Hiring employees through PEO and EOR agencies is quite popular globally especially during the COVID-19, international expansion is restricted due to the border restriction in each country. The most appropriate method for doing business in foreign country is through a PEO and EOR agency. This article helps you to understand PEO and EOR in China.
Contents:
What is PEO & EOR?
What is PEO and EOR in China?
What are the obligations from the China PEO and China EOR agency?
Advantages of engaging a PEO and EOR in China
Disadvantages of hiring employee through PEO and EOR agency In China
How to hire employees in China through China PEO & EOR?
What kind of company shall use China PEO?
What is PEO & EOR?
PEO is the abbreviation of professional employer organization, while EOR is the abbreviation of employer of record. PEO and EOR agency usually support on the employment, payroll, mandatory benefits, tax filing, social security, labor dispute, employment relationship, etc.
The PEO and EOR agency will enter into a co-employment relationship with the actual employer and employee. Through such co-employment, the PEO and EOR agency will act as the employer of record (EOR) and handling all the mandatory employment and payroll related issues on the name of legal employer, while employees are managed and work for the actual employer.
What is PEO and EOR in China?
In China, PEO and EOR is also called labor dispatching, talent dispatching, labor leasing, employee outsourcing. It is usually provided by the human resource agency or consulting firm in China.
Similar like global PEO and EOR agency, China PEO and EOR agency will act as the employer of record to sign the local employment contract with the local Chinese employees that are selected by client. The China PEO and EOR agency will complete all the compliance procedure of employee on-boarding, off-boarding and monthly payroll. However, employees daily work management is all managed by client who is the actual employer in China. Read more about How to Hire Employee in China Without a Legal Entity.
What are the obligations from the China PEO and China EOR agency?
As the China PEO and China EOR agency, below are all the mandatory things they shall complete to ensure the hiring compliance in China
- Sign a written Chinese labor contract with each employee
- Complete employee’s social security and housing fund registration in the first month of on boarding in the city where employee is located
- Employee payroll in China. Calculate employee’s salary and statutory benefits base on the policy of the city where employee is located on the monthly basis.
- Release salary to employee monthly
- Contribute the social security and housing fund monthly
- Declare employees’ local personal tax monthly
- De-register employee in the social security and housing fund bureau when employee leave
- Handling employment relationship, labor dispute, termination issues
- Assist employee in declare the yearly annual tax return yearly
As the local HR and employment expert, PEO and EOR agency in China shall be a very important role between actual employer and employee, to ensure the hiring and payroll compliance in China.
Advantages of engaging a PEO and EOR in China
Engaging a China PEO and China EOR vendor to start doing business in China is a very smart approach. Especially for foreign investors, who have less knowledge of China market, local regulations, market situation. Below is the conclusion of the advantages of engaging a PEO and EOR in China.
1. Able to hire employees anywhere in China without setting up your own legal entity
In China, if you would like to legally hire employees, you shall have a China legal entity to hire employees. However, for foreign investors it takes time and efforts to setting up a WFOE in China. Therefore, engage a China PEO or China EOR vendor can easily hire employees working for them without the establishment of the legal entity.
2. Easy and quick method to start doing business in China
China PEO and EOR allowed foreign companies to start business in China within 1 week. Once the candidates been selected by client, the PEO agency in China can complete the on-boarding process within 1 week so that client can have the employees in China to start their business.
3. Flexible China market entry and exit approach
Many foreign investors would like to test the China market in the very initial stage. Setting up a company in China like China WFOE indeed is time and cost consuming, and it is not easy to close if foreign investors finally decide to leave China market. China PEO and EOR indeed is the most flexible option for foreign investors to test the China market by hiring some local Chinese employees working for them. They can make a decision after couple of months to stay in the China market by setting up a China WFOE or leave the China market by terminating the employment relationship with the employees through the China PEO and EOR agency.
4. Limited cost and liability
As foreign investors who want to establish a legal entity in China, it usually cost the initial establishment and ongoing maintaining of the tax accounting. In the meanwhile, the corporate itself in China undertake the high liabilities. Engaging a China PEO and EOR in the early stage of doing business in China can help foreign investors to control the cost and liability.
5. Avoid facing complexity local laws and regulations
The complexity of China local laws and regulations make it difficult for foreign investors to start doing business and hiring employee in China. China PEO and EOR agency can be a bridge for foreign investors to understand the local regulations, practices, and ensuring the hiring compliance in China.
Disadvantages of hiring employee through PEO and EOR agency In China
Although there are many advantages of hiring employees through a China PEO and EOR agency. There are also some disadvantages.
Employee may have less sense of belonging since their actual employer and legal employer is different. In this case, we suggest foreign investors can offer some extra benefits to employees, for example, commercial insurance, family insurance, gifts during different festivals in China through the HR agency in China to compensate employees.
When the headcounts in China are increasing, hiring under China PEO might be not good. In this case, most of the companies will then set up their own China WFOE and transfer all the employees to the China WFOE.
How to hire employees in China through China PEO & EOR?
As introduced, China PEO and EOR solution is indeed a good approach for foreign companies to quickly and easily start a business in China. Below are the steps of engaging a China PEO and EOR agency to hire employees in China while you don’t have a presence establishment yet.
Step 1: Select a qualified China PEO/ China EOR vendor
Step 2: Find your candidate in China
Step 3: Collect the personal information and employment details of the candidate
Step 4: China PEO/China EOR vendor prepare local employment contract
Step 5: China PEO/China EOR vendor prepare the first month invoice with the employment cost breakdown
Step 6: Foreign company transfer the invoice payment to China PEO/China EOR vendor
Step 7: China PEO/China EOR vendor release register employee into social insurance and housing fund bureau
Step 8: China PEO/China EOR vendor release first month salary to employee and declare tax
Read more on 5 steps to engage a PEO in China.
What kind of company shall use China PEO?
There is different situation that company can engage a PEO service provider in China to hire employees.
1. Foreign investors who have no legal entity in China
The most common situation to engage a PEO in China is when foreign investors have no legal entity in China. In this case, the only compliance method to hire Chinese employees are through a PEO agency in China. Employees can be selected by foreign companies and employed by the local Chinese PEO agency, while employees can work on the market research, sales, client management, etc for the foreign investors.
2. Foreign investors who are in the process of setting up a company in China
While it takes couple of months to set up a company in China, sometime, foreign investors would like to hire someone in China first. In this case, hire employee through a China PEO is also a good option. Employees can transfer to the new entity after establishment.
3. Companies in China that has no headcounts to hire employees directly
Some of the companies may have the limited headcounts for hiring their own staff, they might can choose to hire PEO agency to hire the other employees until they have more headcounts to hire by themselves.
4. Companies in China who want to outsource a function
It is also very common in China to outsource the supporting function like call center, account management team. More like a BPO case, the PEO agency in China will hire the whole function for clients in China.
No matter it is hiring employee through a China PEO agency or by China WFOE directly, it is all very important for foreign investors to understand the tips and practices of hiring employee 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 do not need.
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.
