China is the fastest-growing economy in the world with huge Natural and Human Resource and this is attracting a lot of foreign companies to set up a local presence in China. For any foreign company to set up its business in China the first challenge is to hire employees without a legal entity. In order to ensure total compliance and avoid any penalty, it is very important to understand China’s Employment Law and Regulations. In this write-up, we will outline the challenges to consider while hiring in China.
Hiring in China
It is generally illegal for a foreign enterprise to hire a Chinese employee without any legal entity in China. Establishing a business in China is a complex and lengthy process and it varies from region to region where each region has its process and requirements.
Wholly Foreign Owned Enterprises (WFOE)
Establishing a WFOE in China is the best way to hire both national and foreign employees legally. Staff can be hired under various categories;
- Full-Time Employee – To hire staff on a permanent basis, it is mandatory to have a written contract with the employee which generally states working hours, salary, leaves and other benefits that comes as per the employment law like a pension fund, medical insurance etc. It also states severance pay in case of termination of the contract which is generally 1 month for every year that the employee has worked with the company.
- Part-Time Employee – Unlike the permanent hiring, for a part-time employee a verbal communication works. These employees cannot be asked to work for more than 4 hours a day and 24 hours a week. No severance to be paid.
- Contractual Employment – This type of employment is generally project-based and depends on the status of the project. There is not a traditional employee-employer relation. It generally helps to cut down the cost and liability as Chinese Labor Laws are not applicable. This method is not very popular due to the legal obligations that come along with contracting.
In the 1990s, when China opened its market, many government businesses were closed down to make way for private investments, many workers lost their job. So, China established a company named Foreign Enterprises Service Company Limited (FESCO) through which all the foreign company had to hire employees. But this intermediary company made hiring difficult with time-consuming and complex bureaucracy and paperwork. The fees paid to the intermediary company was very costly.
Outsource Payroll and Benefits to HR Agency
This is the most recommended way to manage employees and payroll. As such companies are well established and specialize in HR activities, it saves a lot of money, time and efforts for a foreign company to hire employees. They just need to choose the right outsourced payroll service provider.
These agencies also take care of all the initial licenses and requirements needed by a foreign or new company, which ensures 100% compliance.
The only thing to be considered while selecting an agency is that it should be licensed and professional with good experience.
Galaxy Group is a market leader in providing payroll and HR services to companies venturing into the Chinese Market.