On Income Tax and Overtime, China and U.S. Have Similarities and Differences


There are key similarities regarding aspects of income tax and overtime laws in the U.S. and China, somewhat easing the process of practitioners familiar with the payroll provisions in one of these countries learning those applicable for the other.

As in the U.S., China has a progressive income tax system and seven income tax brackets, Helen Kong, manager of human resources administration and payroll services at Dezan Shira & Associates, said May 16 at the annual American Payroll Association Congress in Orlando, Fla.

China’s individual income tax rates for its brackets, however, differ from those of the U.S., and are 3 percent, 10 percent, 20 percent, 25 percent, 30 percent, 35 percent and 45 percent, Kong said. The seven federal income tax rates under the U.S. progressive income tax system, with a higher minimum rate and lower than maximum rate than China’s system, are 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent.

A standard workweek in China, just like in the U.S., is considered to consist of five days of eight hours of work a day, with a total of 40 hours in the week and hours worked beyond 40 eligible for overtime, Kong said.  Under Chinese overtime law, unlike under U.S. federal law but in commonality with the laws of some states such as California, overtime hours are automatically accumulated during a day for hours worked in excess of eight in the day.

The maximum number of overtime hours an employee in China can legally work a day is three and weekly maximum is 36, Kong said, and there are no overtime maximums under U.S. federal law.

Chinese law and U.S. federal law both use an overtime compensation rate of time and one-half regular compensation, although in the U.S. this rate applies to all overtime hours and in China this rate applies to overtime hours worked on weekdays, Kong said. China has two additional overtime rates prescribed by law: double the regular compensation rate for hours worked on weekends and triple the regular compensation rate for hours worked on public holidays, Kong said.

Some managerial employees can be exempted from overtime premiums in China, Kong said, another commonality with U.S. overtime law. While determinations of U.S. overtime law coverage involve examinations of an individual employee’s circumstances, determinations of Chinese overtime law coverage involve specific job positions with a company, Kong said.

Employers need to apply to local authorities in China to acquire approval to exempt specific job positions from overtime premium coverage, Kong said. Whenever an employee assumes a job position, if a local authority previously declared that job position to be exempt from overtime coverage when a predecessor employee worked in that position, that position continues to be exempt from association with overtime premiums, she said.

Take a free trial of Bloomberg BNA’s Payroll Decision Support Network, your one-stop resource for reliable, up-to-date guidance and analysis in every area of payroll administration and compliance.

Follow Bloomberg BNA on Twitter @BloombergBNA and join the Bloomberg BNA U.S. and Global Payroll group on LinkedIn.