Written by Penny Pan – Operations Manager
Labor costs in China increased in the last few years. Higher labor costs make workers better off, but they can also impact businesses reducing profits, or the number of hours worked for example.
Even with the increase of labor costs in China, the country remains competitive and the wage rate remains relatively low.
Skilled workers, better infrastructure, possibility to reach millions of consumers are still valid reasons for companies to hire employees in China, even with the rising labor costs.
In this article, we want to provide you an overview of how labor costs in China can impact businesses and how a PEO can help you to save costs to start a business.
An Overview Of The Labor Costs In China
China has the most important market within the world and has long been a strategic location for several manufacturers and labor-intensive industries to line up operations.
However, because the Chinese economy continues to grow and wages rise, so does the value of hiring employees in China.
The labor cost in China consists primarily of mandatory expenses like employee’s gross salary and social security contributions. It’s also common practice in China to give other incentives and bonuses to employees based on performance or other criteria – though this can be entirely up to the discretion of employers.
When considering the overall cost of employment in China, employers should first determine the gross salary using fair compensation for similar jobs in the designated city.
Factoring within the various additional costs borne by the employer – like mandatory social security benefits – and other voluntary benefits, employers can then begin to determine the whole cost of hiring employees in China.
Compensation, Benefits, and Individual Income Tax
Compensation and benefits are usually divided into three parts: wages and salary, incentives and bonuses, and mandatory social insurance contributions.
The Individual Income for wages and salary in China is taxed based on a progressive taxation system with seven tax brackets ranging from 3% to 45%.
| Level | Salary YTD (Yuan) | Tax Rate (%) | Quick Deduction (Yuan) |
| 1 | TI < 36,000 | 3 | 0 |
| 2 | 36,000 ≤ TI < 144,000 | 10 | 2,520 |
| 3 | 144,000 ≤ TI < 300,000 | 20 | 16,920 |
| 4 | 300,000 ≤ TI < 420,000 | 25 | 31,920 |
| 5 | 420,000 ≤ TI < 660,000 | 30 | 52,920 |
| 6 | 660,000 ≤ TI < 960,000 | 35 | 85,920 |
| 7 | ≥ 960,000 | 45 | 181,920 |
Does China Still Have A Labor Cost Advantage?
China’s striking low-cost labor advantage has long been a very important element to consider when making global capital investment decisions.
However, the wage growth in China has outstripped gains in productivity. This implies that for foreign investors, rising wages are an unavoidable feature of doing business in China.
Nevertheless, if other factors, like productivity, infrastructure, transportation costs, and access to an enormous domestic market are all taken into consideration, the country should persuade foreign investors to be a more cost-efficient option than countries with lower statutory labor costs.
Despite the increase in these costs, many foreign companies still consider China a vital market. For the past 10 years, roughly 80 percent of executives have said that China is one of their companies’ top three global investment destinations, according with annual surveys by the American Chamber of Commerce in China.
Over the identical period of time, approximately 70 percent of executives reported that their firms’ operations in China are profitable or very profitable. Proximity to the market has been a key determinant in Chinese investment decisions.
Given this steady interest in China as a worldwide investment destination, it’s important to know the rising labor costs against the larger context of China as a maturing, yet robust market.
China’s market is one of the world’s largest and continues to grow at an enviable pace. Productivity gains, which were achieved largely through investment, have successfully offset the impact of the fast-growing labor costs within the past.
China is now, however, taking steps toward shifting to an economy driven by technology upgrades, innovation, and the revamping of business models.
This trend is probably going to still offset the impact of rising labor costs in the coming years. Though labor costs in Vietnam and other low-cost countries are approximately one-half to one-third of the Chinese labor costs, productivity in many low-cost countries is considerably under in China.
How A PEO Can Help To Manage The Labor Costs In China
Benefits
A primary goal of the PEO is to supply your employees with access to cost-effective, comprehensive benefits without the executive and regulatory burdens which would be so overwhelming.
As a co-employer, the PEO is ready to supply a good type of benefits to your employees through PEO-sponsored benefit plans.
PEO will help your employees better understand and appreciate their benefits by providing online benefit plan content and enrollment tools, additionally as a contact center that may answer all benefit-related questions.
Salary & Costs
Working with the PEO can reduce your payroll processing and related accounting costs. Human resource services companies also conveniently automate the payroll process and handle your withholdings and garnishments.
Look for a PEO that has payroll services with an easy, straightforward fee, instead of a PEO or payroll service that charges separate fees for every of its various payroll services, like providing quarterly and annual payroll reports.
HR Management Compliance
Employment law is complex and ever-changing. Not maintaining the countless HR laws, regulations, and rules that apply to your business can cost you success.
Are you up to hurry on the subsequent laws and regulations? If not, a PEO can provide guidance from seasoned HR professionals and help you to avoid compliance mishaps.
Workers’ Compensation
A good PEO should offer your business access to a zealous team of workers’ compensation specialists who are accustomed to your business and work collaboratively together with your core HR services team. They help you to mitigate risks while providing impacted employees the answers they have in a timely manner.
Recruiting
These days, recruiting moves at the speed of light. Positions open up quickly and you always need an equally fast turnaround to find a professional and capable candidate.
The problem is that you most likely don’t have the time and bandwidth to concentrate on the essentials of solid recruiting.
When you consider the time and money spent placing job ads, interviewing candidates, conducting background checks, and more, hiring the incorrect person can become a costly error.
A PEO should offer additional services, like recruitment assistance, and be ready to provide you with access to experienced recruiters who can examine your company’s employment needs.
How HROne Can Help You Start Your Business In China
As a registered PEO in China, our services can help foreign companies whose business operations require them to hire local or foreign employees in China.
Some of the services included in our solution are:
- Candidate search
- Labor contract signature
- Monthly payroll
- Work visa processing
- Income tax compliance
- Employee social benefits
- Allowances
- Bonus & commissions
- Medical insurance
- Expense claim
HROne is one of the very few companies in China that obtained the ISO/IEC 27001:2013 certification for Information Security Management and the ISO 9001:2015 certification for Quality Management.
These certifications represent a certainty that the employees, processes, and the IT systems that we utilize here at HROne conform to the standard risk management processes and we can guarantee compliance with the Chinese law.
