As one of the world’s fastest-growing economies, China is an interesting destination for companies looking to expand their operations or foreign entrepreneurs who want to start a new business. However, hiring people in China can be difficult and navigating the labor system requires legal expertise.
To be able to hire people, Chinese laws expect companies to either establish a legal entity in China or hire through an employer of record (EOR).
Foreign investors who want to test the China market but aren’t sure whether they want to make a long-term investment in the country, may find using an EOR in China the ideal solution.
Hiring employees through an EOR
Using an EOR in China to hire employees means that instead of having to learn the intricacies of each city’s hiring and benefits policies, which are constantly evolving, a company may focus on its own business plans and expansion.
All administrative HR issues would be handled by an experienced EOR, who can assist in completing all necessary and mandatory operations effectively and efficiently.
Employees who form an employment relationship with enterprises, individually owned economic organizations, state departments, institutional organizations, and social groups in China, are protected by the employment law.
Labor disputes can be extremely costly for companies. Robust employee handbooks, policies and procedures can reduce employee disputes; however, workplace conflicts can still arise. If left unchecked, companies can face not only legal liabilities but also internal operational disruptions, decreased morale, and productivity, as well as possible external reputation damages.
Compliance
Compliance is extremely important when doing business in China and hiring employees. Different cities have different polices regarding payroll, tax, benefits, and due to the language barriers, it can be difficult for foreign investors to understand these polices clearly and correctly. Furthermore, since these policies are constantly evolving, it is important to stay up to date.
Language and culture barriers
One of the hardest obstacles foreign businesses face when operating and hiring in China is the language and cultural differences. Selecting a qualified HR service provider will assist in avoiding such stumbling blocks.
How to hire through an employer of record in China
A company’s current resources, size, and plans to scale are key factors when deciding whether to hire employees in China through an EOR versus setting up an entity.
Time and money are needed to establish a legal entity from the ground up. The process includes choosing a business structure, registering with the government, and opening a local bank account, plus consulting with Chinese labor law experts to ensure compliance with the country’s tax and labor laws.
After that, the entity is responsible for maintaining all payroll, benefits, and taxes for Chinese employees.
Chinese EOR
This third-party service operates as a legal employer on a company’s behalf, eliminating the need to establish a legal entity.
The hiring process through an EOR is quicker, and the agency handles all compliance with Chinese labor laws. As part of their service, the Chinese employer of record will calculate and withhold taxes, onboard and manage employees, and run payroll.
Pros and cons of EORs
Registering a legal entity may take months, but once established, it requires compliance with all local laws and regulations. Mistakes can be costly, including fines, legal action, or bans from operating in the country. EORs simplify the employee hiring process, from employee onboarding to payroll and taxes.
Recruiting employees in China through an EOR can enable a company to start operating within one month without registering a company. Setting up a company (WFOE) to start a business normally takes at least two months to complete, including the establishment of a bank account.
Choosing the correct EOR
A few factors should be considered before choosing an EOR, such as the specific services that the company will need, and future hiring growth plans.
It is important to know in which countries the EOR operates, if they are partnering with third party providers, how they will protect the company’s sensitive and confidential information and if they offer automated solutions.
It’s essential that the EOR has support staff that are both easy to contact and experts in the regulations of the countries in which it is hiring.
How to hire and onboard Chinese employees
Once a company decides on the China EOR, the onboarding process begins. The first step is to collect employees’ personal information, such as name, date of birth and national ID number, among other. All data must be collected using encryption and other security measures.
An employment agreement that outlines key working conditions, such as notice periods, annual leave, and employee benefits must be sent. This agreement needs to be issued within one month of their first day at work. Otherwise, fines can be imposed.
All labor contracts should be translated into Chinese, or they could be considered invalid.
An EOR automatically localizes and distributes employment agreements so that every Chinese hire will have a legally compliant contract. This includes statutory requirements for probationary periods, working hours, minimum wage, benefits, and termination policies.
In addition to Chinese national laws, there are local rules, meaning that employees in different locations may be bound to different regulations. Minimum wages may vary depending on that region’s economic development. The EOR will generate separate employment agreements to account for the differences.
In China, it is necessary to have employees read and sign an employee handbook. This is considered a legal document, and it includes terms and regulations for the workplace.
If a company decides not to use an EOR, it will need to register employees with the State Taxation Administration, the local Social Insurance Bureau, and the Housing Fund Bureau. An EOR will take care of such registrations.
Payroll
After collecting a new hire’s information, signing employment agreements, registering with the appropriate governmental institutions, an EOR will pay Chinese employees in local currency and withhold legally required taxes.
Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.
Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.
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Topics we can advise on include:
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