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Establish a WFOE or Outsource Employee in China

In this article, we provide the idea about establish a WFOE or outsource employee in China:

  • What is a Wholly Foreign-Owned Enterprise (WFOE)?
  • How to outsource my employees in China
  • What services are included as a part of PEO/ employee leasing service?
  • What are the advantages of a Wholly Foreign-Owned Enterprise (WFOE)
  • What are the advantages of outsourcing my employees in China
  • What are the disadvantaged of choosing the establish aWFOE over outsourcing
  • What are the limitations of PEO/ employee leasing

What is a wholly foreign owned enterprise (WFOE)?

A Wholly Foreign Owned Enterprise (WFOE), as the name suggests, is an enterprise in China which is 100% owned by a foreign company or companies. WFOE is the most popular form of a foreign-invested enterprise (FIE) in China because it allows the most freedom in business management compared to other investment structures.

How to outsource my employees in China

Established HR Service providers like┬áHROne provide Employee Leasing services to companies not having a legal entity in China. In this arrangement, the service provider directly hires the Chinese employees on their payroll, on behalf of the foreign company, and fulfills all employer responsibilities as the employee’s legal employer in China, for a certain service fee. This is also commonly known as Talent Dispatching, PEO, Employee Outsourcing, etc.

What services are included as a part of PEO/ employee leasing service?

This depends on each service provider. Right from directly signing employment contracts with the employee, onboarding them, addressing VISA/Hukou issues, payment of salaries and contributing the mandatory insurances and housing fund to providing legal support.

What are the advantages of wholly foreign owned enterprise (WFOE)

1. Independent legal personality;

2. Ability to receive revenues, issue invoices and transact with customers in RMB;

3. Allows for full authority over human resources ‘ Can directly hire resources and pay their salaries directly through the company’s bank accounts;

What are the advantages of outsourcing my employees in China

1. Saves Time ‘ For a small business, outsourcing your employees is more effective than doing it all on your own. You can focus on the core objectives of your business, leaving the rest of the work to your employment service provider.

2. Saves Money ‘ Startups can save money by cutting costs on the resources allocated to pay employees and maintain payroll, tax and insurance documents. It is much cost effective to outsource your employee instead of hiring an internal HR to handle the employment, monthly payroll, statutory benefits issues.

3. The service provider assists the foreign company in case of the labor dispute. In China, the labor policies are more employee-friendly and therefore the ‘risk factor’ of hiring an employee is very high for a company, especially in China. The service provider can give the professional advisory for foreign companies on how to handle this kind of issues. And the service provider has a strong legal team to assist clients with the litigation and arbitration issues.

4. Width service coverage- The service provider can handle your employees’ mandatory benefits in multiple cities in case your employee is working in different cities in China.

What are the disadvantaged of choosing the establish a WFOE over outsourcing

1. Establishment of a WFOE is complex and time-consuming (3 ‘ 10 months), with approvals required by multiple authorities.
2. Need to hire an in-house HR & payroll specialist who needs to be well updated about the latest policy requirements in China with respect to employee benefits and social insurance/housing fund contributions.
3. Needs to comply with the latest regulations in China about individual income tax, employment contracts, employment laws, employee benefits, VISA regulations, etc.
4. The company needs to take the full employer liability. In China, the labor policies are more employee-friendly and therefore the ‘risk factor’ of hiring an employee is very high for a company, especially in China. The employer liability increases with each year of the employee’s association with the company.
5. RMB 100,000-RMB 500,000 is the advisable as minimum investment capital for establishing a WFOE in China.
6. Annual audit and other issues need to be done on a yearly basis.

What are the limitations of PEO/ employee leasing

1. In this arrangement, the employment contract must be for a minimum of two years (although lawful termination of employees is allowed.)
2. Resistance from employees – The employees might be reluctant to join and might prefer being hired by their main employer. Right communication is very vital in this arrangement between all parties.
3. An outside company’s influence on your culture ‘ It is very vital to find an established service provider for your company as you’re delegating a very sensitive and important area of your business.

How HROne can beneficial to your business

HROne’s offers Employee Leasing/Talent dispatching services for Representative Offices and to companies not having a legal entity in China. HROne fulfills all legal responsibilities right from directly signing employment contracts with the employee, onboarding, addressing VISA/Hukou issues, payment of salaries and contributing the mandatory insurances and housing fund to providing legal support. More importantly, HROne can provide bilingual service to its clients ‘ both in English and Chinese.

The information contained in this article is valid on January 18th, 2017. For updated information, please contact us via email at info@hrone.com.

2019-04-29T08:45:07+00:00January 18th, 2017|Employment Insight, Legal & Regulatory|