Social Average Salary in China: An Explainer

Social average salary is important in a company’s payroll management as it is used as the baseline for the calculation of multiple payroll items. In this article, Sandy Zhang, Senior Manager of Human Resources and Payroll, Shenzhen Office, explains the key aspects of social average salary in China.

The “local social average salary of the previous year” (hereinafter, “social average salary” is a term often heard by employers in mainland China. But what does the social average salary mean? What is the significance of social average salary to employers?

In this article, we explain the definition, composition, and importance of the local social average salary, as well as provide the social average salary data of some key cities.

What is the social average salary in China?

Social average salary refers to the total salaries of all employees in a certain region or country within a certain period (usually one year) divided by the number of employees in this period. It is one of the important indicators to measure the labor market conditions of a region or country. The local social average salary is usually announced by the local government department based on the statistics of the previous year from May to July every year, which is valid until the new data is released the next year.

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To be noted, the social average salary published in each region may have different sampling groups of employees. For example, there are two sampling groups in Guangdong Province, one is the full-caliber urban employees of the whole province (city), and the other is the employees of urban non-private entities in the whole province (cities), which are used as baselines for different social welfare categories. In Shanghai, the social average salary sampling group is full-caliber employees employed in urban entities. Different sampling groups will affect the value of the social average salary.

What is the social average salary composed of?

Social average salary is composed of hourly wages, piecework wages, bonuses, allowances and subsidies, overtime payments, and salaries paid under special circumstances.

The salaries here refer to pre-tax salaries, including individual income tax and social insurance and housing fund contributed by the employee.

Why is social average salary important in payroll management?

Social average salary is important in a company’s payroll management as it is used as the baseline for the calculation of multiple payroll items:

• Social average salary is used to determine the calculation base of mandatory social insurance payment and housing fund: According to relevant regulations, if the average monthly salary of the employees is higher than 300 percent of the social average salary, the calculation base of the employee’s social insurance and housing fund payment shall be capped at 300 percent of the social average wage. Some cities set the minimum calculation base at 60 percent of the social average salary. Given this, the social average wage may directly affect the labor cost of the enterprise. The higher the social average salary is, the higher the labor cost of the enterprise will be.
• Social average salary is used to determine the ceiling of the calculation base for the severance payment upon termination: According to Article 47 of the Labor Contract Law, if the monthly average salary of an employee is higher than three times the monthly social average salary of the region where the employer registered, the severance payment paid by the employer shall be set as three times of the monthly social average salary and the maximum payment period shall not exceed twelve years. To be noted, the calculation method provided above is only the minimum amount an employer is required to pay by law. In practice, however, employers often pay a higher amount than the statutory minimum amount.
• Social average salary is used to determine the individual income tax exemption amount of the severance payment upon termination: According to the relevant provisions of China’s Individual Income Tax Law, the one-time severance payment (including severance pay, living allowances, and other subsidies paid by the employer) obtained by the individual due to the termination of the employment relationship with the employer, the amount which is less than three times of the annual social average salary in the region where the employer is registered shall be exempted from individual income tax.
• The social average salary is used for the calculation of pension benefits for employees who reach retirement age: According to the relevant state and local regulations, the social average salary is an important parameter for the calculation and payment of pensions for retired employees.
• Social average salary is used to determine the type of work permit for foreign employees: According to the relevant China work permit application regulations, foreign employees whose monthly average salary reaches four times the local monthly social average can apply for a Type B work permit. Those whose average salary is six times of the monthly social average salary can apply for a Type A work permit.
• Social average salary is used to determine the “disabled workers’ employment assistance fund”: In most regions/cities in China, the government will collect the disabled workers’ employment assistance fund from the employer from August to October on an annual basis. The local social average salary is an important parameter for the calculation in some cities/regions.
• Social average salary is used as the calculation base for the one-time relief payment and funeral subsidy to employees who die due to illness or non-work-related death and retired employees: The funeral subsidy is usually paid at three times the monthly social average salary, while the one-time relief payment is paid at 10 months of the social average salary. These subsidies are paid by the Social Insurance Bureau on the condition that the employer has paid the mandatory social insurance for the employee.
• Social average salary is used as the calculation base for the one-time subsidy for the death of an enterprise employee due to work. The one-off work-related death allowance for the employees of the enterprise is 20 times the country’s social average income of urban residents in the previous year. These subsidies are paid by the Social Insurance Bureau on the condition that the employer has paid the mandatory social insurance for the employee.

The local social average salary of key cities

Below, we list the social average salary of key cities/regions. As the local social average salary would affect many aspects of the employment cost, companies are advised to check with the government on the precise number or consult a professional agent.

*The social average salary of Beijing and Shanghai is based on the statistics of full-caliber urban employees of the whole province (city), while the social average salary of Guangzhou and Shenzhen is based on statistics of employees in urban non-private entities. 

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