3 Forms of Employment in China: Which is Best for Your Business?

Are you planning to hire employees in China? 

You have a number of options for hiring, such as full-time employees, part-time employees, or independent contractors. 

Each option has its own set of pros and cons and it is important for foreign companies to understand what those are. 

Here, we’ll look at each type and determine which is the best depending on your needs as a company so that you can choose the right option for you.

Full-time employment in China

A full-time job is one in which an employee works a set amount of hours determined by their employer.

Annual leave, sick leave, and health insurance are common perks of full-time employment that are not often available to part-time, temporary, or flexible workers.

These are usually the main differences with part-time and independent contractors, together with hours worked per week, that for full-time are 40 hours per week.

To hire full time employees, employers in China must provide a written contract including mandatory aspects like: 

  • Employee and employer information
  • Remuneration
  • Responsibilities
  • Working hours and leaves
  • Duration of employment
  • Social insurance
  • Work-related safety

Benefits of hiring full-time employees in China

As I said, the biggest difference between full-time and part-time employment is the number of hours worked. This can help companies to have more control over the performance of their employees and training programs use to improve processes.

But what are the other benefits of hiring full-time employees?

Below, I show you a list of the most important ones.

  1. Employees are more involved in the job – This is probably one of the biggest benefits. Full time employees spend most of their time working for your company, and they know that their effort has to be on helping the company to achieve results. So, they will focus all their energies and time on the tasks assigned.
  2. Job advancement opportunities – Full-time employees are seen as a long-term investment by employers, and they are more likely to be promoted than part-time employees. If employees will stay for more, companies are also more willing to invest time and resources to train them and let them move forward in their careers.
  3. More involvement with the team – Full-time employees are frequently proud of their position in your company. They enjoy being a member of a team and working in an environment where they are comfortable and have job security.
  4. Reduced costs in the long term – While hiring full-time personnel is more expensive up front, it is known to pay off in the long run.Workers that are happier are more productive. A workforce that is rewarded for helping the company flourish is more likely to succeed.

Disadvantages of hiring full-time employees

With benefits, unfortunately, come also disadvantages. Companies have to consider aspects that are mandatory by the law and that they have to manage to be compliant.

  1. Benefits – Full time employees expect to be treated differently from part time or independent contractors. They expect to receive annual holidays, maternity and medical leaves and some extra benefits. This means more costs for the company.
  2. You have more responsibilities – As an employer, you have to consider that the employment contract is required by the Chinese law, and you have to respect what it is included in it.
  3. Training – If you want to put in place a training program to develop your employees’ skills, you have to consider costs and the fact that you will be responsible of every license to buy or coaches to hire.

Part-time employment in China

In China, the rules about part-time employment are not so developed as the ones for full-time employees.

Until a few years ago, there was no mention of this in the labor law.

Part-time employees, unlike full-time employees, are not required to sign a written contract. This does not, however, imply that hiring and retaining a part-time employee is any easier than finding and retaining a full-time employee.

We highly suggest having a contract also with your part-time employees, in order to have clear instructions and rules that employees have to follow and in order to be covered in case of labor disputes.

A part-time employee in China is allowed to work no more than four hours per day and no more than 24 hours per week, according to the Labor Contract Law.

If the part-time employee works more than these hours, you risk “converting” him or her to a full-time employee, with all the legal responsibilities that entail.

The probation period is not allowed for part-time employees and the salary should be given every 15 days.

In case of termination, both the employer and the employee do not need to give prior notice.

Benefits of hiring part-time employees in China

  1. Reduced costs – The biggest benefit for small firms is, of course, cost reductions in terms of salary and benefits. In some situations, you won’t have to pay the same amount in benefits as a full-time employee is required by law.
  2. Avoid unemployment claims – This can be avoided by hiring temporary workers with claims that are only valid for the term of their employment.
  3. Hire only for a particular task – If you need help only for a short period of time or to complete a specific task, it would be better to hire a specialized part-time employee, so to avoid higher costs.
  4. Easier termination procedure – Under Chinese law, either party to a labor contract has the right to end it at any moment, with or without cause. Furthermore, companies are not compelled to pay severance to part-time employees who are terminated.

