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- Human Resources and Payroll in China 2016-2017 (5th Edition)
3.1 Structuring a Salary Package
The structure of a salary package payable for each position in a company should be given careful
consideration. Certain employees need to be incentivized, while other roles require a more fixed
form of salary. Furthermore, the employer should consider the amount of income tax that will be
payable by the employee based on the proposed salary package. This is particularly important if
the company offers a net salary package to its employees.
Base Salary and Bonus
As we saw in the previous chapter, the base salary needs to be stated in the labor contract. This is
the fixed monthly amount that the company guarantees to pay the employee. Employers can also
include some one-off payments. For example, many companies make a 13thmonth salary payment
to their employees around Chinese New Year.
Companies should beware including any payments that are separate to the base salary in the labor
contract, as they will be legally bound to make the payment. Instead, employers can choose to pay
this amount as an annual bonus. In this case, the employer can explain to staff that the company
generally pays this amount under normal business circumstances, but is not obligated to do so if
performance is below expectations.
The company can also pay bonuses at various points throughout the year. In this case, please note
that under Chinese individual income tax law, employees can use a special tax treatment for a one-
off annual bonus to reduce their tax burden (more below).
Annual vs Quarterly Bonuses
An employee was transferred from her US HQ to a China subsidiary.
In 2011, she stayed in China for 365 days and was paid a monthly salary of RMB 40,000.
IIT
Individual Income Tax Savings Quarterly Bonus Payment
Quarterly bonus = RMB 10,000 per quarter
IIT = RMB 10,000 × 30% × 3 months + (RMB 10,000 × 3% - RMB 0) = RMB
9,300
One of the quarterly bonuses is considered annual bonus,
the other three bonuses are added to wages.
Annual Bonus Payment
Annual bonus = RMB 40,000
IIT = (RMB 40,000 × 10% – RMB105) = RMB
3,895
IIT savings
RMB 9,300 - RMB 3,895 = RMB 5,405