Differences between employment norms of India and China

The economies of China and India are comfortably 2 of the most promising in the world. China has ascended to become one of the world's most powerful nations. While India hasn't yet fulfilled its immense promise, its billion-strong market of mostly young and upwardly mobile professionals is alluring to businesses.

Both countries have different political systems, and this means their tax regimes are different. Here is a quick comparison of the ease of doing business in India and China.

Employer Payroll Taxes

The payroll taxes that an employer must pay are quite clear in India. The government mandates a minimum tax of 12%, which goes towards the employee's pension fund (referred to as the Provident Fund).

The picture is more complex in China. Taxes differ between Beijing and Shanghai despite the contribution categories remaining the same. These categories are pension, unemployment insurance, medical insurance, injury insurance, maternity insurance, and housing fund.

Pension, medical insurance, and housing fund contributions form the bulk of taxes at 16%, 9.8% (used to be 10.8% pre-COVID), and 12% respectively. The overall payroll tax burden for a company in Beijing totals somewhere between 39.76% to 41.12%.

The total in Shanghai is lower, between 34.16% to 35.52%. This is because of a reduction in the housing fund contribution (7%), with the other categories remaining the same.

The result is that China occupies the top spot in a list of jurisdictions that charge the greatest amount of employer payroll taxes, with Brazil and Belarus coming second and third respectively. India is in the middle of the table thanks to its far lower rate of 16%.

While not a payroll tax, both countries charge VAT. India charges VAT at 5%, while China charges 13%.

Employee Taxes

Employees in India bear a payroll tax burden of 16%, which is divided between a pension contribution of 12% and an education contribution of 4%. Chinese authorities impose a more complex regime.

Once again, taxes are different depending on whether the employee is based in Beijing or Shanghai. Employees must contribute to their pension, unemployment insurance, medical insurance, and housing fund.

Pension, medical insurance, and a housing fund predictably attract the greatest contributions in Beijing at 8%, 2%, and 12% respectively, which brings total taxes to 22.2%. Housing contributes 7% in Shanghai, which reduces the overall tax rate to 17.5%.

Employees are liable for income taxes, and both countries have income tax tiers that determine a person's marginal tax rate. India's tax rates range from 0 to 30%, with the highest rate reserved for people earning greater than INR 1 million.

Chinese income tax brackets range from 3% to 45%, with the top tier reserved for people earning greater than CNY 960,000.

Minimum Wages, Working Hours, and Payroll Cycles

There is no defined minimum wage in India, but employers follow market-defined rates depending on the skill of the employee in question. India ranks low on a scale of minimum monthly wages earned by employees, at $60 per month.

China ranks far higher on the list with a $383 minimum monthly wage. This is because the government specifies strict minimum wage floors in every province in the country. The highest minimum wage exists in Shanghai at 2,480 CNY per month. Wages in the rest of the country are roughly half this amount.

In both countries, it's accepted practice to pay employees before the end of the month. In India, the payroll cycle typically begins from the 28th of the month. Chinese employers customarily pay their employees a 13th salary on the Chinese New Year. There is no such practice in India.

Both countries observe a 48-hour workweek, with overtime paid at double the standard wage in India. Overtime in China is limited to 36 hours per month and can be up to 3 hours per day. Employees are paid 150% per hour for overtime on weekdays, 200% on rest days, and 300% on public holidays.

Leave

Employees in India are entitled to 15 days of annual leave and can carry over a maximum of 30 days into the following year. There are 3 holidays during which all offices must be shut. These are Independence Day (August 15th), Republic Day (January 26th), and the occasions of Mahatma Gandhi's birthday (October 2nd).

Employees are also entitled to 15 days of sick leave every year at 70% of their pay. Indian employers offer up to 182 days of paid maternity leave, with the number of days depending on the number of children the employee has.

If the employee is giving birth to their first 2 children (or one of them), they're entitled to 26 weeks of paid leave. In all other cases, the employee receives maternity leave of up to 12 weeks. Male employees typically receive 15 days of paternity leave, despite there not being any statutes specifying this.

Indian employers typically grant up to 6 days of casual leave to their employees and work-related injury leave for as long as the employee needs to recover. Typically, the employee is compensated at half their salary during this period.

Chinese employers tie the number of days off to the length of employment. Employees with less than a year's service don't receive any paid time off. Those with 1-10 years receive 5 days off, those with up to 20 years of employment receive 10 days off, and everyone else receives 15 days off.

There are 7 national holidays, with additional holidays occurring in local regions. Sick leave pay also depends on the length of service. An employee is entitled to 6 months of sick leave at 60% of their wages if they've worked for less than a year.

Those who have worked for up to 4 years receive 70% of their wages, those up to 6 years receive 80%, 8 years 90%, and everyone else receives full wages. If an employee wishes to seek sick leave for a period greater than 6 months, they'll receive 40% of their wages if they've worked for less than a year.

Employees who have worked for up to 3 years receive 50% of their wages, and everyone else receives 60% of their wages. Female employees are entitled to 98 days of maternity leave with an additional 15 days in case of difficult labor. Some cities offer additional days off for women over the age of 23.

Nursing mothers are granted one hour off every day for children under a year old. Fathers typically receive 10 days off, fully paid by the employer as paternity leave.

Employees are usually granted between 3-10 days off for marriage, while bereavement leave is usually between 1-3 days.

Termination

Termination procedures in India are usually specified in the contract. If they aren't it's customary to provide a 30 day notice period, except in cases of employee misconduct. Severance payment is provided to employees who have worked for at least 2 years, with payment increasing depending on work duration.

Chinese laws make it difficult to terminate an employee's contract unless it has expired or there's a mutual agreement between both parties. Typically, 30 days' notice is provided, unless the employee is on probation, in which case 3 days' notice is given.

Probation periods vary depending on the length of an employee's contract. Contracts under a year have a limit of one month as a probationary period, 2 months for a 3-year contract, 6 months for periods greater than 3 years.

Severance is typically one month's salary for every year the employee has worked at the firm, capped at 12 months or 3 times the minimum wage, whichever is lower.

Different Systems, Multiple Opportunities

While the markets of India and China offer many opportunities, employers must educate themselves in local employment laws and norms. This will help them achieve success easily and always remain compliant.

References:

https://papayaglobal.com/countrypedia/country/india/

https://papayaglobal.com/countrypedia/country/china/

(Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)