Disadvantages of hiring part-time employees

  1. Less involvement – An employee may be loyal to another role rather than yours, and as a result, your company will always come second. When a full-time position becomes available, these people may quit your company.
  2. Lack of control – Opposite to full-time employees, with part-time employees the company has less control on their tasks and their performance. In addition, there is always the risk that part-time employees will work for other competitors at the same time.
  3. Not involved with full-time employees – Temporary workers are sometimes misunderstood as temps by permanent employees, who perceive them as a danger. The remainder of the team is unlikely to regard temp workers with much respect.

Independent contractors in China

The law on independent contractors in China is very different from other European countries or the USA. 

In these countries, hiring independent contractors is now a big trend for companies, but in China, hiring contractors is not accepted by the law.

Independent contractors are not widely recognized by Chinese law due to the strong preference for an employment system that emphasizes the security of the workers in features such as social insurance and other statutory advantages that the law dictates.

In short, an independent contractor is an individual that offers his or her services to companies with terms specified in a form of a contract.

Benefits of hiring independent contractors in China

  1. Cost per employee savings – The cost savings based on the working relationship is one of the key reasons organizations prefer to recruit independent contractors over full-time employees.
  2. Flexibility – Working with independent contractors gives employers more flexibility in hiring and firing employees, which is especially beneficial for businesses with changing workloads. You can engage a contractor for a specific task or project and know that the worker will leave once the work is completed.
  3. No training costs – You’ll choose the person with the skill set you require specifically for the type of job because you’re sourcing your independent contractors from a pool of different candidates. Contractors are typically specialized and do not require any training in order to do their duties.
  4. Less problems with labor disputes – Contractors usually bring less problems in case of labor disputes, because they do not enjoy the same benefits enjoyed by the full-time employees and they have less connections with the company because their job is related only to a specific task.

Disadvantages of hiring independent contractors

  1. Less control – Similar to part-time employees, you have less control on the quality of their work and the performance.
  2. Fluctuating availability – Many factors influence the availability of independent contractors on the market. Sometimes you’ll locate a contractor who meets all of your requirements fast and is ready to work right away. Other times, if the demand for specific services spikes in certain areas or during certain periods of the year, you may find yourself searching for longer.

The biggest disadvantage with independent contractors is the fact that hiring them is illegal if you do not have a legal entity in China.

To make it legal, a lot of paperwork is required, and companies have to create a company just to hire independent contractors, or they can do it in a discreet way, but that makes the hiring illegal.

These practices require a lot of costs involved for companies and many times is not the best option, especially when you want to hire contractors to save costs.

The solution that more and more companies are using is to use the services of a PEO. A PEO in China like us is legally allowed by Chinese law to hire employees for your company so that they will be employed legally under the PEO, but work entirely for your company.

In this way, foreign companies can easily hire employees without setting up a local company and saving costs related to HR and payroll.

What is the best option for foreign companies in China?

Hiring employees in China is something that foreign companies have to consider sooner or later.

The best option probably does not exist, but what you should consider as a company is at what stage you are into and the pros and cons of the different options.

If you are a startup, it would probably be better to hire part-time employees or independent contractors, so as to have more flexibility, fewer costs involved, and fewer problems in case of labor disputes.

But if you are in a later stage or if you want to effectively start to have a presence in China before setting up a company, or if you want to test the market, a full-time contract is a good option because it allows having employees involved in your company and more focused on their job and the performance to achieve.

The most important thing to remember is that hiring employees in an illegal way can not only spend more to manage all the problems that can arise with the law in China, but it can also put in a bad light your company in the eyes of the Chinese government and this will definitely affect any future expansion plans in China.

Conclusion

I hope that this article helped you to clarify the form of employment in China with its pros and cons. 

Hiring employees is an important step and doing it right will give you an advantage over your competitors.

We can help you with all your HR and payroll requirements and hire employees with or without a local entity in China. 

Feel free to get in touch with us to know more about how we can solve your problems with HR in China.

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