China is a popular destination for foreign entrepreneurs. Doing business in China is appealing and profitable to the majority of foreign investors. Hiring employees is usually the most pressing concern when starting a business in China. Given the complexities of Chinese employment law, it is critical for foreign employers to fully understand the various options for legally hiring employees in China.
This article will introduce four different viable options for different companies hiring staff in China, as well as the pros and cons of each option.
1. If you do not have a legal entity in China, hire in China PEO/EOR agency
2. If you already have a China WFOE, hire employee through your China WFOE
3. If you have a China Representative office, hire staff through China PEO agency
4. Hiring in China through your local supplier or partner
Option 1. Hiring in China through China PEO/EOR agency
Only registered companies in China are legally permitted to hire employees. If you do not yet have a legal entity established in China or your WFOE is not yet registered, the only compliant way for you to hiring in Chinais through a local China PEO/EOR agency or China employment agency. What is China PEO & China EOR? How does it work in China?
China PEO and EOR agency is a registered Chinese human resource company. They will act as the employer, signing the local labor contract with the worker you selected and handling the following issues that the Chinese government requires of employers:
- Sign labor contract with staff within 30 days of the on boarding date;
- Handle employee’s on boarding procedures;
- China Payroll– Calculate employee salary and release salary to employee on the monthly basis;
- Enroll employee into the local social security system– 5 Social Insurance and 1 Housing Fund;
- Contribute individual income tax on behalf of employee on the monthly basis;
- Employee off-boarding procedure when employee resign or employment relationship terminated;
- Other things that employer shall undertake in China.
For more information on PEOs, click here. Understand more about What is China PEO, and steps to engage a PEO in China.
Pros of hiring through China PEO & EOR agency
Smart and quickest option to enter China market: Hiring in China through a China PEO agency is a highly clever way for foreign investors to enter the Chinese market, as it allows them to bypass the time-consuming and expensive process of forming their own legal corporation. This option allows international investors to access the Chinese market rapidly and begin doing business within one week.
- Limited liability: The own liability you shall undertake in China is employer liability, where the local Chinese PEO agency take the joint liability, and will ensure that all the HR and employment operations are fully compliant and such liability will not occur.
- Cost Control: The cost of engaging a local PEO vendor of hiring in China is very simple and straightforward. Typically, monthly invoicing consists of monthly employment costs plus the management fee charged by the PEO provider.
- Flexible to exit: Foreign investors can base on their business in China to decide if they want to long term invest in China or leave when the performance is not good enough. If foreign investors decide to leave China market, they can just inform local PEO agency to terminate the employment relationship.
Cons of hiring through China PEO & EOR agency
- Employee’s sense of belonging: Under China PEO mode, one of the cons will be employee’s sense of belonging will be low, since they are hiring under a PEO agency while working for a company overseas.
- Employee’s residence application: Due to the China hukou policy, employee may need to apply their hukou, usually in the tier 1 city, like Shanghai, Beijing, Shenzhen. If your employee has such requirement, the possibility of obtain such hukou through a Chinese PEO agency is low.
Overall, foreign investors who have no company registered in China, hiring in China through a China PEO agency is still the smartest option. If you would like to learn more about How to Hire Employees In China Without Legal Entity?
Option 2: Hiring in China through your China WFOE
For foreign investors who already has a registered company in China, you are eligible to hiring in China directly. Before officially onboard staff, below are the extreme important work you shall do first before hiring in China:
- Obtain your company registration certificate- business license
- Open your tax account, bank account
- Open your corporate social security and housing fund account
- Prepare a Chinese or Bilingual labor contract
Only when you get the above four key things done, you are able to onboard employee in China and complete all the mandatory on boarding procedures required by the Chinese government.
Most foreign companies that already have a China WFOE or Partnership Company, a general partnership comapny may be formed by general partners who bear unlimited joint and several liability for the debts of the partnership will hire employees directly through their WFOE in China. Your China WFOE will be the employer in this scenario, and will be responsible for all employer responsibilities. Because of the complexities of China’s employment and payroll requirements, they usually hire a local China HR service provider to handle their employees’ monthly payroll, taxes, and social security to guarantee that their hiring in China complies with all applicable laws.
Here are some important tips for foreign investors to hiring in China through China WFOE:
- Written Chinese employment contract is mandatory;
- Salary shall be calculated and released on the monthly basis;
- All full-time employees shall be enrolled into local social security system;
- Engage an experienced service provider is very essential;
- You can only contribute the social security for your employee in the city where you have your registered company;
- Employees’ social security contribution base is adjusted yearly
- In China, different city has different social security contribution base and percentage.
