or municipality, so employers should check the rules where the employee is based. For example, Shanghai provides ten days of paternity leave while other jurisdictions may provide different entitlements. |
| Marriage and bereavement | Marriage leave can vary by province or municipality, while bereavement leave may depend on applicable rules and employer policy. Employers should confirm the requirements that apply in the employee’s location. |
For businesses with employees across several locations, it is therefore important to build local leave requirements into your HR policies rather than relying on a single national leave schedule.
8. Foreign employees and international mobility
If you are relocating employees to the Mainland of China, the employment structure, immigration position and tax treatment should be considered together. Issues can arise where an employee’s contract, payroll arrangements and work authorisation do not reflect how they are working in the country.
Work permits and residence permits
Foreign nationals generally need appropriate authorisation before working in the Mainland of China. This will typically involve a Foreigner’s Work Permit and a work-type residence permit, with a Z visa commonly used for entry where the individual is coming to the Mainland of China for employment.
The immigration process should be planned alongside the employee’s start date and employment arrangements, particularly where you are transferring existing employees from an overseas group company. For more information on the available immigration routes and application requirements, see our guide to visas in the Mainland of China.
Tax and social insurance considerations for foreign employees
Foreign employees can also create additional tax considerations. Under the Individual Income Tax Law of the People’s Republic of China, tax residence is generally influenced by whether an individual is domiciled in the Mainland of China or spends 183 days or more there during a tax year.
For employees without a domicile in the Mainland of China, the amount of income subject to IIT can depend on the length of their stay, where the work is performed and which entity pays or bears the remuneration. Applicable double tax treaties may also affect the position.
You should therefore review international assignments before payroll is set up, particularly where salary is split between a China entity and an overseas entity or the employee continues to perform duties in more than one country.
Social insurance should be reviewed at the same time. Under the Interim Measures for Participation in Social Insurance by Foreigners Employed in China, as amended in December 2024, foreign nationals lawfully employed in the Mainland of China are generally required to participate in the employee social insurance system. This includes pension, medical, work-related injury, unemployment and maternity insurance.
Employers generally need to complete social insurance registration within 30 days of the relevant work permit documentation being issued. However, employees from countries that have a bilateral or multilateral social security agreement with the Mainland of China may qualify for exemptions from certain contributions, depending on the terms of the agreement and their circumstances.
For businesses managing international assignments, it is therefore useful to consider immigration, IIT and social insurance together. This can help you understand the full cost of the assignment and make sure the arrangements between the employee, China entity and overseas employer are properly coordinated.
9. Employee termination and severance
Finally, when an employment relationship comes to an end, you need to make sure the termination is handled in line with the applicable legal requirements.
Grounds for termination
An employer cannot generally terminate an employee simply at its discretion. The Labour Contract Law sets out specific grounds that can support termination.
Under Article 39, you may terminate without notice in certain fault-based situations. These can include where an employee is proven not to meet the recruitment conditions during probation, seriously breaches workplace rules, commits serious dereliction of duty causing significant loss, maintains another employment relationship that seriously affects their work and refuses to correct the situation, or is subject to criminal liability.
Article 40 separately allows employer-initiated termination in certain non-fault situations.
A separate framework applies where the business is making larger workforce reductions. Under Article 41, where the relevant thresholds are met, you must follow consultation and reporting procedures before implementing an economic redundancy. Where termination is based on a breach of workplace rules, employers should ensure that the relevant rules are lawful, clearly drafted, properly communicated to employees and supported by appropriate evidence.
Mutual termination agreements
A mutual termination agreement can provide a more flexible route where you and the employee agree to end the employment relationship. Article 36 of the Labour Contract Law expressly allows the parties to terminate an employment contract by mutual agreement.
The agreement should clearly set out the termination date, payments due and any other matters that need to be resolved. If you propose the mutual termination, statutory economic compensation will generally be payable under Article 46. Where the employer proposes a mutual termination, economic compensation will commonly form part of the termination arrangement. The amount payable should be assessed based on the applicable legal requirements and the terms agreed between the parties.
Notice periods
There is no single notice period that applies to every employer-initiated termination.
For a termination under Article 40, you must generally provide the employee with 30 days’ written notice or pay one additional month’s salary in lieu of notice. By contrast, Article 39 fault-based terminations do not carry the same statutory notice requirement.
If a trade union has been established, Article 43 also requires you to notify the union of the reasons in advance when proposing a unilateral termination. You must consider any union opinion and notify it in writing of the outcome.
