China labor dispatch also named as China PEO, China Employment, China Employee Leasing, China employee outsourcing refers to the practice of hiring or outsourced employees through an employment agency in China. Under China labor dispatch and PEO service, employees would be hired by Chinese employment agency, while employees are outsourced, managed and worked by the client in China, China employment agency will handle all employment procedures, monthly payroll, individual income tax, mandatory benefits, and off-boarding issues based on the regulations in China.
China labor dispatch service or China PEO solution are commonly used under the situation where foreign investors have no legal entity in China or only has a representative office in China but would like to hire Chinese employees working for them in China to test and try the China market. In this case, the labor dispatch or China employment agency will hire the employees selected by foreign investors. Under more on How to Hire Employees in China Without Legal Entity.
In China, there is a specific law and regulations to labor dispatch service and hiring practices in China, called The Interim Provisions on Labor Dispatch. The Interim Provisions on Labor Dispatch, which were discussed and adopted at the Ministry of Human Resources and Social Security’s 21st executive meeting are issued and become effective on March 1, 2013. Below are the detailed terms of the Interim Provisions on Labor Dispatch.
- General Provisions of Labor Dispatch in China
- Scope and Number of Employment under Labor Dispatch in China
- Type of employees can be hired under labor dispatched service
- Number of employees can be hired under labor dispatch service in China
- Conclusion and performance of a labor contract/labor dispatch agreement
- Employment Contract Period for Dispatched Employee
- China Labor Dispatch Employment Contract Terms & Conditions
- Probationary Period of PEO Employees in China
- Obligations of the labor dispatch service provider in China
- Dispatched employees under work-related injury in China
- Situations employee can return PEO employees to the labor dispatch service provider in China
- Dissolution and termination of a dispatch labor contract in China
- Notice Period of dispatched employee to terminate the labor contract
- PEO agency in China terminate labor contract with dispatched employees
- Social security insurance for labor dispatched employees
- Hiring employees through China PEO agency for China Representative Office
General Provisions of Labor Dispatch in China
The Interim Provisions on Labor Dispatch (hereinafter referred to as the Provisions) re hereby developed in accordance with the Labor Contract Law of the People’s Republic of China (hereinafter the Labor Contract Law), Implementation Regulations for the Labor Contract Law of the People’s Republic of China (hereinafter the “Implementation Regulations”) and other applicable laws and administrative regulations in order to control labor dispatch practices, protect employees’ lawful rights and interests, and foster the development of a harmonious and stable employee relationship.
The provisions apply to labor dispatch services supplied by a labor dispatch service provider in China, as well as a company’s employment of dispatched employees (hereinafter referred to as an employer). The provisions also apply to the employment of dispatched employees(also named PEO employees, outsourced employees) by a partnership, such as an accounting firm or a law firm that is incorporated by law, a foundation, or a private non-profit organization.
Scope and Number of Employment under Labor Dispatch in China
Type of employees can be hired under labor dispatched service.
If you already have a company in China, only temporary, auxiliary, or substitute employment jobs are able to be hired under labor dispatch service or China PEO employment in China.
Temporary job position is the one that lasts no more than 6 months.
Auxiliary job position is the one that is not part of the main business but provides services to the main business.
Substitute job position is the one that can be filled by other employees if the current employees are unable to work in a certain period like pregnancy, long time sick leave.
Before an employer decides on an auxiliary position in which dispatched employees will work, its employees’ congress or all employees must hold discussions and provide proposals and opinions, and the employer must negotiate on an equal footing with the labor union or employees’ representatives, and the issues must be announced internally.
Number of employees can be hired under labor dispatch service in China
The number of dispatched employees hired by an employer must be kept under rigorous control, and must not exceed 10% of the total number of employees.
The total number of employees in the preceding paragraph refers to the sum of the number of employees with a labor contract with the employer and the number of outsourced employees employed by the company.
Conclusion and performance of a labor contract/labor dispatch agreement
Employment Contract Period for Dispatched Employee
By law, the labor dispatch service provider shall sign a formal written labor contract with the employees who will be dispatched and hired for a minimum of 2 years.
China Labor Dispatch Employment Contract Terms & Conditions
A labor dispatch agreement shall specify the following:
- Title and nature of the job position in which the dispatched employee will be hired in China.
- Job location.
- Number of the dispatched employee and the dispatch period.
- Amount and payment method of employee remuneration determined in accordance with the “equal work, equal pay” principle.
- Amount and payment method of social securities.
- Working hours, vocation & leave.
- Related benefits for the dispatched employees during work injury, birth-giving or illness.
- Occupational safety &hygiene and training.
- Expenses such as economic compensation.
- Term of the labor dispatch agreement.
- Payment method and criteria of the labor dispatch service fee.
- Liability for breach of the labor dispatch agreement.
- Other matters that shall be included in the labor dispatch agreement as set forth in the laws, regulations and rules.
Probationary Period of PEO Employees in China
The labor dispatch service provider or China PEO & employment agency and the employee may agree to be sent throughout the probationary term as required by law. It may, however, agree to a single probationary period with the same employee who will only be dispatched once.
Obligations of the labor dispatch service provider in China
China employment agency shall perform the following obligations for the employees hired in China under labor dispatch and employment service:
- In a genuine manner, inform the dispatched employees of the matters mentioned in Article 8 of the Labor Contract Law, the laws and regulations that must be followed, and the contents of the labor dispatch agreement.
