Foreign companies need to be registered as legal entities in China before they can begin to hire employees, local or foreigners. Foreign companies need to establish a Wholly Foreign Owned Enterprise, otherwise known as WFOE, or a Rep Office (RO) or Joint Venture (JV) with a local Chinese company if they want to hire employees in China legally.
The alternative to having a legal entity in China is to utilize the services of a Foreign Enterprise Service Company (FESCO).
What is a FESCO company?
The term FESCO is a standardized way to describe certain sector of Human Resources (HR) companies in China that manage functions such as finding, hiring, training, and dispatching employees to clients. They are registered as a legal corporate entities and have the right to hire foreign and local employees legally in China.
They are also listed as the employee of record (EOR) for businesses in China while also being recognized as the company’s official administrative employer.
Here are some of the key services that FESCOs offer businesses in China:
- The drafting and negotiation of contracts
- Managing social security
- Tax and payroll arrangement services
- Mediate labor dispute resolutions
- Arranging visas
It was common for companies to use the services of a FESCO when dealing with commercial-scale hiring in China. But in recent times the Labor Law Contracts have been amended to limit the type of workers that can be hired via a FESCO. They were previously allowed to hire auxiliary and temp workers for employment as opposed to full-time permanent workers.
How Do FESCOs Operate?
A contract needs to be initially signed with between the FESCO and the company after which, the FESCO can then legally source and hire staff on the company’s behalf and can then use a dispatching contract that ensures they are assigned to work for the said company.
Salary payments, rules of employment, holidays, social security contributions, confidentiality agreements, and a number of other regulations that cover China labor law compliance are handled by the FESCO.
Who Can Use FESCOs?
The services of a reliable FESCO can be effectively used by both local and foreign companies alike in China. Representative offices (RO) have to rely on FESCOs because they cannot legally hire employees directly. In this case, the FESCO will carry out all administrative tasks and recruitment. WFOE entities often use FESCO companies to handle all payroll, labor disputes, and recruitment needs.
Local Chinese companies can benefit from using a FESCO to outsource their HR needs and to cover their administrative issues. By outsourcing these duties to a FESCO can be especially cost effective when hiring temporary employees.
By utilizing the services of a FESCO, labor disputes are less common and the legal representation is often completed in-house by the FESCO, which are experts in local labor laws and similar matters pertaining to labor regulations. This will ensure compliance across the board when recruitment is outsourced to a FESCO.
Foreign entities can utilize a FESCO to quickly dispatch employees in China especially in the early stages of the entity set-up in China, while also ensuring compliance with local labor laws.
The Key Benefits of Using a FESCO in China
Quickly adopting and implementing operations
When a company is in the pre-incorporation period, it can use the services of a FESCO to get its operations moving faster. This is largely due to the fact that foreign companies will need Chinese staff to assist them during the process of their registration papers because local employees have a better understanding of the process and rules. But please remember that it is illegal to directly contract workers in China unless you already have an operation license.
It’s the FESCO’s job to quickly dispatch temporary workers to the foreign business so the entire registration process is expedited. Some FESCOs can even guarantee employee deployment in under 48 hours once you have signed a contract to use their services. This moves everything along very quickly for foreign entities.
In some cases, it can take much more time to dispatch the temporary employees depending on the type of workers needed and also to ensure they undergo a medical and that their social security contributions can be paid properly.
Simple dispute resolutions
Employees are largely favored over employers in the majority of Chinese labor laws. It can be a very challenging experience to deal with labor disputes, especially if you are a foreign entity with limited knowledge of the laws and practices. This makes it essential to use the services of an experienced FESCO to deal with local labor law issues and any dispute resolutions to ensure a better organization that makes life easier for both the employer and employee.
Understanding labor laws more confidently
In China, some of the FESCOs are state-owned, but most are largely privately run companies. Both privately-owned and state-owned FESCOs have keen insight and understanding of local Chinese labor laws and have in-house legal teams to handle these things. Either way, you will have more knowledge of labor laws using one of these companies.
Flexible recruitment options
The vast majority of foreign companies operating in China will need local Chinese employees, and this is even more essential during the incorporation stages of setting up operations here. It’s highly-recommend that you check out the complete employment packages that FESCOs offer to ensure that all the compliant contracts are legal so it’s a simple process to both decrease or increase the number of workers in line with the hiring and firing needs of the foreign entity.
Payroll and legal outsourcing obligations
Across different jurisdictions in China, different labor laws and regulations might be in place. The highly complex mandatory welfare systems and payroll regulations in China can be confusing, especially for a foreign entity or company.
Navigating and finding the best legal way through these processes, and managing this unfamiliar terrain without getting penalized and fined is important. The reliable services of a FESCO who has expertise in these areas can massively simplify your compliance with payroll and outsourcing needs.
Processing work visas for foreign employees can be time confusing and confusing if you do not have the help of a FESCO. They can simplify the sometimes lengthy process of obtaining work visas for your foreign staff, which is often challenging for foreign companies. FESCOs have the experience, expertise and familiarity know-how to cut through the red tape of obtaining valid work permits and visas.
Company growth and expansion focus
By outsourcing the majority of operations related to payroll management to recruitment to a FESCO, allows more focus to be allocated to the core business operations and expansion of the company.
We recommend foreign entities planning on entering China for the first time to utilize the assistance of a FESCO to hit the ground running. There are so many local Chinese labor laws and legal and regulatory processes you need to follow to ensure compliance. Utilizing the services of a reliable FESCO might be the difference between success and failure, so not to be overlooked.