Common Methods of Hiring in China

In this article, we will introduce six common methods of hiring and the required agreements for each method. We hope this article could shed the light on foreign-invested companies in choosing appropriate hiring methods in their business operations.

1. Direct Hire of Full-time Employees

Full-time employment is the most common method of hiring, and both employees and employers are bound by a mandatory written labor contract. The full-time employee may work for eight hours per day and receive compensation on a monthly basis. Under this method, the employer must be a qualified entity, such wholly foreign-owned enterprises (WFOE) and joint ventures (JV)[1], and cannot be a natural person or representative office of a foreign company. Full-time employees are entitled to various benefits, such as overtime payment, social security, housing fund, severance compensation, etc.?

In this method, employees are supervised by employers. Comparing other methods of hiring, generally direct hire of a full-time employee is the most stable employment relationship.

Required legal agreements:?Written?Labor Contract.

2. Direct Hire of Part-time Employees

Direct Hire of part-time employees refers to a form of employment in which workers are paid mainly on an hourly basis. The part-time employee may not work for more than 4 hours per day and 24 hours per week. This employment relationship can be established through oral or written agreement, and workers can enter into contracts with two or more employers at the same time. Since part-time employees are not entitled to social security (except insurance for work injury)，?severance compensation and other benefits entitled by full-time employees, this method can reduce the cost of hiring. This method of hiring is widely used in the food service industry and other industries where the need for workforce is usually inconsistent.

Required legal agreements:?Oral or Written?Labor Contract.

3. Dispatch

Dispatch is popular among foreign-invested enterprises, in which a dispatching agency enters into a labor contract with the worker and subsequently dispatches the worker to the host company according to the host company’s needs of employees, and the host company pays the dispatching agency for such service.?

Dispatching agencies must have legal labor dispatching qualifications. With the introduction of the Interim Provisions on Labor Dispatch in 2014, the compliance cost of labor dispatch has increased (the higher risk of constituting a full-time employment relationship), and many companies with the need for workforce have begun to turn to outsourcing, a safer hiring method. Nevertheless, dispatch is still a popular form of employment for entities, such as representative office which is required to recruit through dispatch agencies.

Required legal agreements:?Labor Contract?between a dispatching agency and the dispatch workers, and?Dispatching Service Contract?between a dispatching agency and a host employer.

4. Independent Contractor

A hiring method in which an independent contractor and a company enter into a service contract pursuant to which the independent contractor will provide specific services to the company. One key factor to distinguish an independent contractor and a full-time employee is that the independent contractor is not subject to internal regulations of the company and is supervised by the company. For example, the company usually cannot require the independent contractor to work in a fixed place or for a fixed amount of time. Therefore an independent contractor may work for several companies at a time.

Since the relationship for an independent contractor is created under the Civil Code (previously Contract law) instead of the labor laws, an independent contractor is entitled to any benefit, such as overtime payment or severance compensation. A startup or newly-established foreign-invested enterprise usually hires independent contractors to hire legal or financial consultants or other professionals to reduce the cost in an early stage of the companies.?

Required legal agreement:?Service Agreement.

5. Outsourcing

The company subcontracts part of its business or tasks to an external service provider (an outsourcing company). The outsourcing company arranges its own full-time employees to complete the tasks required by the requested company.

In outsourcing, the requested company does not supervise and manage individuals who actually provide the service or work for the tasks, instead it usually focuses on the results of the outsourcing service, leaving staff supervision and management to the outsourcing company. Because Interim Provisions on Labor Dispatch became effective in 2014 and the increasing scrutiny along with it, many companies choose outsourcing instead.

Required legal agreements:?Labor Contract?between the outsourcing service provider and the workers, and?Outsourcing Service Contract?between the requested company and the outsourcing service provider.

6. Employee Sharing (Secondment)

Employee sharing a new form of hiring coming from secondment. The method of hiring often in the situation that the borrowing company faces a labor shortage and the lending company has idle employees for a short term. The lending company will temporarily transfer its employees to the borrowing company.

Generally, the borrowing company will bear the labor cost of the workers during the borrowing stage, and the lending unit will continue to pay seconded employees and the benefits she entitled to, such as housing funds and insurance for work injury. An example of employee sharing is that at the beginning of the outbreak of the epidemic in 2020, the fresh food chain Hema Fresh announced that it would accept employees from other enterprises that had idle employees due to the epidemic.???

Required legal agreements:?Employment Sharing Agreement?between the lending company and the borrowing company;?Labor Contract?between the lending company and the workers.

Of course, besides the above-mentioned methods of hiring, there are also other employment forms. More and more hiring methods are being created due to enterprises’ need for workforce and the employees’ desire for a more flexible form of work.

[1]?Under the new Foreign investment law, the terms of JV and WFOE are no long used, but for easy communication, we still use the terms in this article.

Author:?Peter Lee?currently works at the Sunivers Law Firm based in Shenzhen, as Senior Legal Counsel and Director of CSR and also leads a team focusing on?dispute resolution?and?corporate compliance.

??????He has considerable experience in dispute resolution both in China and cross-border. He has worked as an in-house counsel in?a well-known?FORTUNE 500 tech company. During that period, he joined the disputes management team and handled major disputes for business. He has also spent a year working in South America, as a legal Manager in charge of?legal compliance?for a subsidiary including?employment, export control, and data protection.

??????He also has accumulated extensive knowledge and experience in?Charity Law, Non-Profit Organization Law,?and?ESG-related Issues.

This article is for general information only and does not constitute any legal opinion of the author or his firm on a particular matter, nor should it be used for taking or not taking any action. For advice on your specific matters, please contact the author by phone (86-14776255163), or by email ([email protected]).

Copyright 2023 Jianchao Li (Peter Lee). No reproduction, copying or translation of materials without prior permission of the author.