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China’s provinces continue to increase their minimum wage

During the past decade, Chinese workers’ minimum wage improved dramatically and continues to rise. Currently, Shanghai offers the highest monthly minimum wage in the country (RMB 2,690/US$370 per month), while Beijing has the highest hourly minimum wage (RMB 26.4/US$3.7 per hour).


A total of 17 regions, among them Anhui, Beijing, Chongqing, Fujian, Gansu, Guangdong (including Shenzhen), Hebei, Henan, Hubei, Jiangsu, Shaanxi, Shandong, Shanghai, Sichuan, Tianjin, and Zhejiang – have surpassed the RMB 2,000 (US$275) mark in their monthly minimum wage standards.


This year, wages were raised in 13 Chinese provinces, including Anhui, Beijing, Guangxi, Guizhou, Gansu, Hebei, Qinghai, Shaanxi, Shandong, Shanghai, Shanxi, Tianjin, and Yunnan.


The legal minimum wage is the remuneration paid by the employers to the employees after completing the working hours prescribed in the labor contracts.


Provincial governments decide the minimum wage standards, taking into consideration factors such as the cost of living, the urban residents’ consumption price index, the social insurance premiums, and the housing funds paid by the employees themselves, among other things.


Salaries can be paid in two different ways: as a monthly minimum wage or an hourly minimum wage. The monthly minimum wage applies to full-time employees while the hourly minimum wage standard applies to part-time and temporary employees.


The minimum wage is the basic remuneration paid to employees, which excludes overtime pay, night shift allowance, summer high-temperature allowance, the special working environment allowance, and subsidies for meals, transportation, and housing.


China’s minimum wage standards include the social insurance premiums and housing fund contributions paid by employees. In some places, the take-home pay is lower than the corresponding minimum wage standard. Only a few regions, such as Shanghai, clearly stipulate that their local minimum wage standards exclude social insurance premiums and housing fund contributions.


In general, every few years, local governments update their minimum wages and adjust them based on regional conditions.


Depending on the region’s level of development and cost of living, local governments set different classes of minimum wage levels for different areas. For instance, there is a higher minimum wage class for the provincial capital and larger urban centers, whereas smaller cities and rural areas have a lower wage class.


Other employee benefits, such as overtime pay, other allowances, and subsidies, increase as well when the minimum wage goes up.


Housing Fund


In most regions, the minimum contribution base of the housing fund is the same as the local minimum wage standards. The change of the minimum wage affects the housing fund contribution base, which has a ceiling three times the local average monthly salary in the previous year and a floor the same as the local minimum wage standard.


Not always the adjustment of the housing fund contribution base is in sync with the change of the minimum wage standard. For example, to reduce labor costs and help struggling businesses survive in the wake of the COVID-19 pandemic, the Shanghai government decided that its minimum contribution base of the housing fund in 2021 will follow the 2020 minimum wage standard, rather than the 2021 one.


Probation Period


According to the Labor Contract Law, the wage amount of a worker during their probation period shall not be less than the lowest wage amount for the same job position or 80 percent of the wage amount agreed in the labor contract and shall not be less than the minimum wage standard of the employer’s region.


Sick Leave

Sick leave payments differ depending on the location. One universal rule though is that the sick leave wage shall not be lower than 80 percent of the local minimum wage, according to the Opinions on Several Issues concerning the Implementation of the Labor Law.

The minimum sick leave wage standard must be adjusted with the increase of the local minimum wage standard.

Severance Payment

The Implementation Regulations for the Labor Contract Law mandates that the monthly salary used for calculating the severance payment cannot be less than the local minimum wage standard.

If the average pay of the employee in the 12 months before the termination of the labor contract is less than the local minimum wage standard, the local minimum wage standard shall be used to calculate the severance payment.

Suspension of work or production

Difficulties, such as the recent pandemic, may drive a company to suspend their businesses or production. Provisions on wage payment during the period of suspension of production establish that:

  • If the suspension period is within one wage payment cycle, salaries shall be paid according to the standards stipulated in the labor contract; and

  • If the suspension period goes beyond one wage payment cycle, the living allowance shall be paid by the enterprise, and the living allowance shall be implemented in accordance with the relevant local regulations.

Labor cost

In the past decade, China’s economy has improved significantly. The country is moving away from being the factory of the world and transiting into a more developed economy, focused on innovation and services.


Most workers employed by foreign-invested enterprises earn above the minimum wage. Workers in Shanghai made an average of RMB 10,338 (US$1,632) per month in 2020 – nearly four times the local minimum wage.

Foreign investors have long worried about China’s rising wages and how this will affect their business. However, China’s productivity, infrastructure, transportation costs, and access to a massive domestic market still make it a more cost-effective option than other countries.

 

Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms. Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

 

Can Woodburn help you? We are offering a free 30mins call where we discuss the obstacles you are encountering on your China business journey and how we can help accelerate your success.


 

DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.

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