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- Human Resources and Payroll in China 2016-2017 (5th Edition)
• Home visit allowance
Each year a foreign employee is allowed to deduct the cost of one or two return flights back to
their home country (usually the cost of a ticket up to business class may be permitted). Note that
flights to other destinations are normally not accepted. Cost of hotels and other expenses are also
not accepted as this is considered a home visit allowance, not a vacation allowance.
One key point is how much of a foreign employee’s salary can be allocated to allowances. This is
something that is not clearly defined by the law, which stipulates that the allowances should be
“reasonable.”In practice, many companies adopt a proportion of 30 percent of the total salary of the
foreign employee and classify this portion as allowances. There is always the possibility that the tax
office will challenge the company on this issue, so we recommend that the proportion of allowance
should be set at or below this level.
Mandatory Benefits (Social Insurance & Housing Fund)
The next portion of the salary package is social insurance and housing fund, often referred to in China
as mandatory benefit. Contributions aremade by both the employee and employer. The employee’s
portion is deducted from their gross salary. The proportions and maximum contributions made by
employer and employee vary depending on where the business is located.
Some employers choose to enroll their employees in additional pension plans or other types of wealth
accumulation plans. These are legal, but please note that only the mandatory benefits specified in
the IIT laws can be deducted before calculation of IIT.
Defining Net Salary
Normally, “net” is defined as the amount that employees receive each month after payment of IIT
and social insurance. It is more commonly offered to blue-collar workers that may not understand
the details of the Chinese social insurance or IIT systems.
Misunderstandings between managers and employees over the definition of “net” salary are
commonplace. If a company intends to offer such packages to employees, we suggest that the HR
Department draws up a clear example to explain to each employee how their salary package will be
structured, and to show the employee howmuchmoney they will be able to take home eachmonth.
The total of the base salary, allowances, bonuses, non-mandatory pension plans, and the employer’s portion of social
insurance contribution are added together to form the total compensation and benefits (C&B) amount.