According to Labour Union Law of the People’s Republic of China, labour union is the mass organization of the working class that worker unites voluntarily. Therefore, the formation of China’s labour unions is not compulsory. All manual workers and mental workers who work in domestic enterprises or government departments shall have the right to participate in and organize labour unions no matter their nationality, race, gender, occupation, religious belief and education level.

According to Labour Union Law of the People’s Republic of China, the source of labour union funds is as following:

(1)   Membership dues from labour union members;
(2)  Funds of 2% gross salary paid on monthly basis by enterprises or government departments who have labour unions;
(3)   Income turned over by the enterprises or institutions affiliated to labour unions;
(4)   Subsidies from Chinese government;
(5)   Other income.

Labour union expenses less than 2% of gross salary can be deducted before taxation based on reasonable vouchers, including Special Receipt of Labour Union Funds issued by labour unions, receipts issued by tax bureau or peer labour unions.

Gross salary means the actual salaries paid to employees, not including welfare expenses, employee education expenses, labour union expenses, pension insurance, medical insurance, unemployment insurance, employment injury insurance, maternity insurance and housing fund.

“Employees” include regular and non-regular salaried employees, which also include labour dispatching personnel who sign labour contracts directly with enterprises. However, retirees and part-time students are not included in employees.

Enterprises can pay monthly labour union funds to labour unions of higher level or tax authorities who collect the funds on behalf of labour unions.

The funds of grass-rooted labour unions can be used for enterprise publicity, culture and artistic activities, sports activities, hardship allowance for members, collective welfare for employees, labour union cadre training, administration expenses of labour union and salaries of labour union personnel.

According to Supporting Policy of Labour Union Funds for Small and Low-profit Enterprises issued by China Federation of Labour Unions, from 1 January 2020 to 31 December 2021, the labour union funds paid by small and low-profit will be refunded  in full at regular intervals.