Statutory severance
Statutory economic compensation is payable in a number of situations, including qualifying Article 40 terminations, economic redundancies, certain employer-initiated mutual terminations and many fixed-term contract expiries.
The general calculation under Article 47 is based on the employee’s length of service with the employer:
| Length of service in the Mainland of China | General statutory severance calculation |
|---|---|
| Each full year of service | One month of salary |
| Six months to less than one year | Treated as one full year |
| Less than six months | Half a month of salary |
For most employees, severance is calculated using their average monthly salary over the 12 months before employment ends. For higher-paid employees, however, the salary used in the calculation may be capped at three times the previous year’s local average monthly salary. In these cases, no more than 12 years of service will generally be counted, even if the employee has worked for the company for longer.
Restrictions on termination
Take note that certain employees may receive additional protection against termination under Articles 40 and 41 of the Labour Contract Law. This includes employees who are within a statutory medical treatment period, employees who have suffered an occupational disease or work-related injury and meet the relevant disability conditions, and female employees during pregnancy, maternity leave or the breastfeeding period.
Protection can also apply to employees who have worked continuously for your company for at least 15 years and are within five years of statutory retirement age, as well as employees undergoing certain occupational health examinations or observation.
Before terminating an employee, you should therefore make sure the legal basis, supporting evidence and required process are clear.
How we can help
As an international corporate service provider, our China team can support you across different stages of your expansion. This includes entity formation, employment structuring, payroll setup, onboarding and workplace documentation. We can also assist with international mobility where employees are relocating to the Mainland of China from overseas.
Where your workforce spans different cities or provinces, we can help you understand the local requirements that may affect areas such as statutory leave, social insurance and day-to-day employment administration.
If you are looking for support with employment matters in the Mainland of China, please reach out to our team for support.
Frequently asked questions
Do I have to register a foreign-owned enterprise for hiring in the Mainland of China?
If you want to hire employees directly in the Mainland of China, you will generally need a local employing entity. For many foreign businesses, this may be a wholly foreign-owned enterprise, commonly referred to as a Wholly Foreign-Owned Enterprise (WFOE), or another local entity that can enter into employment contracts and meet payroll and social insurance obligations.
If you do not yet have a local employing entity, you may need to consider another structure. Depending on the circumstances, this could include an Employer of Record (EOR) arrangement or, where the individual is genuinely providing services on an independent basis, a service agreement. These options should be assessed carefully based on the nature of the working relationship and your longer-term plans in the Mainland of China.
What steps should employers complete before a new employee starts work in the Mainland of China?
Before an employee starts, you should confirm the employment structure, prepare the employment contract and make sure the necessary payroll and onboarding arrangements are ready. For foreign employees, the appropriate work authorisation should be in place before they begin working.
What are the common payroll challenges for foreign companies operating in the Mainland of China?
Payroll can become more complex where employees are based in different cities, receive variable remuneration or work under cross-border arrangements. You will also need to make sure payroll reflects contractual terms and the applicable local requirements.
If you need support with payroll in the Mainland of China, speak with our team about your requirements.
How does employing foreign workers affect payroll and social insurance administration?
Employing foreign workers can add additional considerations to payroll, particularly where remuneration is paid or borne by both Chinese Mainland and overseas group companies. Foreign employees lawfully working in the Mainland of China are also generally required to participate in social insurance, although exemptions from certain contributions may be available under an applicable bilateral social security agreement.
For cross-border employees, our team can help you coordinate the payroll and employment administration involved in the assignment.
How can employers ensure payroll, tax and social insurance obligations are properly closed when an employee leaves?
When an employee leaves, you should make sure the final payroll is completed accurately and that any outstanding salary, overtime, bonuses or other payments are dealt with in line with the employment contract and applicable rules. You should also complete the relevant individual income tax (IIT) withholding and reporting and carry out any required local procedures for the employee’s social insurance and Housing Provident Fund (HPF).
It is also important to keep the termination documentation and final payroll records consistent, particularly where severance or other termination payments are involved.
When is severance pay typically required in China?
Statutory economic compensation is required in a number of situations under the Labour Contract Law of the People’s Republic of China. These can include certain employer-initiated terminations under Article 40, economic redundancies, employer-proposed mutual terminations and most fixed-term contract expiries, subject to the applicable exceptions.
The amount is generally based on the employee’s length of service, with one month of salary payable for each full year of service, subject to the applicable calculation rules and caps. If you are unsure whether severance applies in a particular case, speak with our team before finalising the termination arrangements.
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