Advantages of Using an Employer of Record (EOR) in China
Subhi Dani – Business Consultant
An Employer of Record 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.
And it also provide full employment and staffing services, effectively outsourcing Chinese HR function and leaving you free to concentrate on your main business.
Keep reading to know more about meaning and benefits!
- What is the meaning of employer of record in China?
- Benefits of using an employer of record in China
- Employer of record VS PEO: are they the same?
- Employer of record VS staffing agency: which one is the best solution?
- Services offered by an employer of record in China
The employer of record is a third party organization that hires and pays an employee on behalf of another company.
It means that an organization or company act as an employer for tax purposes while the employees of the company works for another organization.
EOR service take care of the employment arrangement and administrative work, and 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 to enter Chinese market in a very short time.
With EOR services, a foreign company can hire local mainland Chinese employee or even a foreign consultant to work for their overseas company and the EOR company will be the nominal employer for that employee, looking after all the payroll and mandatory contributions. The client don’t have to worry of HR and Payroll services.
There are specific rules for payroll and taxation in China, depending upon 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 your company to deal with all these complicated aspects and make sure that your company is 100% compliant in China.
An EOR can offer different solutions depending on the stage where the company is in.
If, for example, the company is looking to hire employees and manage the payroll in China, an employer of record can hire employees for it even if the company does not have a legal entity in China.
If the company has an already established entity, an EOR service can be helpful to manage all the payroll matters.
An employer of record can also help in case the company needs tax and accounting services in the country.
A PEO (Professional employer organization) is an outsourcing company which provides solutions related to co-employment.
You set up a relationship with the provider and they will help you to manage the administrative work but employment responsibilities are still on your company.
Below are the main differences between EOR and PEO:
- Workers are classified differently. If you choose an EOR, then the EOR provides employment and take legal responsibility of the employees, but in case of a PEO, the legal responsibility still lies on you for employing your employees.
- Responsibility for business registration. EOR enables you to hire employees in other countries without registering a physical entity but in PEO you need to register your entity in your location.
- Difference in minimum number of workers required to start up. EOR can be started with one or two employees but for PEO you need minimum 5-10 employees to start.
- Insurance Plan. For the employer of record, the insurance cost is already included, but in the case of a professional employer organization, the insurance is paid in addition to the PEO service cost which is one of the largest hidden cost in the service.
An Employer Of Record hires the employee for the foreign client where the employee perform work for the client and the EOR firm will handle all the personal functions of the employee such as payroll, tax depositing, expense claim, social contributions and other paper work.
All the employee responsibility is taken by the EOR firm only.
A Staffing Agency just help with the recruiting process of the employee but they cannot hire staff.
So, there are no contractual relationship between the employee and the staffing agency.
The agency help you with the headhunting services and finds the right candidate according to your requirements.
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 if you want to know more about our services and how we can help your company to easily expand to China!