This guide walks through the EOR model and how it differs from labour dispatch, the work-permit process for expats, the labour law that governs every contract, how statutory severance is calculated, and payroll, tax and social-insurance obligations.
An Employer of Record, or EOR, is a Chinese-licensed company that becomes the legal employer of the people you want to hire. You select the candidate and direct their work; the EOR employs them through its own in-country entity, signs a compliant labour contract, runs payroll in RMB, remits the five insurances and one fund, withholds individual income tax, sponsors work permits for expats, and manages renewals and offboarding.
The client must have no legal entity of its own in China to use this model. There is no standalone "Employer of Record" statute; providers operate under the existing Labour Contract Law and tax framework, which is why the most important thing to verify about any China EOR is that it genuinely holds a licensed entity able to employ and run payroll in the employee's city.
Confirm how, and under what licensed entity, your people will actually be employed, and that the provider can register social insurance in the specific city where each employee sits. China's labour arbitration is fast and employee-friendly, so an arrangement built on the wrong structure can expose the client to real cost.
This distinction is the foundation of compliance in China. Labour dispatch, or 劳务派遣, is a strictly regulated, separately licensed model in which an agency assigns its own workforce to a client for temporary, auxiliary or substitute roles, and it is capped at 10% of the client's total headcount.
A genuine EOR is different in substance. It is a service-based company that uses its own entity to employ the client's chosen workforce on ordinary labour contracts, handling payroll, tax, social insurance and HR administration, while the client directs the work. Treating an EOR engagement as labour dispatch, or using an unlicensed workaround, creates liability. A compliant EOR is not a labour-dispatch agency.
Foreign hires are employed on a fixed-term contract and need a work permit and residence permit. The employer, or the EOR acting as employer, leads the process. The typical sequence is:
End to end this typically takes eight to twelve weeks. Foreign talent is classified into three tiers: Category A for high-level talent, on a fast track; Category B for professionals, usually requiring a degree and around two years of experience; and Category C for short-term or quota-controlled roles. Salary thresholds apply, with Category A around six times and Category B around four times the local average wage, and in early 2026 Beijing and Shanghai resumed strict enforcement of these thresholds. EORs usually onboard expats only in Tier-1 cities such as Shanghai and Shenzhen, because the permit is tied to the sponsoring entity's locality and a genuine workplace.
Employment is governed by the Labour Law of the PRC and the Labour Contract Law of the PRC, supplemented by city and provincial rules and Supreme People's Court interpretations, including Interpretation II, effective September 2025. The headline rules:
| Topic | Rule |
|---|---|
| Contract type | Fixed-term, open-ended, or per-task. Written form is mandatory within 30 days of the start date, or the employer can owe double wages. After two consecutive fixed-term contracts, the employee is generally entitled to an open-ended contract. |
| Probation | Tied to contract length: up to 1 month for contracts under a year, up to 2 months for one to three years, up to 6 months for three years or open-ended. Probation pay must be at least 80% of the wage. |
| Working hours | 8 hours per day and 40 per week, with at least one rest day. Overtime is paid at 150% on working days, 200% on rest days and 300% on public holidays, capped at 36 hours per month. |
| Notice | 30 days, or payment in lieu, for objective-reason dismissal; 3 days during probation; immediate for serious cause. Employees resign on 30 days' notice (3 during probation). |
| Protected employees | Pregnant and nursing employees, those on statutory medical leave, work-injury cases and employee representatives generally cannot be dismissed. |
| Minimum wage | Set by each province and city; there is no national figure. |
Contracts must be written, and the Chinese-language version is legally controlling; bilingual contracts are common but the Chinese text governs.
Statutory severance, or 经济补偿金, is the central number in any China exit. The base figure, known as "N", is one month's average wage for each full year of service. A partial year over six months counts as a full year; six months or less counts as half a month.
The monthly wage for severance is the average over the 12 months before termination. If that exceeds three times the local average monthly wage, severance is calculated at three times the local average, and the years of service are capped at twelve. So an employee on a normal salary with five full years of service is owed five months under "N". Lump-sum severance up to three times the local annual average salary is exempt from individual income tax.
Mutual termination by agreement, settled at or a little above the statutory "N", is the standard, lowest-risk way to part ways in China. Never dismiss without a documented statutory ground, because an unlawful dismissal can become 2N or an order to reinstate.
Statutory paid annual leave is based on an employee's total career work experience across all employers, not tenure with one company:
| Leave type | Entitlement |
|---|---|
| Annual leave | 0 days under 1 year of total experience; 5 days for 1 to under 10 years; 10 days for 10 to under 20 years; 15 days for 20 years or more |
| Sick leave | Medical certificate required; sick-pay percentage varies by city and service length, with a floor of about 80% of the local minimum wage |
| Maternity leave | National minimum of 98 days, extended by province (158 days in Shanghai and Beijing); foreign employees generally receive the basic 98 days |
| Paternity leave | Set by province, commonly 7 to 30 days (15 in Shanghai) |
| Marriage & bereavement | Marriage leave 3 days nationally (10 in Shanghai); bereavement around 3 days |
| Overtime | 150% on working days, 200% on rest days, 300% on public holidays; capped at 36 hours per month |
China has seven statutory public holidays, including Spring Festival and National Day. To create long breaks, the government designates certain weekend days as make-up working days, which are paid at the normal rate, not overtime, a common payroll trap for foreign employers. Untaken statutory annual leave that the employer prevented must be paid at 300% of daily wage.
Salaries are paid monthly in RMB. A 13th-month salary, paid around Chinese New Year, is common market practice but not legally mandatory unless written into the contract. Individual income tax is a progressive system from 3% to 45%, withheld monthly on a cumulative basis with an annual reconciliation between March and June of the following year, after a standard deduction of RMB 60,000 per year plus special additional deductions.
Employers and employees both contribute to the "five insurances and one fund": pension, medical, unemployment, maternity and work-injury insurance, plus the housing provident fund. The employer share is large, commonly around 27% to 38% of salary depending on the city, and rates, floors and ceilings differ city by city and update around the middle of each year. The fapiao, China's official tax invoice, underpins expense management and is required to recognise costs.
Foreign employees are generally required to join social insurance, though enforcement varies by city, and nationals of countries with a bilateral social-security agreement can be exempt from certain contributions with proof of home-country coverage. Services supplied into mainland China are subject to VAT, generally 6% for services, which we show transparently in any cost simulation.
China is not an at-will jurisdiction. Every unilateral dismissal must fit a statutory ground, follow strict procedure and be well documented. Certain employees generally cannot be dismissed at all: pregnant employees and women in the maternity or nursing period, employees within the statutory medical-treatment period, work-injury cases, and employee or trade-union representatives.
There are three main routes to part ways: mutual agreement, which is the standard and lowest-risk route and carries severance; unilateral dismissal on objective grounds such as proven incompetence after training, which needs 30 days' notice or pay in lieu plus severance; and summary dismissal for serious cause such as gross misconduct, which carries no notice or severance but places the burden of proof on the employer. On exit, the employer must issue a release letter, or 离职证明, and pay all final wages and accrued leave promptly.
For a small team, the per-employee EOR fee usually beats the cost and effort of a WFOE. Once headcount approaches roughly 15, or you need to invoice Chinese customers directly and issue your own fapiao, setting up your own entity often becomes more economical. A common path is to start with an EOR and transition to a WFOE later.
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