How to hire and pay independent contractors in China

China is a global superpower and home to a diverse and talented workforce that drives entire industries — from manufacturing to finance. Thanks to its robust economy and technological innovation, the country has set the pace for continued innovation. So, businesses can do well investing in talent in China by hiring independent contractors in the country.

However, hiring and paying contractors in China isn't easy. Although the government has made it easier to do business in the country, there are still some rules and regulations that you need to strictly follow. You have to remain compliant with Chinese employment laws and tax practices. Importantly, you’ll have to ensure that you correctly classify your workers, or risk facing fines or penalties.

This guide will explain everything you need to know about hiring independent contractors in China. We’ll take you through the risks of misclassification, labor laws, taxes, and how you can onboard and pay your contractors compliantly.

What are the labor laws in China?

Before hiring in China, you’ll have to be aware of Chinese labor laws. The country also has strict compliance regulations regarding taxes and payroll. 

As an employer looking to hire workers from China, here’s what you must know:

• Employment contract. Chinese laws require the employment contract to be in writing. The preferred language is Chinese with an English translation.

• Probation period. The maximum probation period is six months.

• Working hours. The maximum working hours in China are eight hours a day, or 40 hours per week. However, the duration may vary from location to location. An employee can only work for three hours as overtime per day and not more than 36 hours per month.

• Minimum wage. There are regional variations in the minimum wage across the country due to changes in living standards. Beijing's minimum wage is CNY 2,320 ($334) and Shanghai's is CNY 2,590 ($400) per month. 

• Payroll frequency. The payroll frequency of the country is monthly.

• Paid leaves. Employees get paid leaves based on their employment duration:

1. Less than one year of employment — no paid leave

2. 1 to 10 years of employment — Five days of paid leave

3. 10 to 20 years of employment — 10 days of paid leave

4. 20+ years of employment — 15 days of paid leave

• Public holidays. Usually, there are 11 public holidays in China, but these vary according to the region.

• Termination of employment. The termination process in China is difficult and expensive, as the law protects workers’ job security in China. The amount of severance pay depends upon the length of the employment.

• Severance pay. In the event of termination, the employer issues a written notice period of a minimum of one month to the employee. If the employee doesn't want to serve the notice period, the employer will pay the month's salary with the severance pay.

• Maternity leave. Pregnant women can have 128 days of maternity leave (depending on location). The Social Security Bureau bears the cost of maternity leave and compensates the employee according to their average income level in the year prior to giving birth. It should not be more than three times the minimum wage.

• Paternity leave. Paternity leave is usually 15 days but this may vary by location.

• Benefits: Employees in China are entitled to several benefits, including life insurance, medical insurance, maternity insurance, unemployment insurance, flexible working, sick leave, and housing reserve fund, among others.

It’s useful to know about Chinese labor laws if you plan to convert your contractors into employees in the future. However, these rules typically don't apply to independent contractors in China.

How do I pay an independent contractor in China?

Online payment services have made it easier to pay contractors internationally. Common methods used to pay international contractors in China include: 

• Bank transfers

• Direct deposits

• Paper checks

• Virtual wallets

• Western Union

• Online money transfer services (Wise or PayPal)

Managing the payroll process for your team of contractors can get tricky. But, you can make your life easier by using Remote’s payroll system to pay your Chinese contractors quickly and compliantly. Remote handles currency conversion rates, payroll calculations, and invoice management — making contractor payments a stress-free process.

What are the risks of misclassifying Chinese independent contractors as employees? 

The Labor Law of the People's Republic of China is the principal law that deals with employment-related issues. The law classifies employees and contractors differently and has stringent regulations regarding classification.

The Labor Law classifies employees and contractors in China as follows:

• Definition. An employee is an individual who establishes an employment relationship with an employer. An independent contractor is a self-employed individual who enters into a mutually agreed “contract for service” with an employer.

• Job dynamics. An employee is required to follow the rules and regulations dictated by the employer. The employer has ownership of the employee's work. By contrast, the independent contractor and the employer are considered equal and independent civil subjects without any subordinate relationship. 

• Payer's tax requirements. Employees pay individual income tax on their salaries. Employers are responsible for withholding the individual income tax from the employee's salary and reporting it to the tax authority on behalf of the employee. An independent contractor is responsible for filing their income tax. 

