Payroll in China: a restricted activity

No multilateral social security coordination system covers China. The country has, however, signed bilateral agreements with several European states, France among them, which exempt posted employees from certain branches of Chinese contributions. The benefit is never automatic: it depends on a certificate obtained before departure.

The renminbi is the currency of pay, transferred to a Chinese bank account. Chinese is the language of the employment contract; bilingual versions are common, but the Chinese text is what governs before local authorities and courts. Contribution bases and the housing fund are set city by city, which rules out any national approach: Shanghai, Beijing and Shenzhen are not managed the same way.

Third-party bookkeeping, which in practice covers payroll and the related filings, requires prior approval from the local finance bureau. Unlike Anglo-Saxon markets, China therefore imposes a genuine regulatory barrier to entry. That approval is verifiable online, and it is the first thing to look at.

Without a Chinese company, a foreign business cannot hire a local employee directly: it works through a locally incorporated structure, usually a wholly foreign-owned enterprise, or through an intermediated employment arrangement whose robustness deserves scrutiny before it is adopted.

Employer accounts are then opened with local authorities, covering social insurance registration and registration with the housing provident fund (住房公积金), both administered at municipal level. Since collection of social contributions passed to the tax authorities, most filings and certificates are handled through the provincial electronic tax portal.

Contract form is prescribed and writing is mandatory; an employer that has not obtained a signed contract within the statutory window faces a specific penalty. Review the term, the probation period, confidentiality, and where relevant the non-compete clause, which is valid only if compensation is paid after the employee leaves.

Withholding individual income tax on wages falls to the employer, who reports it monthly and reconciles it once a year. The end of the relationship is prepared early: termination is permitted only on an exhaustive list of grounds, and statutory severance is calculated by reference to length of service. Working time arrangements deserve attention too, since several regimes coexist and some require administrative approval before they may be applied.

Data transfer is settled before the first payroll run. The Personal Information Protection Law tightly controls the export of employee data from China: depending on volumes and processing, a company either files a standard contract with the provincial branch of the Cyberspace Administration of China (国家互联网信息办公室), obtains a certification, or undergoes a security assessment. Sending payroll files to a European head office is anything but routine.

The housing provident fund is the other matter to settle in advance. It is an employer charge with no European equivalent, administered locally and kept entirely separate from social insurance.

A recurring confusion of labels compounds all this. Licensed bookkeeping agencies (代理记账公司), audit firms (会计师事务所) and holders of a human resources services licence operate under three different approvals. Only the first may lawfully invoice payroll services.