With just two weeks to go before Chinese New Year, one question is weighing on a lot of employee’s minds. What are you expecting from your company? Perhaps many will reply by saying “earlier leave, of course!” but have you forgotten the annual bonus? I don’t think so. Are you familiar with the annual bonus in China? Have you heard about the latest preferential policies on annual bonus? Do you know how to seek help when disputes about the annual bonus happen? If you are confused about the above, let’s go ahead and uncover it.
I. Does the annual bonus in China equal 13th month salary?
The answer is no, although both are incentives for employees. The annual bonus is based on the company’s economic efficiency and individual performance while 13th month salary tends to be fixed and distributed at the end of one year without regard to the company’s state of business. Furthermore, the essence of an annual bonus is more like benefits than salary, while the double salaries at the end of year is salary itself. More importantly, 13th month salary or even 15th month salary is likely to be written in the labor contract or the employee manuals, but the annual bonus is seldom stated in the papers as it is full of uncertainty.
2. Are you qualified for the annual bonus in China?
Annual bonus serves as rewards to those valued employees. Thus, it is reserved for staff who have gone through and passed the probation period, with an emphasis on those who have good performance and distinguished achievements. Besides, the annual bonus is also designed to improve retention rate. It is the usual practice that half of the bonus will be dispensed around the New Year and the other half will be given when you come back after New Year.
3. How to calculate the tax of your annual bonus in China?
According to the latest official news broadcast, the preferential policy of the annual one-off bonus separately being taxed will be extended to the end of 2023. The favorable policies state that a lump-sum annual bonus divided by 12 months is used to determine the applicable tax rate and quick deduction according to the monthly tax rate table (see the chart below for details), and the tax is calculated separately.
| The tax rates for annual one-off bonuses in 2022 in China | |||
| Level | Monthly taxable income (RMB) | Applicable tax rate | Quick deduction (RMB) |
| 1 | ≤3000 | 3% | 0 |
| 2 | 3001-12,000 | 10% | 210 |
| 3 | 12,001-25,000 | 20% | 1410 |
| 4 | 25,001-35,000 | 25% | 2660 |
| 5 | 35,001-55,000 | 30% | 4410 |
| 6 | 55,000-80,000 | 35% | 7160 |
| 7 | >80，000 | 45% | 15160 |
If you are wondering how much tax you should pay, you can simply use the following two formulas to get the desired answer.
Monthly taxable income=annual lump-sum bonus÷12
Tax payable on annual bonus = Taxable annual bonus amount x Applicable tax rate – Quick deduction
For instance, if an employee gets an annual bonus of 48,000 RMB, the applicable tax rate would be 10 percent, because the result of the year-end bonus divided by 12 is 4000, matching level 2 in the table, so the tax payable on annual bonus is 4590.
4. Are there any other options except cash for annual bonus?
Many year-end bonuses are given in the form of cash, but there are also non-monetary bonuses, such as company stock, paid holiday leave and gifts. There is no mandatory regulation on annual one-off bonus, so the decision of giving out annual bonus is discretionary, as is the way of distributing it. If you are informed of the bonus in the job interview, make sure which kind of bonus it offers, and if there are choices, you can pick one as you please.
5. How to seek help when disputes about annual bonus happen?
If a dispute about annual bonus happens, it is advisable to negotiate with the company first, if it fails, you can bring the case to the Labor Dispute Arbitration Committee within one year. If you disagree with the arbitral award, you may bring an action to the People’s Court within 15 days after receiving an arbitral award. Nonetheless, the verdicts are always frustrating and discouraging, as the involved employees are often short of any legally binding evidence given the subjective nature of the annual bonus. As stated above before, the annual lump-sum bonus is often not written in the contracts or company regulations, instead, spoken promises are typical, so it’s hard to collect proof.
To put it more precisely, if the employer has verbal promises about the remuneration package and year-end bonus payment, the verbal agreement should be included in the written contract. You should also keep relevant evidence, such as labor contracts, reward schemes, bank transfer records, bonus payments and performance evaluation. When problems arise, you should negotiate with the employer in the first place to avoid being in a disadvantageous position during litigation.
Farewell for now
The annual one-off bonus is a matter of the employee’s well-being and should be well understood by both parties as early as possible with all vague details and doubt laid to rest. The happy New Year is around the corner, wish so is the bonus!