• Benefits. Employees are entitled to many employment benefits, including social insurance, housing reserve funds, statutory leaves, and other paid leaves. Independent contractors are not granted any of these benefits.

• Contract termination. The labor laws in China generally favor employees when it comes to contract termination. The employer is obliged to pay severance fees that depend on the duration of the employment. On the other hand, termination of an independent contractor is easier. According to the Contract Law of the People's Republic of China, the employer can terminate an independent contractor with a notification. Independent contractors are not entitled to severance pay unless previously agreed by both parties.

Any kind of worker misclassification can result in heavy fines, or even worse, loss of your intellectual property (IP). If you misclassify your Chinese contractors and employees, it may lead to:

• Regulatory fines and penalties. The Chinese government can place heavy penalties and fines on employers who misclassify workers. 

• Back pay employee benefits. The law may order you to pay the employee salary at no less than the minimum wage in the location where the worker is based. Additionally, you will also be asked to pay the employee's overtime where applicable. Other than that, you may also pay double wages, unpaid social insurance funds, and late payment interests to the employee.

• Bans. The government may also ban your business. 

• Loss of intellectual property (IP). Should the independent contractor challenge the ownership of the work they did for you, you can lose ownership of your IP.

Working with a global contractor management platform like Remote can help you avoid the dangers of misclassification and protect you from IP risks.

Tax and compliance practices for hiring independent contractors from China

Chinese law requires permanent employees to pay individual income tax on their salaries. On the other hand, the independent contractor has to pay an individual tax income at the rate of 20% of the balance after the deduction of CNY 800 from each income. It shouldn't be more than CNY 4,000. You can learn more about the taxation laws in China here.

US employers need to be aware of a tax treaty between China and the United States. 

As a US employer looking to hire independent contractors in China, you need to consider the tax compliance regulations specified by the Internal Revenue Service (IRS):

• US employers are obliged to collect Form W-8 BEN from their independent contractors working outside the United States.

• US employers are obliged to fill out the 1096 form that covers all the information related to contractors. Note that this only applies if the China-based contractor is a US citizen or resident.

Figuring out these tax laws can be a challenge, especially if you’re a small business that doesn’t have the legal resources to deal with these matters. However, Remote makes tax compliance easy for US companies. When you onboard your Chinese contractors with Remote, they’ll be prompted to fill in and submit the relevant tax information — making tax compliance simple for you.

How do I convert an independent contractor in China to an employee?

At some point, you might think about making your contractor a permanent member of your organization. You can do this by hiring them as an employee. Some reasons you may want to do so include:

• You want your contractor to play a bigger role in the business. 

• You want to protect your IP rights.

• Your contractor requests to become an employee.

• You want to retain your contractor by offering benefits.

• You want to make sure you’re staying compliant with employment laws.

If you’re considering converting your contractor into an employee, you need to consider the legal consequences of Chinese laws. When an independent contractor is converted into an employee, they will come under the protection of Chinese labor law. The employer will be obliged to fulfill employee requirements, including but not limited to the following:

• Signing a written employment contract with the employee

• Granting the employee minimum wages, work breaks, holidays, and observing the regulations on standard working hours

• Ensuring employee protection and providing labor conditions as defined in labor laws

• Offering the employee all the benefits as defined in labor laws

• Following statutory conditions upon the termination of the employment contract

• Giving the employee a severance payment as stated in the law

If you want to convert your contractors to employees, there are two ways you can do this:

• Through an employer of record (EOR) service

• Though your own local entity in the country.

For more guidance, read our helpful article on what an employer of record can do for your business.

The best way to hire independent contractors in China

The process of hiring and paying independent contractors in China is not simple. Tax regulations, holidays, and minimum wages in China usually differ from location to location, making the process even more complicated. 

You’ll have to stay on top of legal requirements, handle payroll, and make sure you’re paying your contractors compliantly. But you don't have to stress because Remote's global contractor management and payroll service can do all the hard work for you.

Remote makes it easy for you to hire and pay contractors internationally, and our suite of services saves you the time and hassle of doing it all yourself. With Remote, you can:

• Onboard contractors in minutes with localized contracts

• Stay compliant with Chinese labor laws and tax regulations

• Automate your payroll and invoice management process

• View and manage your global contractors in one place

Ready to work with top talent in China? Sign up for Remote and start onboarding your Chinese contractors right away! Or contact our expert team to learn how Remote can address your contractor management needs.