Hiring local and foreign employees
To do much business in China, most companies will need to hire staff! But if you have a Representative Office (Rep Office or RO) setup what are the rules for doing this? Representative Offices are restricted in many ways in China and this includes the hiring of staff.
This article will look at the hiring rules for Representative Offices in China and explain:
- Rep Offices can hire foreign employees, up to 4 in total
- Rep Offices cannot hire local staff direct
- Local staff can be hired through a Chinese employment agency / FESCO
- Agencies offer several advantages, not just the ability to hire staff
Hiring in China – Representative Office restrictions
Most companies in China will at some point want to hire staff as part of their operations. A full WFOE in China is able to do this directly, issuing contracts and paying staff, both local and foreign. A Rep Office however has many more restrictions places on it.
In general, a Representative Office is more limited in its scope of business than a WFOE, and crucially is not able to make a profit from its activities in China. When it comes to hiring, restrictions are largely based on the fact that a Rep Office is not a legal entity in China, so employees would not have any rights to claim against the Representative Office if hired directly. It could be considered one of the mains differences between WFOE and Representative Office (RO) however there is plenty of them as, structure, taxation, capital requirements etc…
The hiring situation for Representative Office is in fact quite straightforward, and we summarise here the main rules and practices for hiring both foreign and domestic workers.
Representative Office employment – Hiring foreigners
A Rep Office can hire up to 4 foreign employees including the Chief Representative. They should be based in China and should be employed by the Chinese Representative Office, not the overseas company. It is common to handle this through an agency which will assist with managing payroll, social welfare payments etc. for these employees.
Also, every Rep Office must appoint one foreign Chief Representative (CR). The CR, however, is not required to reside in China, and can be an employee of the overseas company.
Hiring local staff – using an agency
A Representative Office is not able to hire local Chinese staff directly. Instead, they must do so via an agency. This agency will then legally take charge of the employee (as it is a Chinese legal entity) and will handle contracts, payroll, welfare and benefits as necessary. Such an agency authorised to do this in China is known as a Foreign Enterprise Service Company (FESCO).
What is a FESCO?
FESCO is not a single agency in China, but rather it is a term used to describe any HR company able to offer such domestic contract services to foreign companies. There are many authorised FESCOs in different locations in China – some are private companies and some have partial state ownership. Foreign companies are free to choose one to work with.
A Representative Office will sign a contract for service with its chosen FESCO, and simply pay service fees to the FESCO. The FESCO will then hire staff via their own employment contract and offer them for work for the Representative Office by means of a labour dispatching contract. The FESCO will manage salary payments, social security contributions as well as details such as holiday, confidentiality agreements, work rules and regulations. They will also deal with contract renewal/extension and termination as required.
Advantages of a FESCO
As well as being a requirement for Representative Offices, using a FESCO for hiring in China has a number of additional advantages:
- The FESCO deals with the often complex area of welfare and social security payments.
- The foreign company has lower staff / employment risk as FESCO takes legal responsibility.
- It is often possible via a FESCO to bring on staff as a direct hire prior to setting up a Rep Office or WFOE.
- Agencies offer many other services that can be useful, such as assistance with staff searches / headhunting.
The CR is included in the 4 employees
The Article 11 of the Regulation on the Administration of Registration of Resident Representative Offices of Foreign Enterprises states: “A foreign enterprise shall appoint one chief representative. (…) A foreign enterprise may appoint one to three representatives in light of its business requirements.”