Employment Service In China: An Overview Of Employment Options And Regulations
Written by Nancy Wang – CRM Manager
In short, an employment service in China is a service between two entities to hire and manage employment relationships.
It is a service offered by HR agencies to help foreign companies to not only find qualified talents in the country, but also manage labor contracts, payroll, and benefits for these companies’ employees.
Managing employment relationships in China is complicated because of the ever-changing laws and regulations.
In the article, we show you the main employment regulations in China and the best options to hire employees.
Table Of Contents
- Overview of the recent employment law in China
- Adjustment of employment policies in 2020
- The role of employment service in China
- Three options to hire employees in China
Companies hiring employees in China need to understand key aspects of Chinese labor and contract laws and regulations.
In this section, we answer simple questions about the employment process and discuss the different types of labor contracts in China.
Employment contracts will not be subject to Chinese law unless they are signed through an entity in mainland China or if the overseas company is considered to be a permanent establishment in China.
If the company is qualified to employ an employee directly and decides to do so, it should be noted that the employer must sign a written contract with the employee within one month of the employee’s first day of employment with the company.
If the employer does not provide the contract after one month but within one year, the employer must pay the double monthly salary to the employee.
If the employee refuses to conclude a written labor contract with the employer, the employer shall, in accordance with the provisions of the Labor Contract Law of the People’s Republic of China, dissolve the labor relationship, notify the employee in writing, and pay the employee economic compensation.
If the employee does not conclude a written labor contract with the employer within one month from the date on which the employee begins to work, the employer shall notify the employee in writing to terminate the labor relationship without paying economic compensation, but shall pay the labor remuneration for the actual working hours.
When does the employment relationship start in China?
The employment relationship is regarded as starting from the employee’s first day of work in the company, not from the date of signing the contract.
Should labor contracts be written in Chinese?
In general, a bilingual contract will automatically default to Chinese as the authoritative language if it does not specify which language is the controlled version.
Therefore, for the sake of legal certainty, foreign investors are recommended to sign contracts in Chinese.
Types of labor contracts in China
According to different definitions, Labor contracts in China can be divided into three types:
1) Fixed term labor contracts
A fixed-term contract establishes the relationship between employer and employee over a fixed period of time. It can be used for part-time or full-time jobs.
Part-time workers have five characteristics:
- The average working time of employees shall not exceed 4 hours per day and 24 hours per week;
- No probation period is allowed, and the employer or employee may terminate the agreement at any time;
- Employees are not entitled to severance compensation;
- Employers must pay the wages at least once every 15 days;
- Part-time employees do not need to receive a written contract.
The term contract is the most commonly used labor relation standard in labor contracts.
Compared with open-ended contracts, it gives employers greater flexibility to terminate and provides greater legal certainty to the employment relationship.
2) Open-ended contracts
A contract without a fixed term refers to a standard labor contract between an employer and a worker without a fixed term.
Generally speaking, there are four ways to obtain an open-ended contract:
- At the beginning of the labor relationship, the employer and the employee voluntarily sign an open-ended contract (not recommended);
- The employer fails to sign a written contract with a full-time employee who has worked for at least one year;
- The employer wishes to renew the contract of the employee for a second time, and the employee does not fall into any of the categories set out in the preceding two paragraphs (to be provided later) of “immediate termination of the contract due to employee misconduct” and “termination of the contract with 30 days notice and payment of compensation”;
- The employee has worked continuously for the same employer for ten years.
The indefinite term contract effectively guarantees the work safety of employees before retirement. The company will not be able to fire the employee at the end of the employment contract because the employment contract is no longer limited to the period of employment. This means that the employer can only terminate the employee by mutual agreement or for valid reasons.
3) A labor contract whose term is the completion of a certain task
A labor contract is defined by the task or project to be performed by the employee, not by the length of time.
This type of contract allows a company to hire a person to perform a specific project. Once the project is completed, the employment relationship is over. At this stage, the company is required to pay severance to the employee accordingly.
