13th month pay is not automatically mandatory in China under national law. However, it can become an enforceable compensation obligation when an employer promises it through an employment contract, offer letter, collective agreement, employee handbook, company policy, or established payroll practice.
For employers, the key issue is therefore not simply whether a payment is called “13th month salary” or an “annual bonus.” The company should clearly define eligibility, calculation basis, pro-rating, payment timing, treatment on resignation or termination, and whether the payment is guaranteed or discretionary.
The payroll and tax treatment also matters. If a year-end payment qualifies as an annual one-time bonus, eligible employees may use the separate IIT calculation method through December 31, 2027, or include the bonus in annual comprehensive income. The applicable structure should be confirmed before payroll is processed.
For the broader rules on salary calculations, statutory deductions, IIT withholding, and employer payroll costs, see HROne’s China payroll guide.
Quick Answers for 13th Month Pay in China
Is 13th month pay mandatory in China?
No. China does not impose a general national requirement for employers to pay a 13th month salary. However, the payment may become enforceable if it is promised in an employment contract, offer letter, collective agreement, company policy, employee handbook, or established practice.
Is 13th month pay the same as an annual bonus?
Not necessarily. A 13th month payment is commonly designed as a fixed extra salary payment, while an annual bonus may depend on individual performance, company results, or management discretion. The written compensation terms and actual payroll practice are more important than the label.
How should employers calculate 13th month pay in China?
There is no single statutory formula. Employers should define the calculation method in advance, including whether the payment is based on monthly base salary, fixed allowances, average salary, or another agreed amount, and whether it is pro-rated for partial-year service.
How is 13th month pay taxed in China?
If the payment qualifies as an annual one-time bonus, it may be taxed separately under the applicable IIT method through December 31, 2027, or included in annual comprehensive income. The separate annual bonus method can generally be used only once in a tax year for each taxpayer.
13th Month Pay vs Annual Bonus in China
Although the terms are sometimes used interchangeably, 13th month pay and annual bonuses are not necessarily the same. For employers in China, the written compensation structure and actual payroll practice are more important than the label used.
| Issue | 13th Month Pay | Annual Bonus |
|---|---|---|
| Legal requirement | Not automatically required under national law, but may become binding if promised in a contract, policy, handbook, or established practice. | Not automatically required unless the employer has created an enforceable entitlement through contractual terms, policy, or practice. |
| Typical structure | Often designed as a fixed additional salary payment, such as one month of base salary. | Often linked to individual performance, company results, or another bonus formula. |
| Calculation | Usually based on a predefined salary amount and may be pro-rated for partial-year service. | May vary according to performance criteria, company results, targets, or management rules. |
| Employer discretion | Limited where the payment has been clearly guaranteed. | Depends on how much discretion the contract or bonus policy actually gives the employer. |
| Resignation or termination | The employer should clearly define whether the payment is pro-rated and whether employees must remain employed on the payment date. | Eligibility on resignation or termination should also be clearly addressed in the bonus policy or employment terms. |
| IIT treatment | If the payment qualifies as an annual one-time bonus, the applicable separate IIT calculation method may be available through December 31, 2027. Otherwise, the payment may need to be included in comprehensive income. | |
Employers should therefore define the payment based on its intended legal and payroll treatment rather than relying on the name “13th month salary” or “annual bonus.”
China Practical Guide: What Employers Should Define
For employers in China, the most important issue is not whether the payment is called “13th month pay” or an “annual bonus,” but whether the rules are clearly documented and applied consistently.
Before implementing a year-end payment, employers should define:
- Eligibility: Which employees qualify, whether active employment on a specific date is required, and how statutory leave, disciplinary status, or other conditions affect entitlement.
- Payment timing: When the payment will be made and whether the timing is fixed in the employment contract, offer letter, or company policy.
- Calculation basis: Whether the payment is based on monthly base salary, base salary plus fixed allowances, average salary, or another defined amount.
- Pro-rating: How the payment is calculated for employees who join during the year, take extended leave, change salary, or work only part of the year.
- Resignation and termination: Whether employees who leave before the payment date remain eligible and whether a pro-rated amount applies.
- Guaranteed vs discretionary status: Whether the employer is creating a contractual entitlement or retaining genuine discretion under a bonus policy.
- IIT treatment: Whether the payment may qualify as an annual one-time bonus for IIT purposes and whether the separate calculation method will be used.
These rules should be reflected consistently across the employment contract, bonus policy, employee communications, payroll calculation, and actual payment practice.
How to Calculate 13th Month Pay in China
China does not prescribe a single statutory formula for 13th month pay. The calculation depends on how the employer defines the payment in the employment contract, offer letter, bonus policy, or other compensation rules.
The examples below illustrate several common approaches using RMB 20,000 as the monthly base salary.
| Scenario | Calculation Method | Example | 13th Month Pay |
|---|---|---|---|
| Full-year employee | One month of base salary | RMB 20,000 × 1 | RMB 20,000 |
| Employee joins during the year | Monthly base salary × eligible months ÷ 12 | RMB 20,000 × 9 ÷ 12 | RMB 15,000 |
| Salary changes during the year — average salary method | Average monthly base salary during the year | (RMB 15,000 × 6 + RMB 20,000 × 6) ÷ 12 | RMB 17,500 |
| Salary changes during the year — payout-month method | Base salary in the month of payment | RMB 20,000 × 1 | RMB 20,000 |
None of these methods is automatically required by national law. Employers should specify which salary base is used, how partial-year service is pro-rated, and how salary changes affect the calculation.
