Employer of Record (EOR) China

An Employer of Record (EOR) in China acts as the official employer for workers, often referred to as a Global Professional Employer Organization (Global PEO). This role encompasses a broad range of employment functions, ensuring full compliance with local labor laws and regulations, managing payroll, administering taxes, providing legally required benefits, and handling employment contracts.

With our Employer of Record (EOR) services, expanding your business into China becomes easier and more efficient. In China, this is more than a convenience: foreign companies without a locally registered entity generally cannot legally employ staff directly, and a representative office cannot hire local staff on its own payroll either. An EOR gives you a lawful path to hire without the cost and lead time of establishing a Wholly Foreign-Owned Enterprise (WFOE). We ensure full legal compliance, manage payroll, protect your intellectual property, and handle work permits, so you can focus on growing your business and building your workforce in one of the world’s largest talent markets.

Things you need to know before hiring in China

China’s 2025–2026 Labor Law and Social Insurance Updates

China’s Supreme People’s Court issued new judicial interpretations, effective 1 September 2025, confirming that an employer and employee cannot lawfully agree to waive or reduce mandatory social insurance contributions — an employee whose employer skipped contributions may resign and still claim statutory severance. The same guidance clarified that double-wage liability for an unsigned written contract stops accruing once the contract is legally deemed open-ended. Separately, major cities including Shanghai and Beijing have tightened the salary-multiplier thresholds used to classify foreign work-permit applicants, and Shanghai’s minimum wage rose to RMB 2,740/month from 1 July 2025. Employers should reconfirm city-specific social insurance rates, minimum wage, and work-permit salary thresholds at least annually.

Employment Contracts in China

Chinese labor relations are governed by the PRC Labor Law (1994) and the PRC Labor Contract Law (2008, amended 2013), enforced by the Ministry of Human Resources and Social Security (MOHRSS) and local Labor Bureaus.

Working Hours

The current standard is 8 hours per day and 40 hours per week (a subsequent State Council regulation superseding the Labor Law’s original 44-hour figure, which is still occasionally cited as a legacy reference).

Notice of Termination

Termination for serious violation of workplace rules (Art. 39) requires no notice and no severance. Termination without cause (Art. 40) — for incompetence after training or reassignment, medical incapacity, or changed circumstances — requires 30 days’ written notice or 1 month’s pay in lieu. Economic layoffs (Art. 41) affecting 20 or more employees, or 10% or more of the workforce, require consultation with the union or workforce and a filing with the local labor authority.

Severance Pay

The standard formula (“N”) is 1 month’s average wage (trailing 12 months) per year of service, with 6+ months counting as a full year. Where monthly wage exceeds 3 times the local average monthly wage, severance is capped at that 3x figure with service capped at 12 years. Art. 40 terminations without proper notice trigger “N+1” (severance plus 1 month’s pay in lieu of notice), while unlawful or wrongful termination can trigger “2N” (double severance) if the employee elects compensation over reinstatement.

Protected Categories

Employees who are pregnant, on maternity or nursing leave, undergoing a statutory medical treatment period, or diagnosed with an occupational disease generally cannot be terminated without cause during the protected period.

Compensation for Unused Leave

Employers who fail to arrange an employee’s mandatory statutory annual leave owe a penalty of 300% of the employee’s daily wage for each unused day.

Employees vs Independent Contractors

Chinese courts apply a subordination test to distinguish an employment relationship (劳动关系) from a civil or labor-service relationship (劳务关系): actual working conditions control over how the contract is labeled, including management and instruction control, exclusivity, integration into business operations, and economic dependence.

Misclassifying employees as independent contractors carries real risk in China: retroactive social insurance contributions with interest, double-wage penalties for any period without a signed contract, and severance exposure upon reclassification. China has also extended baseline protections — minimum-income guarantees, safety standards, and algorithmic-fairness safeguards — to platform and gig workers such as food-delivery riders, without converting them into full employees.

Comparison Table: Employee vs Independent Contractor

Understanding these differences is essential for ensuring compliance and correctly determining entitlements such as leave, severance, and social insurance contributions.