In addition, the employer may not establish a probation period for the labor contract. For these reasons, most employers avoid this arrangement.
Clauses labor contracts in China
According to the relevant laws, the labor contract in China must include:
- Name and address of the company and the name of its legal representative or senior management personnel;
- Name, valid address, and identity card number of the employee;
- Starting date and term of the contract;
- Job description and place of implementation;
- Salary details;
- A statement that the employer will contribute to social security for the employee;
- Labor protection, working conditions, and prevention of occupational diseases.
It is suggested to add some clauses to the labor contract according to the specific situation, including:
- Probation period;
- Non-compete clause;
- Confidentiality clause;
- Allowances and benefits (especially for foreign employees).
Mandatory benefits in China
The mandatory benefits contribution are made by both the employer and the employee and they are actually applicable to both Chinese and foreign workers.
The mandatory benefits to include in the employment relationship are:
- Pension insurance
- Medical insurance
- Unemployment insurance
- Maternity insurance
- Work injury insurance
- Housing fund
Tip: if you want to know more about mandatory benefits in China, make sure to read our guide about China’s social security.
Exemption for three insurances in the social security
In order to alleviate the pressure on enterprises, in 2020, the government announced the exemption for the payment of three insurances in the social security, including the reduction and exemption of the payment by enterprises for old-age insurance, unemployment insurance, and work-related injury insurance.
It must be noted that the payment by companies refers to the payment by companies, excluding the payment by individual workers.
For this phased reduction or exemption, all provinces except Hubei could exempt small, medium-sized, and micro-businesses from the payment of the fees from February to June, and reduce the levy on large enterprises by half from February to April.
Cancellation of social security withholding and payment in Beijing
Situation BEFORE the notice released by Beijing Social Security Center in July 2020
A company who has no legal entity in Beijing, but had employees working for them in Beijing, for such employees’ social insurance, a labor dispatch company or a human resource service company could pay the social insurance for employees in Beijing.
Situation AFTER the notice released by Beijing Social Security Center in July 2020
The above method of social insurance contribution in Beijing is illegal starting from July 2020. Now, companies can choose to set up a legal entity in Beijing or fully outsource the employee to a human resource agency in Beijing. In this article, you can find more details about this.
In general terms, employment is an agreement between an employer and an employee that the employee will provide certain services. In return, the employee is paid a salary or hourly wage.
One of the role of employment service in China is to match job seekers with job opportunities, but this is only one part and the focus here is mainly on the employee side.
For employers, an employment service provider becomes important as a window on the country’s HR laws and regulations.
Especially in a country like China, HR is a complicated matter. The majority of the laws are written in Chinese and the regulations are constantly updated. Most of the time, it is not easy for foreign companies and investors to stay updated and be compliant.
An employment solution in China can help foreign companies to deal with all the aspects related to employment relationship, including contracts, benefits management, payroll, labor disputes.
But one question that often we receive from our users is related to the options to employ staff in China.
- Employ staff through an HR agency – This is one solution adopted mainly by companies that already have a legal entity in China. As we mentioned before, managing HR and payroll can be troublesome and require full knowledge of the local law. Not managing the employees in the correct way can lead to compliance problems with the government. For this reason, companies in China outsource HR and payroll to a local HR agency that takes care of all the employment aspects.
- Labor dispatch – Another option used mainly by representative offices in China is the labor dispatch service. Labor dispatch is a triangular form of the employment relationship, where employees are hired by the host company from a dispatch work agency while they dispatched employees to work for the host company.
- Professional Employment Organization (PEO) – A PEO is the best solution for those companies that don’t want to set up a legal entity in China, but they still want to hire employees to manage the on-ground operations or to test the market. A PEO offers a full range of services including human resource outsourcing, payroll processing solutions, employee benefits services, and employee dispatch services.
How HROne can help you start your business in China
As a registered PEO in China, our services can help foreign companies whose business operations require them to hire local or foreign employees in China.
Some of the services included in our solution 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.