Company types and their Hiring Options

It goes without saying that the key to success of any business is its staff. The importance of hiring the right workers is crucial to advancing the business towards the right direction, making recruitment an important process, particularly when entering a new market. Making a fresh hire can be the key determiner as to whether the business will flourish in the new market or be continuously stumped by major obstacles. Luckily, China possesses the world’s largest labour market, thereby, offering a breadth of opportunities to not only employers but also employees. Businesses can take advantage of the wide talent pool to select highly qualified candidates to ensure optimum business performance in the new market. Hiring in China, however, needs to be performed carefully to ensure full compliance with the law as different entity types have different hiring capabilities.

This article will serve as a general overview on different hiring options available according to the company type, and will cover the following:

  • Wholly Foreign Owned Enterprise
  • Joint Venture
  • Representative Office
  • Labour Dispatching Services
  • Professional Employment Organisation

Wholly Foreign Owned Enterprise (WFOE)

A Wholly Foreign Owned Entity (WFOE) is, as the name suggests, a fully foreign-owned company established in China. It is able to directly hire workers under three types of contracts: full-time, part-time and independent contractor agreement. However, note that foreign workers cannot be hired on a part-time basis.

For full-time employment, the employer must:

  • Provide a written contract.
  • Ensure employee working time is limited to 8 hours a day, totalling 40 hours over 5 days a week.
  • Provide overtime pay for any work exceeding the standard working hours.
  • Pay salary on a monthly basis.

Only Chinese workers can be employed part-time. Part-time employment does not necessitate a written contract; nevertheless, a contract in writing is recommended to protect against any misunderstandings and potential issues arising out of lack of clarity on the employment relationship. Part-time contract limits employees to work no more than 4 hours a day, totalling 24 hours a week.

An independent contractor may be hired to work on a certain project. A benefit of this is that mandatory benefits do not need to be paid to independent contractors whilst such a relationship is also not governed under Chinese labour laws.

Joint Venture (JV)

This is a partnership between a foreign company and a local company in China, often done when local expertise and knowledge is felt necessary to the operation of the business. Forming this partnership can be a lengthy process due to the time spent on negotiating on the business responsibilities, sharing of the profits, and other relevant details. A JV is considered to be a Chinese company as per the agreement, therefore, has the same hiring capabilities as that of an ordinary Chinese enterprise.

Representative Office (RO)

A representative office is simply an extension of the overseas business and does not classify as a separate legal entity in China. It is commonly established by foreign companies wishing to maintain a long-term presence in the country. Although it is restricted from conducting any profit-making activities, it is free to involve itself in market research or testing activities.

In relation to its employees, a RO is limited to four foreign employees, but there is no cap on the number of Chinese workers.

A RO cannot perform any direct hiring of Chinese workers but must instead resort to a labour dispatching service in China outlined below.

Labour dispatching service

This employment practice is commonly used both by Chinese and foreign enterprises as it is a cost-effective and convenient way of hiring regular employees.

Under the labour dispatch model, the employment contract is signed between the employee and the labour dispatch agency, who has been hired by the company to locate workers. The parties will enter a tripartite dispatching agreement which will indicate the dispatched employee works for the employing unit. The dispatching service will absorb all legal employment liabilities, thus, minimizing risks and obligations of the company itself.

A representative office (RO) may use labour dispatch services freely without any restrictions. However, entities which can engage in direct employment (e.g. WFOE) are subject to the Chinese regulations which require the number of dispatched employees working under the company to be no more than 10% of the total amount of employees. As per the amended contract law, this limitation is not restricted to numbers but also positions; an employer may use the services of labour dispatch agencies for only three types of positions: temporary, auxiliary, and substitute.

  • Temporary: refers to positions under the period of six months.
  • Auxiliary: refers to positions which revolve around providing supporting services to core business positions.
  • Substitute: refers to temporary replacement of a vacant position.

Professional Employment Organisations

Finally, Professional Employment Organisations can also be used to recruit workers even before the establishment of the legal entity in China. This works through the labour dispatch model, however, the services of the PEO extend beyond simply providing dispatched employees. Known as “HR departments for rent”, PEOs deal with the day-to-day HR and administrative management of the company.

By outsourcing HR functions to a third-party, the business is free of the burden of dealing with tedious administrative HR duties and can instead direct its time and resources to the other aspects of business development.

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