China Trade Union Funds Explained

We introduce the China trade union funds system – examining the sources, regulations, and payment methods. Additionally, we explore the current state of trade unions in China, with specific considerations for foreign-owned enterprises.

In China, the concept of worker representation takes a distinct form. Trade unions, a cornerstone of the system, play a crucial role in mediating between employees and employers.

This article explains how China’s trade union funds work, exploring their sources, uses, and the implications for both workers and enterprises. We look at the current landscape of trade unions in China and discuss their impact on labor relation management in China.

Introduction to China’s trade union funds

Trade union establishment

According to the Trade Union Law of the People’s Republic of China (hereinafter, “Trade Union Law”), trade unions are defined as “mass organizations of the working class, led by the Communist Party of China (CPC), where workers voluntarily unite.” Participation in and formation of these unions are open to all workers, regardless of nationality, race, gender, occupation, religious belief, or educational background.

Trade union funds

In China, trade union funds are financial resources managed by trade unions to support workers’ rights and welfare. Enterprises, institutions, and government departments where trade unions are established must contribute a specified percentage of their workforce’s monthly payroll to these funds.

Companies can make accrued expenses to the total salary in accordance with the accounting system of enterprises. These funds play a crucial role in providing financial support for union activities and protecting workers’ interests in China.

Sources of trade union funds

Trade unions in China derive their funds from various channels, including:

• Membership dues collected from union members;
• Mandated allocation of 2 percent of gross monthly salary from enterprises or government departments with labor unions;
• Contributions from affiliated enterprises or institutions;
• Subsidies from the Chinese government; and
• Other sources of miscellaneous income.

Tax treatment of contributions to trade union fund by the employer

Labor union expenses, capped at 2 percent of gross salary, can be deducted before taxation with proper documentation. Gross salary refers to the actual wages paid to employees, excluding welfare expenses and insurance contributions.

The term “employees” covers both regular and non-regular salaried workers, including those directly contracted with enterprises through labor dispatching.

Payment methods of trade union funds by the employer

The payment of trade union funds follows different practices in different cities.

In some cities, the trade union fund is paid to higher level trade unions, which then is allocated to the grassroot trade union of the company:

• Companies with established trade union calculate and pay the full amount of trade union funds equal to 2 percent of the total wages and salaries of all employees to the higher-level trade union each month. Typically, the higher-level trade union transfers 60 percent of the amount collected to the grassroots trade union within the paying enterprise.
• For companies that have not established a trade union organization, they pay the union funds directly to the higher-level trade union (referred to as “union preparation funds”). In this case, the higher-level trade union won’t allocate the fund to the grassroot trade union.

In other cities, the trade union fund is paid to the grassroot trade union and higher-level union separately:

• Companies pay a portion (usually 40 percent) of the fund to the higher-level trade union according to local regulations.
• The remaining portion (usually 60 percent) is simultaneously allocated by the company to its local grassroots trade union. If no grassroots trade union exists, the funds are allocated to the respective unit’s trade union once it is established.

According to relevant regulations, companies should allocate the trade union fund to the trade union on a monthly basis, and the union should then pass it up through the specified levels. Companies that haven’t established trade unions shall still pay required contribution to the trade union at a higher level as the preparatory fund for the establishment of trade unions.