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To do business in China, companies will need to hire staff! But if you have a Representative Office (also referred to as a Rep Office or RO) what are the rules for doing this? Representative Offices are restricted in many ways in China and this includes the hiring of local and foreign staff. To do this, an RO is permitted to employ the services of a 3rd party HR and payroll company.
Some highlights of hiring policies for representative offices in China:
- Rep Offices can hire up to 4 foreign employees.
- Rep Offices cannot hire local staff directly.
- Local staff can be hired through a Chinese employment agency / EOR
- 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 placed 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, et
The hiring situation for Representative Office is in fact quite straightforward, and we summarize 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 hired by the overseas company and then dispatched to the Rep Office in China. It is common to handle this through an agency that 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 Employment Solutions via an agency such as FDI China or HROne. These agencies are certified Employers of Record which enables them to 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 authorized 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 authorized FESCOs in different locations in China – some are private companies and some have partially state owned. We always recommend using a privately owned FESCO.
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 labor 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
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.”
The information contained in this article is valid on September 20th, 2018. For updated information, please contact us via email at [email protected].