With a workforce of over 740 million people, China offers a large pool of talent. However, employment regulations are complex and navigating the system requires legal expertise. This can be a difficult task, especially for foreign enterprises without much experience in the Chinese market, planning to hire full-time workers.
The big question is, how do you employ people in China without an entity?
To be able to hire employees, Chinese laws require companies to either establish a legal entity in China or hire through an employer of record (EOR).
Several pieces of legislation govern employment relationships in China, among them the Labor Law, the Employment Contract Law, the Implementing Regulations of the Employment Contract Law, and the Social Security Law, together with other implementing rules and regulations and local legislation at provincial or municipal level.
Regarding wage, working hours, rest and vacation, the main rules and regulations generally include the Regulations on the Composition of Gross Wages, the Interim Provisions on Wage Payment, the Minimum Wage Provisions, and the Regulation on Paid Annual Leave for Employees.
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.
Employers' social insurance obligations
Employers hiring staff need to register them with the local Social Insurance Bureau and the Housing Fund Bureau to initiate or reactivate the company’s corresponding accounts. Both employer and employee are obligated to make contributions, however, it is generally the employer’s responsibility to calculate and withhold the payments correctly for both parties.
Employers are required to pay their employees and ensure contributions are made on time. Failure to do so may lead to labor conflicts or fines. If there are serious and repeated infractions, the entity may be listed on an HR "name and shame" list, which may make it more difficult to recruit new employees in the future.
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.
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.
These contributions include:
Federal income tax (there are no local taxes for personal income in China)
Pension fund
Unemployment fund
Medical fund
Occupational fund
Maternity fund
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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Schedule a 30-mins complimentary, no-obligation call to see how Woodburn can help you. Book a call with our Head of Business Advisory - Kristina Koehler-Coluccia.
Topics we can advise on include:
Company Registration
Cloud Accounting & Financial Reporting
Cloud Payroll Services
Tax & Audit Services
Recruitment
Employer-of-Record
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