- Each city has the minimum wage requirement, such requirement is change yearly.
More tips for you to learn about hiring employees in China.
Option 3: Hiring in China through China Representative Office
In China, one sort of legal entity that is popular among international investors is a China representative office. Many foreign entrepreneurs prefer to start their firm in China by establishing a representative office rather than a China WFOE.
There is, however, a significant distinction between China WFOE and China Representative Office. To summarize, China WFOE is a registered company in China, whereas China representative office is a registered office, but it is not a Chinese firm. As a result, there are numerous restrictions on representative offices conducting business in China.
One major restriction is that the China representative office is not permitted to hiring in China directly. The only legal option to hire local Chinese workers is through a licensed China talent dispatch agency. The China talent dispatch agency will sign the worker’s employment contract, handle payroll, taxes, and benefits, and send the worker to the China representative office. The only way to hire foreign employees in compliance is to hire through a foreign parent business and dispatch the expats to a China representative office as representatives.
Overall, it is very important for you to know that if you have a China representative office, you can only hiring in China through a licensed HR agency. The representative office itself is not eligible for signing any employment contract in China.
Option 4: Hiring in China through your local supplier or partner
If you can identify a local supplier or a partner who already has a legal entity in China and is willing to hire all of these employees on behalf of your foreign firm in China, this may be an option. In actuality, it is difficult to discover; the major reason is that employers in China are required to assume a large number of obligations, such as work-related injury, severance compensation, sick leave, maternity responsibility, and so on. Because all of these employees work for an overseas company and are managed directly by the foreign corporation, your Chinese supplier or partner is unwilling to take on such a high level of risk.
If you are able to find the supplier or partner that is willing to hire your staff in China. You shall also take care that if they hire your employee legally? Did they pay salary to your employee on time? Did they contribute the social security on time and fully? These are all the very important questions for you to know before hiring in China through your partner.
To summarize, there are different options for hiring employee in China. It is critical that you select the most suited option based on your company’s unique circumstances when hiring in China.
For more information regarding start a business in China, read our article of 8 Steps to Starting a Business in China.
Frequently asked questions for payroll and hiring employees in China.
No, you do not need.
If you don’t have a company in China, you can hire employees through PEO service through the employment agency in China.
a) Hire employee through the PEO/employment service.
If you don’t have a legal entity in China, this is the only compliance way to have employee working for you in China.
b) Hire employee under WFOE.
If you already set up a WFOE in China, you can sign the labor contract with employees directly. You can either choose to handle their payroll land benefits yourself, or you can choose to outsource.
c) Hire employee under representative office (Ro)
Representative office in China is not allowed to hire employees directly. The only compliance way is hire employees through labor dispatch agency under PEO service
PEO refers to a professional employment organization, in China it’s also called employee outsourcing, labor dispatch. Foreign companies can hire staff in China through a PEO agency without setting up a legal entity in China.
Severance payment in China is based on the number of years employee has worked for the company.
Each full year employee worked for your company, one month salary shall be paid as severance payment.
For the working periods that are less than 6 months, half month salary shall be paid.
If employee’s monthly salary is higher than 3 times local average monthly salary, each year of the severance payment compensated shall be 3 times local average monthly salary.
If employees are in the probationary period, both employee and employer shall give 3 days as notice period for termination.
After probationary period, both employee and employer shall give 3o days as notice period for termination.
If employer need immediate termination, employer shall compensate one month salary.
No, You shall have a company registered in China to sign a written labor contract with each of your employee.
In practice, employer will sign a fixed term contract with their employee. However, when it goes to the third time renewal of the contract, then the contract becomes to a permanent contact.
Sign a two years or three years contract is more common in China.
Labor contract in China shall be at least in Chinese, and including but not limited to:
Company details including full name, address and legal representative or person in charge.
Employee details including full name, ID number, address.
Term of the employment contract; (E.g., 2 years, 3 years…).
Position (job title), location(city), working hours, holidays, leaves.
Package: gross salary, bonus, commission, social insurance, other benefits.
Occupational safety, and occupational hazard prevention.
Other terms which laws and regulations required.
You need to set up a company in China and then set up a separate Social Insurance and Housing Fund Account. After the company has been set up, you can contribute the benefits to the employees who have signed a contract with you.
The most popular job portals in China is: Zhaopin.com, Liepin.com, zhipin.com. However, these three job portals only accept a registered company in China.
If you don’t have a company in China, you can search candidates through Linkedin.com or engage a headhunting or recruitment firm to help you search the candidates.
In China, employees’ individual income tax (personal tax) shall be declared monthly by the employer, and yearly by employee themselves.