Hiring your first employee in China is not like hiring in London or New York. You need a local legal entity to employ people directly, a written labour contract signed within one month of the start date, social-insurance and housing-fund contributions from month one, and monthly income-tax withholding — and, critically, there is no at-will employment. Get the paperwork and the process right at the outset and the relationship is straightforward; get it wrong and the penalties tend to be automatic.
- A written contract is mandatory and must be signed within one month of the start date. Miss that window and you owe double wages for the delay; let a year pass with none and an open-ended contract is deemed to exist.
- You generally need a registered China entity to employ staff directly. Without one, a labour-dispatch or employer-of-record arrangement is the usual route.
- Employer social insurance and housing-fund contributions typically add roughly 30–40% on top of gross salary; both sides contribute from the first month.
- Individual income tax (3%–45%) is withheld by the employer each month and remitted to the tax bureau.
- There is no at-will termination — you may only end employment on statutory grounds, and unlawful dismissal can cost up to twice the statutory severance.
- Your employee handbook binds staff only if it is adopted through a democratic procedure and properly publicised.
1. First, you need a China entity to hire from
A foreign company cannot simply put a person on its overseas payroll and call them a China employee. To employ directly, you need a registered local presence — most commonly a wholly foreign-owned enterprise (WFOE), which also gives you the bank account and tax registration payroll runs through. We set out the steps in setting up a WFOE in China.
If you are not ready to incorporate, the usual workaround is labour dispatch or an employer-of-record (often called a FESCO): a licensed agency employs the worker and seconds them to you. It is faster, but it is constrained — dispatch is meant for temporary, auxiliary or substitute roles, and dispatched staff cannot exceed a set proportion of your headcount. Treat it as a bridge, not a permanent structure.
2. The written contract — and the one-month clock
A written labour contract is compulsory, and the timing is unforgiving. It must be signed within one month of the employee's first day. If it is not, you owe double wages for every month of delay, running from the day after the one-month mark until the contract is signed. Let a full year pass without one and the law treats you as having entered an open-ended (non-fixed-term) contract — the outcome most foreign employers least want by default. The practical rule is simple: have the signed contract in hand on or before day one.
Two further points shape the document. Contracts are usually fixed-term to begin with, and a probation period is allowed but capped by the contract length (a maximum of six months for terms of three years or more), used only once, with probation pay no less than 80% of the agreed wage. And the statutory minimum terms — job, pay, hours, workplace, social insurance — must actually be in the contract.
3. The real cost of a hire: social insurance, housing fund and tax
The salary line is only part of the cost. Every employer must enrol staff in the five mandatory social insurances — pension, medical, unemployment, work-injury and maternity — plus the housing provident fund. Employer and employee both contribute from the first month, and the employer's share typically adds roughly 30–40% on top of gross salary, varying by city because the rates and contribution bases are set locally.
On top of that, you are the withholding agent for individual income tax. Employment income is taxed on progressive rates from 3% to 45%; you calculate, withhold and remit it monthly. Registration, contribution and withholding are all compliance obligations that sit alongside your broader corporate and compliance footprint in China — budget the fully loaded cost of a hire, not the headline salary.
4. There is no "at-will" — plan the exit before the hire
This is the single biggest surprise for US and European employers. China has no at-will employment. You cannot end a contract simply because it is not working out. Termination must rest on a statutory ground — serious breach of rules, proven incompetence after training or reassignment, redundancy on defined economic grounds, and so on — supported by process and evidence, with the burden of proof on the employer.
Get it wrong and the consequences are quantified: an unlawful dismissal can require reinstatement or damages of up to twice the statutory severance (itself broadly one month's pay per year of service). Because the exit is hard, the discipline is to build for it at the hiring stage — clear job descriptions, documented expectations and defensible records. We cover the mechanics in terminating an employee in China.
5. Your handbook only binds if you adopt it properly
Internal rules — the employee handbook, code of conduct and discipline policy — are what most terminations for cause ultimately rely on. But in China a handbook is not enforceable just because you wrote it. Under the Labour Contract Law, rules affecting employees' core interests must be adopted through a democratic procedure (discussion with staff or their representatives) and then publicised or delivered to each employee.
Skip either step and the rule you needed at a dismissal hearing may be disregarded. Practically: consult on the draft, keep the minutes, have employees acknowledge receipt in writing, and re-run the process whenever you amend it. A handbook that was never properly adopted is a handbook you cannot lean on.
6. Hiring foreign nationals: permits and a governing contract
Bringing in a non-Chinese hire adds an immigration layer. A foreign national needs both a work permit and a residence permit in place before starting, and generally qualifies on a bachelor's degree plus about two years' relevant experience (or an equivalent points score). Working before the permits are issued is unlawful and exposes both sides.
Their contract should be bilingual, with the Chinese version treated as governing in any dispute — Chinese is the language of the labour authorities and the courts, so an English-only agreement leaves you exposed. Foreign staff are also generally within the social-insurance system, subject to any bilateral totalisation treaty that exempts specific contributions.
Frequently asked questions
Almost always, yes. A foreign company cannot directly employ an individual in China without a local presence. Most first hires sit under a wholly foreign-owned enterprise (WFOE); the alternative is a compliant labour-dispatch or employer-of-record arrangement, which carries its own limits.
Within one month of the start date. If no written contract is signed by then, you owe double wages for each month of delay until it is signed; if a year passes with none, the law deems an open-ended contract to exist. Sign on or before day one.
Well above the headline salary. Employer social-insurance and housing-fund contributions typically add roughly 30–40% on top of gross pay, and you must withhold the employee's income tax (3%–45%) each month. Budget the fully loaded cost, not the salary.
Not at will. China has no at-will employment: you can only terminate on statutory grounds, with process and evidence, and unlawful dismissal can cost up to twice the statutory severance. Plan and document performance issues early.
Yes. A foreign national needs a work permit and a residence permit before starting, and usually a bachelor's degree plus about two years' relevant experience. Their contract should be bilingual, with the Chinese version treated as governing.
Sources
- China Briefing — Labor Laws in China — contract, social insurance and payroll obligations for employers.
- L&E Global — Employment contracts in China — written-contract requirement, probation and contract terms.
- Harris Sliwoski — China employment contracts and the double-wage penalty — the one-month rule and its consequences.
- Related reading: terminating an employee in China and corporate, compliance & data.
This article is general information for foreign companies, not legal advice on any specific matter. Rules and practice change; please take advice on your facts.