How to hire an employee without a legal entity in China

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Foreign-based companies usually face the pressing task of human resources management when they operate in China. One of the reasons for this is their unfamiliarity with China’s labor rules, which makes hiring in China difficult for them, both local or foreign employees. This owes to the different management procedures like the processing of labor contracts, recruitment processes, work permit applications, tax calculation and declaration, and payroll management. All these issues can hinder an organization’s progress by slowing down its operations, and hence they impose a threat to foreign-invested companies in China.

The way around this is to take advantage of an employer of record, which offers a flexible and low-cost alternative to hiring employees in China. This guide aims to answer:

  • How employer of record services work?
  • The favorable impact of hiring a dispatch company with multiple business licenses within China.

Employer of record solutions work well when either a company wishes to form a temporary team for its start-up or needs additional staff to meet the deadlines of a short-term project.

Work triangle

To understand the process better, employer of record services can be thought of as a work triangle.

The employer of record company hires the dispatched workers from the client company, who then work for the employer company. This can also be described as a third party contract where the dispatched workers are actually under an employment contract with the employer company while they work for and are supervised by the client company.

Employer of record services, based on hiring the local staff, play a vital role to assist foreign entities. These services are well aware of the labor rules as well as China’s labor costs. Additionally, they are responsible for managing all the HR and administrative tasks of the employees.

Labor dispatch services are also convenient in relation to hiring employees for short-term projects. Project-based companies normally utilize their hiring process for bringing employees onboard for long-term plans, it is not uncommon for them to use the services of host companies to hire temporary workers for short-term projects.

Employer of record services are also commonly used to comply with the parent company’s headcount requirements where client companies need to hire more workers for daily operations but are restricted to hire new employees due to headcount limitations at the parent company. Since paying dispatched workers is regarded as a services fee, and not an employment expense, foreign companies use this method to hire more employees.

Employer of record agencies with multiple business licenses

Some dispatch agencies work at a larger scale and possess business licenses in different provinces across China to offer express employment solutions. Employer of record agencies with multiple licenses simplify the administrative processes for host companies, China’s latest labor dispatch law allows them to submit social security payments on behalf of dispatched employees to local government authorities where work itself takes place. In an event where an employer of record company doesn’t hold a business license for the area where the job is taking place, the employer is liable to make social security payments for the dispatched workers.

The information contained in this article is valid on July 5th, 2018. For updated information, please contact us via email at [email protected].