Guides - Human Resources & Payroll in China 2016

- Human Resources and Payroll in China 2016-2017 (5th Edition)

Tax, Accounting and Audit in China 2016 (8th Edition) February 2016 This edition of Tax, Accounting, and Audit in China, updated for 2016, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax- relevant obligations. DOWNLOAD

Hiring staff is one of the first key decisions a company will come across in China. Before employing

significant numbers of employees, a company should first take into account all the issues introduced

in this chapter. It may be acceptable, or even sensible, to hire a few employees without investing

money in developing rulebooks, policies and complex salary structures, but as a company grows, it

needs to protect its interests and define employment relationships in a clear manner. This chapter

discusses some options available to companies, introduces a few concepts unique to China, explains

the requirements of the social insurance system as they relate to employers, and covers some other

critical points that should be addressed.

2.1 Direct Hiring & Labor Contracts

In principle, any company located anywhere in the world may employ a Chinese person to

physically work in China. However, the employment contract will not be regulated by relevant

Chinese legislation unless it is entered into via an invested entity on the Chinese mainland, or under

circumstances where the overseas company is regarded as a permanent establishment in China.

Is your company a Representative Office (RO)?

ROs in China cannot hire staff directly. Instead, Chinese staff must be seconded from an agency

that will take the title of official employer (to find out more, please refer to the section on Labor

Dispatch below). Foreign staff working for ROs should have an employment relationship with

the parent company abroad, and any disputes should be settled under the laws of that country.

This is because an RO is not a capitalized legal entity in China. An employee must have the right

to claim against their employer, and an RO is not a suitable entity to file claims against. By forcing

ROs to employ staff through an agency (which itself is a capitalized legal entity in China), the

interests of the employee are thereby protected.

According to Article 10 of PRC Labor Contract Law, employers are required to sign a written contract

with their employees within one month, starting from the employee’s first day of work at the

company.

If the employer fails to conclude a written contract with the employee after a period of more than

one month but less than one year from the date of employment, the employer must pay the worker

double wages for each month. If the employee refuses to conclude a written labor contract with

the employer, the employer should terminate the employment relationship, notify the employee

in writing, and pay monetary compensation to the employee in accordance with Article 47 of PRC

Labor Contract Law.