How do Chinese Employer of Record (China EOR) Works in China?

In China, a Chinese EOR can help foreign companies that want to hire employees in China but do not have a legal entity in China. Here’s how a Chinese Employer of Record (EOR) works in China:

• Legal entity: A Chinese EOR must have a legal entity in China and hold the license to conduct such service. This means that it is a registered company in China that has the necessary licenses and permits to operate in China.
• Payroll management: China EOR manages payroll for your employees in China, including payroll processing, salary payments, income tax, and social insurance contributions. China EOR deducts these taxes and contributions from the employee’s salary and pays them to the relevant authorities together with the employer social security contribution that shall be undertaken by client.
• HR administration: China EOR handles all HR administration tasks, such as onboarding and offboarding employees, managing benefits, and maintaining employee records.
• Employment Compliance: China EOR sign a bilingual employment contract with each of client’s employees. China EOR ensures that the employee and the employer are compliant with all local labor laws and regulations, including minimum wage requirements, working hours, and employee benefits.
• Communication: China EOR acts as a liaison between the actual employer which is the client and the employee, handling any communication or disputes that may arise.

Read more about How to Hire Employees In China Without Legal Entity?

Benefits of Using An Employer Of Record (China EOR) In China

Using an EOR in China offers several benefits for foreign companies looking to expand their business into the Chinese market in an efficient and compliance manner. Some of these benefits include:

Compliance: China EORs ensure compliance with Chinese labor law, reducing the risk of legal and financial penalties.

Cost savings: Companies can avoid the costs and efforts of setting up a legal entity in China, such as office space, legal fees, and administrative expenses.

Flexibility: China EORs allow companies to hire and terminate employees quickly and easily, providing flexibility in response to market changes.

Talent acquisition: China EORs have a deep understanding of the local talent market, making it easier for companies to attract and retain top talent.

Read more about What is China PEO & China EOR? How does it work in China?

How much is cost to using an Employer of Record in China? What is the Cost structure of using a China EOR?

Service Fees

China EOR service fee is typically charged on a monthly basis per employee. The service fee can range from a fixed amount to a percentage of the employee’s salary, depending on the different service provider in China. China EORs may also charge setup fees or termination fees for the initial setup of employment contracts or the termination of employment. It’s important to carefully evaluate the service fees of different EORs to ensure that they align with your budget and needs.

China Employment Cost

The primary cost of using a China EOR is the China hiring cost which including but not limited to employee’s monthly salary, local taxes, social security (5 social insurance and 1 housing fund), employer liability insurance, trade union fee. The tax rate and social insurance contributions vary depending on the employee’s salary and location. Different city in China the contribution base and percentage are different. It’s important to choose a local Chinese EOR service provider to ensure they are following up with the latest polices in each city in China.

Additional Services

Some China EORs may offer additional services, such as background back, private health insurance, medical checkup, HR support, recruitment, and benefits administration. These services may come at an additional cost, depending on the level of services required. Companies should carefully evaluate the additional services offered by the EOR and their associated costs to ensure that they align with their needs and budget.

Deposit

A deposit is a common practice in the EOR industry, and it serves to protect both the service provider and the client. It helps cover administrative costs, manage compliance and legal risks, mitigate financial risks, and ensure commitment from both parties. China EORs usually charge a deposit which is 2-4 months of each employee’s hiring cost. The deposit will usually fully refunded to client after employee left, or the employment relationship is ended.

China Corporate Tax/Business Tax

For foreign companies who has no legal entity in China, all the payment they release to the China EORs shall contribute the China VAT which is 6%, plus the affiliated tax. In Shanghai, the current total rate is 6.78% applied on the total invoice amount.

If you would like to understand your hiring cost in China, please send us the estimated monthly gross salary and the working city to info@jscgroups.com. Our HR expert in China will send you the cost simulation.

You can also read this article to understand the steps of engaging a PEO in China.

Overall, the cost of using a China EOR can be lower than setting up a full legal entity in China, as it eliminates the need for capital investment and ongoing compliance costs. However, it’s important to carefully evaluate the costs and services offered by the EOR to ensure that they meet your needs and budget. By doing so, foreign companies can take advantage of the benefits of EOR services and successfully navigate the complexities of hiring employees in China.