There are many ways to hire a person in China to physically work in the country; in principle, only a China registered legal entity can enter into a formal labor contract with employees in China.
Some companies may find establishing a legal entity in China to be a lengthy process, and they prefer to hire through an intermediary company, or to setup a PEO arrangement which allows investors to have a legal presence without establishing a legal entity. Certainly, we can help to select the best hiring arrangement for your business. In this article, we focus on the hiring process, and key aspects of hiring under a China registered legal entity.
“When can we hire people?” is a common question from investors who are in the process of setting up their legal entities. Following are the things you need to do before hiring
- Obtain the business license of the legal entity
- Open an operational bank account
- Complete registration with the social insurance and housing fund authorities
Once a company becomes eligible to hire employees, the most important aspect that comes next is to prepare the employment contract. An employment contract is mandatory and it should be finalized within the employee’s first working month.
Investors should try to understand the China labor law, although China (PRC) labor laws do not outline specific situations that might be regarded as a breach of company policy. Therefore, it is advisable for companies to put in place a Staff Handbook (company policies and procedures manual). In the handbook it should describe policies specific to the company; such as working hours, employee benefits, and other details that should be clarified to the employees but are not stated in the contract.
Term of contract and probation
Employment contracts in China may be fixed-term or open-ended, fixed term contract is the most commonly used norm of labor contract in employment relationship. Employer and Employee can choose to sign a 1 year, 2 years, or 3 years contract under the fixed term arrangement. At the end of the fixed term, either party can terminate the contract legally.
Per the Chinese labor law, employers can sign 2 fixed-term contracts with each employee. At the end of the second fixed-term contract, employers need to sign an open-ended contract indicating companies’ willingness to hire the employee for a longer period without a fix term to terminate the contract.
A probation period can be included in a contract if the employee works full-time, and also has a contract term lasting over three months. This set period can only be included once; however, wages during any probation period may not fall below of 80% of agreed wages. For a 1 or 2 years contract, the probation period can be 2 months, for a 3 years or open-ended contract, the probation period can be for as long as 6 months.
Important Clauses in the Contract
Subject to the specific industry and situation, besides the mandatory information such as salary and starting date; we suggest employers should consider to also include the following important clauses in the contract
- Number of months pay
- Probation period
- Staff benefits and insurance
- Reimbursement policies
- Detail matters should be referred to the Staff Handbook
After both parties have agreed on the employment contract, make sure the contract is properly executed by having employees to sign on each page, and the very last page, employers shall put the company chop on the last page, and a chop across all pages.