Social Insurance and Housing Fund in China (五险一金)

China requires employers and employees to jointly fund five social insurances — pension, medical (maternity is now merged into medical coverage in most cities, including Shanghai), unemployment, and work injury (employer-only) — plus a mandatory Housing Provident Fund (HPF). Contribution bases, caps, and exact rates are set independently by each city or municipality and reset annually, similar in complexity to a federated system.

Shanghai’s contribution base for 2025–2026 runs from a floor of approximately RMB 7,310/month to a ceiling of approximately RMB 36,549/month, reset every July. These figures are a Shanghai-specific example only — every other Chinese city sets its own base, caps, and rates. Mercans confirms the exact figures for the applicable city on each engagement.

Payroll in China

Minimum Wage

China has no single national minimum wage — each province, city, or municipality sets its own rate. Shanghai’s minimum wage is RMB 2,740/month, effective 1 July 2025, among the highest in China; some lower-tier provinces are set as low as RMB 1,750–1,760/month, illustrating the scale of regional variation.

Payroll Cycle

Salaries in China are paid monthly in RMB/CNY, commonly on or near the last working day of the month. A 13th-month salary or Chinese New Year bonus is widespread market practice, especially among foreign-invested enterprises, but is not a statutory requirement nationally unless written into the employment contract or company policy. Employers must issue itemized payslips showing gross pay, overtime, allowances, and all statutory deductions.

Overtime enforcement has intensified following the 2021 ruling against “996” scheduling.

Mercans’ payroll capabilities

Personal Income Tax in China

China applies a progressive Individual Income Tax (IIT) to comprehensive income, withheld monthly and reconciled annually:

• Up to RMB 36,000/year: 3%
• RMB 36,000 – 144,000: 10%
• RMB 144,000 – 300,000: 20%
• RMB 300,000 – 420,000: 25%
• RMB 420,000 – 660,000: 30%
• RMB 660,000 – 960,000: 35%
• Above RMB 960,000: 45% (top marginal rate)

A standard annual basic deduction of RMB 60,000 (RMB 5,000/month) applies before these brackets, on top of special additional deductions for children’s education, continuing education, medical expenses, housing loan interest or rent, elderly-care support, and childcare for children under 3.

China Employee Hiring Cost

When hiring an employee in China, employers must budget for gross salary plus mandatory employer social insurance and Housing Provident Fund contributions, calculated against the applicable city’s capped contribution base.

*Calculated against Shanghai’s 2025–2026 contribution base cap of approximately RMB 36,549/month; actual employer cost varies by city. Mercans confirms the exact contribution base, rates, and total employer cost for the applicable city on each engagement.

Employee Benefits in China

Chinese employees are entitled to a combination of mandatory statutory benefits and, increasingly, supplementary benefits offered at the employer’s discretion.

Work Permit in China

Foreign nationals require a Work Permit for Foreigners in China, together with a linked visa and residence permit, before starting work.

Work Permit Categories: A, B, and C

China classifies foreign workers into three tiers via a points-based system: Category A (high-end talent, such as senior executives and globally recognized experts), Category B (professional talent, covering most standard hires), and Category C (general or quota-limited workers). Major cities including Shanghai and Beijing apply salary-multiplier thresholds to this classification — for example, Category A generally requires a salary of at least 6 times the local average wage, and Category B at least 4 times.

Z Visa and Residence Permit Process

Once a work permit notification is issued, the applicant applies for a Z visa at a Chinese consulate abroad, then registers for a residence permit with the local Public Security Bureau within 15 to 30 days of entering China. The overall process typically takes 8 to 12 weeks.

Important Considerations for Employers

Employer Sponsorship Is a Hard Requirement

Unlike some jurisdictions where using an EOR is mainly a matter of convenience, in China a registered local entity is legally required to sponsor a foreign employee’s work permit — and foreign companies without such an entity generally cannot employ staff directly at all. An EOR partner such as Mercans provides the lawful employing entity that allows companies without a China entity to hire and sponsor talent compliantly.

Representative Offices Cannot Hire Directly

A representative office in China is not permitted to employ local staff on its own payroll and must engage local employees through a licensed staffing or EOR arrangement.
Understanding these pathways can streamline the hiring process, allowing employers to bring skilled talent into their China-based operations effectively.

EOR Solutions in China

Best Employer of Record China