Payroll in China
In this article we will tell you about the full procedure of a Chinese company employee’s salary calculation with all the related deductions. Initially, the employment contract contains information about the amount of salary (税前) before the taxes. For example, we want an employee to receive an average Beijing net payroll of 15000 yuan (2500 USD). Let’s take a look at the calculation:
Company’s accountant every month has to fill in a form called “扣缴个人所得税报告表” (Personal income tax withholding report). You may see it in the picture above. Now let us analyze each point one by one.
Should mention in advance that this information is related only to the standard form of taxation (personal income tax from salary) and employee has no other income on the territory of China, also this applies to those who pay standard insurance called “五险一金” (five insurances – one fee), not separately, who has insurance in commercial companies, who hasn’t applied for tax deduction and so on.
Column K is the employee’s direct salary. That is exactly the amount that employee will receive every month on bank account.
Column D is salary before taxes. That is the employee’s immediate salary, the amount of personal income tax and the sum of all deductions to the Social Insurance Fund (the part that is charged to the employee)
Now, let’s take a look at every point:
F – 起征点 (point of taxation). The non-taxable minimum of a monthly income is set at 5000 yuan per month in 2019.
H – tax rate. China uses a progressive tax rate.
I – quick deduction. The amount that is deducted from the personal income tax
J – the amount of personal income tax
L – the basic SIF value. Since the amount of contributions to the SIF and PF is defined in percents, deductions from large salaries would be extremely huge and would not be necessary for anyone in such amounts. Therefore, each province has a limit to the maximum amount of salary from which the contributions are paid. For example, this limit was set at 25,401 yuan per month in Beijing last year. This means, if your salary exceeds this amount, then you will have to pay insurance premiums only from a part of 25,401 yuan.
M and N – contributions to the pension fund. 19% from the company and 8% from the worker. Allow me a small digression on the topic of how pensions are paid in China:
Every officially employed person pays contributions to the pension fund. After such person has worked for 15 years (taking breaks is possible) and has reached the minimum retirement age of 40 years, such person can officially retire. Then, in accordance with the age of survival, the accumulated amount will be divided by the number of months and will be paid during this period.
O and P – contributions to the job loss insurance fund. 0.8% of the company’s and 0.2% of the employee’s.
R – contributions to the industrial injuries insurance fund. 0.2% of the company’s
S – contributions to the maternity fund
T and U – contributions to the health
insurance fund. We will not dwell on this one, because there are tons of
information on the balance, the choice of hospital, the proportions of
compensation, and more.
V, W, X – contributions for housing savings fund. Foreigners do not pay this one, and the Chinese get it as a bonus at work, the company can pay from 10% to 24% of the salary to this fund, which can later be used to purchase housing
The column AB stands for how much is the general cost of the employee for the company.
As you can see, if an employee receives 15.000 yuan as salary, the company’s costs for such employee will be almost 25.000 yuan. At higher wages (and a higher level of personal income tax rate) the proportion will be much gloomier.