Written by Angela Pan – Business Consultant
An umbrella company in China is also known as a PEO. It is a company that can manage the administrative, HR-related aspects, and payroll for foreign companies that want to start a business in the country.
Umbrella companies recruit employees, pay taxes and fees, enroll or apply for visas, and all other services, so the business itself won’t have to create a structure in China.
Umbrella companies also have a wide range of other services to make it easier for start-up foreign companies in China, such as the renting option of workspaces in the main Chinese cities.
In the article, we will show you the meaning and benefits of using an umbrella company in China.
What is the meaning of an umbrella company in China?
Umbrella Companies are a type of employment business especially used in the UK, but becoming popular in China with the name of PEO.
It acts as an employment agency for foreign companies that want to start a business in China, so independent contractors can enjoy benefits reserved by law for their employees.
The term “Umbrella” means that a company provides specific administrative functions that benefit many interested parties and protect them from certain liabilities and expenses.
Benefits and risks of using an umbrella company in China
- There is no need to register a legal entity to hire employees in China.
Usually, foreign companies could not hire employees when they do not have a legal entity in China. And it takes time and cost to arrange company formation. So by using the umbrella company, there is no need to worry about this issue.
- Find the right candidate/employee.
If you don’t have good or suitable channels to find the right candidate/employee, the recruitment agency who has a relationship with the umbrella company will be able to find the right person for you.
An umbrella company is always a legal and qualified company that owns the certificates issued by the government. They have a strong knowledge of local laws and regulations and could offer basic and essential employment service under fully compliant.
- Make employees feel secure and comfortable
As there is no legal entity in China, employees may be worried about whether their employment relationship is protected, how to contribute their social benefits, how to deal with their tax issues, and so on. Using an umbrella company can help to release all clients and employees’ anxiety.
There aren’t many risks of working with an umbrella company in China, but the company that wants to engage in this kind of service has to clarify with the employee the fact that he/she will be hired by a third-party agency.
So, one risk of using the umbrella company could be that the employee is not willing to accept this employment situation.
Another risk can be that the employee is paid in the form of loans or grants and not wages or salaries.
In many cases, this is a non-compliant form of tax avoidance and can have serious consequences for all involved in an umbrella arrangement.
Why foreign companies in China choose to use the services of an umbrella company
Without a legal entity in China, foreign companies could almost not be able to hire employees. An umbrella company in China could offer services like employees’ contract signing, social benefit contribution, and tax declaration, reimbursable expenses solving, and so on.
Some of the specific reasons for which foreign companies use the services of an umbrella company are:
- Hire and manage payroll, social benefits, taxes for the staff in China
- Hire independent contractors in China
- Let the umbrella company take care of HR and payroll issues
- Reduce operational costs, especially related to not open a legal entity in the country
- Test the market with less risk
Main differences between umbrella companies and PEO
- Umbrella company is always used in temporary or short-term conditions while PEO service focuses more on long-term or permanent employment relations.
- Umbrella company is always handling basic and essential payroll, social insurance, and tax issues. And PEO service could usually offer one-step service from candidates searching, employment contracts, social insurance contribution, visa application, company formation, and so on.
- The umbrella company structure is used more in Western Europe like the United Kingdom. PEO services are used more in the USA and Asia.
How HROne can help you start your business in China
As a registered PEO/umbrella company in China, our services can help foreign companies whose business operations require them to hire local or foreign employees in China.
Some of the elements included in our services are:
- Candidate search
- Labor contract signature
- Monthly payroll
- Work visa processing
- Income tax compliance
- Employee social benefits
- Bonus & commissions
- Medical insurance
- Expense claim
HROne is one of the very few companies in China that obtained the ISO/IEC 27001:2013 certification for Information Security Management and the ISO 9001:2015 certification for Quality Management.
These certifications represent a certainty that the employees, processes, and the IT systems that we utilize here at HROne conform to the standard risk management processes and we can guarantee the compliance with the Chinese law.