In China, social insurance contributions are generally calculated based on employees' salary income, subject to the lower and upper limits announced by local authorities. According to the PRC Social Insurance Law, employers are required to declare and pay social insurance contributions in full and on time, while the employee portion should be withheld and paid by the employer. The Provisions on the Composition of Total Wages also provide that total wages generally include time-based wages, piece-rate wages, bonuses, allowances and subsidies, overtime pay, and wages paid under special circumstances.

In practice, companies usually update employees' social insurance contribution base around July each year, based on the annual lower and upper limits announced by the local authorities. The employee's contribution base is generally determined with reference to his or her average monthly salary of the previous year, subject to the applicable local thresholds. During the annual adjustment period, companies should review employees' salary, bonuses, allowances and other remuneration data in a timely manner.

If a company uses only employees' basic salary as the contribution base, without considering bonuses, subsidies or other wage-related income, discrepancies may arise among payroll records, IIT filings and social insurance declarations. Such differences may create compliance risks and may need to be explained during regulatory inspections, employee complaints or data comparisons. In certain cases, the company may be required to make supplementary contributions, pay late payment surcharges or take other corrective actions. Please note that even if an employee and the company have previously signed an agreement to contribute to social insurance based on the minimum base, labor arbitration tribunals will not take such agreements into consideration.

Therefore, companies are advised to regularly review their HR and payroll practices, especially for employees whose actual remuneration is higher than the declared contribution base, and those with a high proportion of bonuses, subsidies or performance-based income. Companies should also monitor annual local notices on contribution base thresholds, cross-check payroll records, IIT filings and social insurance declarations, and retain supporting documents and internal approvals for future compliance reviews or audit purposes.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.  

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

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The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

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