The calculation method may also have consequences beyond the year-end payment itself. Where year-end bonus or double-pay amounts are treated as wage-type income, they may affect the wage base used for economic compensation. Beijing arbitration guidance, for example, addresses the inclusion and averaging of year-end bonus or year-end double pay when calculating the employee’s prior-12-month average wage.
China Tax and Payroll Treatment of 13th Month Pay
A 13th month payment is generally processed through payroll and may be subject to individual income tax depending on how the payment is structured and classified.
If the payment qualifies as an annual one-time bonus, eligible employees may use the separate IIT calculation method through December 31, 2027, or include the bonus in annual comprehensive income.
Under the separate method, the employer first divides the annual bonus by 12 to identify the applicable tax rate and quick deduction:
Applicable bracket = annual bonus ÷ 12
IIT payable = annual bonus × applicable tax rate − quick deduction
For example, if an employee receives an eligible annual one-time bonus of RMB 50,000:
RMB 50,000 ÷ 12 = RMB 4,166.67
This falls within the applicable 10% bracket with a RMB 210 quick deduction, resulting in:
RMB 50,000 × 10% − RMB 210 = RMB 4,790 IIT
The separate annual bonus method can generally be used only once per tax year for each taxpayer. Other bonus payments may need to be combined with employment income depending on their nature and timing.
For the full IIT rules, tax residency, deductions, and annual reconciliation, see HROne’s China individual income tax guide. For employer withholding and payroll filing responsibilities, see the China payroll tax guide.
Employers should also ensure that the bonus amount, tax treatment, payroll record, payslip, and payment documentation are consistent.
Contract and Policy Risks for Employers
Employers should clearly document whether 13th month pay is guaranteed, conditional, or discretionary. Once a payment is promised through an employment contract, offer letter, company policy, employee handbook, or established practice, the employer may have limited flexibility to later change or withhold it.
Employment and bonus documentation should address:
- Entitlement: Whether the payment is guaranteed or subject to defined conditions.
- Calculation: The salary base, pro-rating method, and treatment of salary changes during the year.
- Payment timing: When the payment becomes due.
- Resignation and termination: Whether employees who leave before the payment date remain eligible.
- Performance conditions: Whether individual or company performance affects the payment.
- Policy changes: How amendments to remuneration rules will be communicated and implemented.
Employers should also apply the rules consistently in practice. A payment described as “discretionary” may still create dispute risk if it has been paid consistently over time or if employees have reasonably relied on the employer’s established practice.
Year-end payments may also affect other employment calculations. Depending on their legal and payroll treatment, year-end bonus or double-pay amounts may be relevant when determining the employee’s wage base for economic compensation.
Before each year-end payroll cycle, HR and payroll teams should confirm that the employment contract, bonus policy, employee communications, payroll calculation, IIT treatment, and actual payment all follow the same rules.
Conclusion
13th month pay is not automatically required under China’s national labor law, but it can become an enforceable compensation obligation when an employer promises or consistently provides it.
Employers should therefore define the payment clearly before implementation, including eligibility, calculation method, pro-rating, payment timing, resignation and termination treatment, and whether the payment is guaranteed or discretionary.
The year-end payment should also be coordinated with payroll and IIT treatment. Clear documentation and consistent implementation can reduce payroll errors, unexpected tax outcomes, and employee disputes.
For companies that already employ staff through a Chinese legal entity and need support managing salary calculations, bonuses, IIT withholding, statutory contributions, and payroll reporting, HROne’s China payroll outsourcing services can support the recurring payroll process.
Frequently Asked Questions
Can an employer stop paying 13th month pay in China?
It depends on how the payment has been documented and implemented. If 13th month pay is guaranteed in an employment contract, offer letter, company policy, employee handbook, or other binding arrangement, the employer may not be able to remove it unilaterally. A consistent historical payment practice may also increase dispute risk even where the payment was originally described as discretionary.
Should 13th month pay be pro-rated for employees who join during the year?
China does not impose one national statutory pro-rating formula for 13th month pay. Employers should define the method in advance, such as calculating the payment based on eligible months or days of service during the calendar year.
Is an employee entitled to 13th month pay after resignation or termination?
The answer depends primarily on the employment contract, bonus policy, eligibility rules, payment conditions, and established company practice. Employers should clearly state whether active employment on the payment date is required and whether employees who leave during the year receive a pro-rated amount.
Can 13th month pay affect severance calculations in China?
Potentially. Where year-end bonus or double-pay amounts are treated as wage-type income, they may be relevant when calculating the employee’s average wage for economic compensation. Employers should review the applicable calculation rules and local guidance when processing termination payments.
What records should employers keep for 13th month pay?
Employers should retain the relevant employment contract, offer letter, bonus or compensation policy, eligibility records, calculation worksheets, payroll records, IIT withholding records, payslips, employee communications, and payment evidence. These documents should be consistent with the payment actually made.