Answer: Although an employment contract may specify the wages that the employer should pay, yet the employer is entitled to lawfully deduct certain items that the employee is required to contribute or pay, such as for social insurance and personal income tax. The calculation of the wage the employee receives is equal to due wage plus overtime pay plus unused time-off in lieu pay or unused annual leave pay, and then deducting allowable deduction items, namely:
Net wage = Due wage + Overtime pay + unused time-off in lieu pay + unused annual leave pay- Allowable deduction items.
Firstly, employees¡¯ payable hourly wages for normal work hours must not fall below the local minimum hourly rate standard; and the calculation base for their overtime wages shall also be not lower than the standard. In other words, due to unpaid leave and social insurance deduction, an employee earning minimum wage may actually receive a lower wages than the minimum wage standard.
Secondly, the calculation of overtime pay. Different rates and rules apply to the three different types of overtime, e.g., weekday, weekend, and public holiday overtimes. For detailed calculations of these three types of overtime please refer to “I am an HR manager. How do I calculate overtime pay for employees?”
Thirdly, allowable deduction items are certain legally permitted items that employers can deduct from employees¡¯ wages, including personal income tax, social insurance contributions (employees¡¯ contributions to pension, medical, and unemployment insurances), and other allowable deductions.
Sometimes, with mutual agreement or upon employees¡¯ request, employees may receive encashment pay for unused annual leave. Please Refer to ¡°I am an HR manager. How do I calculate employees’ unused annual leave pay from last year?¡± Additionally, employers may deduct incorrectly overpaid wages, court-mandated wage deductions, and expenses such as rent and utilities agreed upon by both parties if employers provide accommodations.
This article is a part of our new book“Employment Law in China: A Practical Guide. A book about “What should I do” with case laws.”Stay tuned, and the book will soon be published as an electronic books!
Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.
Email: wangdong@royalaw.com