- Establish training procedures to educate and deliver pre-service training and safety education to dispatched staff.
- Pay salary to outsourced employees and other benefits like annual leaves, public holidays in accordance with the requirements of the State and the labor dispatch agreement by law.
- Pay social security contributions and fulfill social security insurance and housing fund formalities for dispatched personnel in compliance with state and labor dispatch agreement regulations.
- Demand that the employer offer labor protection and other legal occupational safety and hygiene conditions to the dispatched employees.
- Provide legal proof of a labor contract’s dissolution or termination.
- Assist in the resolution of a conflict between dispatched employees and the employer.
Dispatched employees under work-related injury in China
If a labor dispatch service provider’s employee is hurt on the job while working for an employer, the labor dispatch service provider must apply for a legal determination of job injury, and the employer must cooperate in the investigation/verification for the purpose of determining job injury. Both of the PEO agency in China and employer shall bear the liabilities for such work-related injury.
If a PEO employee requests a diagnosis and/or assessment of an occupational disease, the employer is responsible for handling all aspects of the diagnosis and/or assessment of the occupational disease and provide the documents such as the PEO employees occupational history, history of exposure to the occupational disease and test results of hazardous factors at workplace for the occupational diseases that are necessary for the diagnosis and/or assessment of the occupational disease in a truthful manner, and the labor dispatch service provider shall provide the dispatched employee with other materials necessary for the diagnosis and/or assessment of the occupational disease.
If a labor dispatch service provider’s administrative license is not renewed when it expires, or if its labor dispatch service license is revoked or rescinded, the labor contract currently in place with its dispatched employees must be fulfilled until the law expires. Negotiations by both parties to a work contract may result in the labor contract being dissolved.
Situations employee can return PEO employees to the labor dispatch service provider in China:
Under any of the following circumstances, an employer may return a dispatched employee to the labor dispatch service provider concerned:
- The employer is subject to the conditions set forth in Item 3, Articles 40 and 41 of the Labor Contract Law.
- The employer is declared bankrupt, has its business license revoked, or has been compelled by law to close or cancel registration; and the employer decides to dissolve in advance or not to continue the business after the business period expires.
- The labor dispatch agreement is terminated upon expiry.
- The labor dispatch service provider must pay salary to the outsourced employee on a monthly basis, at least in compliance with the minimum salary determined by each local government, during the period when the dispatched employee has no employment after being returned.
Dissolution and termination of a dispatch labor contract in China
Notice Period of dispatched employee to terminate the labor contract
A dispatched employee can terminate his or her labor contract with its China employment agency by giving 30 days’ notice in writing. During the probation period, he/she may terminate its labor contract with a labor dispatch service provider by giving 3 days’ written notice. The labor dispatch service providers must notify the relevant employer of the dispatched employee’s notification.
PEO agency in China terminate labor contract with dispatched employees
If an employer returns a dispatched employee in accordance with Article 12 of the Provisions, the labor dispatch service provider may dissolve the labor contract with the dispatched employee if the PEO employee who is to be re-dispatched does not agree with the labor dispatch service provider to maintain or improve the labor contract conditions.
If an employer returns a dispatched employee in accordance with Article 12 of the Provisions, the labor dispatch service provider concerned may not dissolve the labor contract with the dispatched employee if the dispatched employee to be re-dispatched does not agree with the labor dispatch service provider to reduce the conditions specified in the labor contract except where the labor dispatch service provider agrees to decrease the conditions specified in the labor contract.
The labor contract between a China PEO agency and a dispatched employee is terminated when the labor dispatch service provider is declared bankrupt, has its business license revoked, or has been ordered by law to close down or cancel registration, or when the labor dispatch service provider decides to dissolve in advance or not to continue the business after the business period has expired. Negotiations between the employer and the employee are required.
In the event that a labor dispatch service provider dissolves or terminates its labor contract with a dispatched employee pursuant to Article 46 of the Labor Contract Law or Article 15, 16 of the Provisions, it shall provide the dispatched employee with economic compensation.
Social security insurance for labor dispatched employees
If a labor dispatch service provider in one region deploys an employee to another region, the dispatched employee must be covered by social security insurance in the location where the employer is located. China dispatched employee is entitled to social security insurance benefits in accordance with local requirements, and the China employment agency is responsible for paying the social security insurance premium in accordance with the rules in the location where the employee is based.
If a labor dispatch service provider dispatching an employee to an employer has established a branch in the employer’s location, the branch must complete the requirements for getting social security insurance coverage and pay the dispatched employee’s social security insurance premium.
Hiring employees through China PEO agency for China Representative Office
Representative office in China are not allowed to hire employees working for them directly. The only compliance option for rep office in China to hiring employees are through PEO agency of China labor dispatch service.
The employ of dispatched employees by the permanent representative office of a foreign enterprise or by the representative office of a foreign financial institution in China as well as the employ of international oceangoing seamen by a seamen employer in the form of labor dispatch is exempted from the restrictions on the proportion of dispatched employees employed for temporary, auxiliary, or substitute job positions.
China Labor Dispatch & Employment for Foreign Startups in China
For foreign investors who would like to start doing business in China, hiring employees under the labor dispatch which is also called China PEO mode is very smart to test the China market without the great spent and efforts. After running business for months, foreign investor can start on registering a company 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.