An Employer of Record (EOR) in China is a solution that allows companies to enter the country in a faster and easier way. An Employer of Record handles all the necessary procedures to hire and manage staff in China without having to register a local company.
It also provides full employment, payroll and staffing services, effectively outsourcing Chinese HR functions and leaving you free to conduct operations on the ground in China with your China-based employees.
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An employer of record is a third party organization that hires and pays employees on behalf of another company, usually a company that is overseas and does not have a local legal entity in the same country as the employer of record service provider.
The Employer of Record provider acts as the legal employer for tax & labor compliance purposes while the employees of the company work for another organization. EOR service providers take care of labor contracts, compliance, payroll & mandatory benefits. Using an EOR allows companies to legally and efficiently engage with overseas workers without violating local employment laws.
In China, the Employer of Record service is also known as Employee Dispatching or Labor Dispatch.
1) Quick market entry
An Employer of Record (EOR) helps foreign companies enter the Chinese market very quickly & cost efficiently.
Using an Employer of Record provider, a foreign company can hire local mainland Chinese employees or China-based foreigners to work for them and conduct a wide array of on-the-ground operations without having to register a company in China. The EOR provider company will be the nominal employer for that employee, looking after all the payroll and mandatory contributions while the client focuses on daily business operations.
There are specific rules for payroll and taxation in China which vary whether your company wants to hire foreign nationals or local Chinese employees.
The concerns related to tax laws and regulations in China include: Individual income tax (IIT) for employees in China, social security costs, payroll tax, sales tax, withholding tax, business tax and permanent establishment concerns. An employer of record can help deal with all these complicated laws and make sure that your company is 100% compliant in China.
An Employer of Record is a flexible service that can be a viable business solution to multiple business scenarios:
- If an overseas company is looking to hire a team in China to provide after-sales support, do business development, quality control and/or other operations, but the company does not have a legal entity in China, then an Employer of Record is an ideal option.
- If an overseas company wants to register a branch company in China, they can use an Employer of Record to start operating in the country legally while the Chinese entity is being registered (which can take months). Once the company is registered and the business license and bank account are issued, the Employer of Record can transfer the client’s employees to their newly formed Chinese branch company.
- If the company has already established an entity in China, an EOR service provider can act as an outsourced HR department and manage all payroll & labor compliance matters.
- If the company is shutting down their company in China, but wants to retain essential staff or departments, then an Employer of Record can be used to do so.
An employer of record can also help in case the company needs tax and accounting services in the country.
A PEO (Professional employer organization) provides solutions related to co-employment. PEO providers will help you manage administrative HR work but legal employment responsibilities are still borne by your company. Meaning you must have a legal entity in the county where you wish to hire staff.
Below are the main differences between EOR and PEO:
Employment Compliance: Employer of Record (EOR) providers take legal responsibility for your employees. Professional Employer Organization (PEO) providers do not take legal responsibility for your employees.
Business registration. Employer of Record (EOR) providers enable you to hire employees in other countries without registering a physical entity. Professional Employer Organization (PEO) providers need you to have a legal entity in the county of interest in order to provide co-employment services.
An Employer Of Record povier hires employees for the foreign client where the employee performs work for the client and the EOR firm will handle all employer responsibilities such as payroll, IIT, expense claim, social contributions and other administrative work.
All the employer responsibility is taken by the EOR firm only.
A Staffing Agency is responsible for the recruitment process but they cannot hire staff on the client’s behalf. So, there is no contractual relationship between the employee and the staffing agency. The staffing agency can help you with the headhunting services and finds the right candidate according to your requirements. This is something that HROne can do alongside Employer of Record (EOR). We will first find suitable candidates, coordinate interviews with you (the client) and hire them on your behalf in China.
Services Offered by an Employer of Record in China
The employer of record takes care of important responsibilities related to employment.
Some of the most important are shown below:
- Employee Compensation
- Managing time sheets
- New onboarding
- Background checks
Contact us to learn more about our services and how we can help your company in China!