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Legal: Legal Overview about Hiring Employees in China
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Legal Overview about Hiring Employees in China


BT 201503 13 Legal docs3For doing business in China, hiring employees in China is always an inevitable issue to be considered by the company ("Company"). Legal compliance in employment matters will be helpful to ensure sound relationship between the employees and the Company, while the incompliance may trigger the dispute between the parties hence brings adverse impact to the daily operation of the Company.


In this article, we will brief the key issues regarding hiring employees in China, both for Chinese employees and expatriates, under the Chinese legal regime.


Hiring Chinese employees
Direct employment or labour dispatch
According to relevant Chinese labour laws and regulations, a Company is allowed to directly employ Chinese individuals, under which circumstance, the Company and the Chinese individuals shall sign a written labour contract ("Direct Employment"). Under this scenario, labour relationship between the Chinese individuals and the Company is established and the Chinese individuals are the employees of the Company which shall pay the salary to the Chinese individuals directly.


Anyway, Chinese law also allows the Company to hire Chinese individuals through a qualified labour dispatch entity ("Labour Dispatch"). Under this scenario, the Company shall sign the labour service agreement with a labour dispatch entity (eg. FESCO, CIIC, etc.) While the labour dispatch entity will sign a labour contract with the Chinese individuals. From a legal aspect, Chinese individuals are the employees of the labour dispatch entity, while the Company has no direct labour relationship with such Chinese individuals.


It is notable that, the Labour Dispatch scenario is only applicable for "temporary, auxiliary, or substitutable" positions. In addition, the law requires that the number of the Chinese individuals hired via Labour Dispatch shall not exceed 10 percent of the number of all employees of the Company.


In general, the Company may consider hiring Chinese individuals through Labour Dispatch mainly for the purpose to return Chinese individuals easily, as the return can be based on the expiration of the labour dispatch period. On the contrary, in case the Chinese individuals are hired via Direct Employment, this dismissal can be complicated. However, it is critical to have a sound agreement between the labour dispatch entity and the Company to protect interests of the Company, as the labour dispatch entity may transfer cost to the Company for terminating the labour contract with Chinese individuals in case the individuals cannot find a new job after being returned.


BT 201503 14 Legal legalimage1Contribution of social insurances and housing fund
In China, in general it is compulsory to contribute social insurances and housing fund for Chinese individuals, with the different ratio in different cities. For example, currently in Shanghai, in general the employer shall assume 42 percent and the employee shall assume 17.5 percent of the employee's gross monthly salary as the social insurances and housing fund to be contributed monthly.


In practice, some employees may request the Company to not provide them with social insurances and housing funds, but pay in cash instead, so that the employees may have more "net salary". However, we do not recommend the Company accepting such request since it will not reduce the cost of the Company but will cause incompliance issue. Most importantly, in case any work-related injury happened to the employee, the government will not compensate the employee while the Company shall make the full compensation since a work-related injury insurance was not contributed for that employee.


Dismissal of employees
Dismissal of employees can be based on mutual agreement between parties, or unilateral decision of the employee or the employer. However, it is notable that, in case a dismissal is based on unilateral decision of the employer, there should be solid legal ground for the employer to make that decision, which is specifically illustrated in the Labour Contract Law of the PRC. In addition, even if there is solid legal ground for the employer to dismiss the employees unilaterally, under certain circumstances the employer shall still pay severance pay to the employee. On the other hand, in case there is no legal ground for a dismissal, the dismissal will be regarded as illegal consequently the employee has the right to request double the amount of the severance pay or continuous performance of the labour contract.


To implement the dismissal, the employer shall follow the legal procedures as well as keep evidence proving the satisfaction of the legal ground for dismissal. In this regard, it is advisable for the employer to have a sound human resources administration system upon the establishment of the company, such as a well drafted Employee Handbook which may be used as evidence for the legal dismissal.

BT 201503 12 Legal hlHiring expatriates
Local employment or international Secondment
With respect to the employment of expatriates in China, the expatriate can legally work in China either via establishing a direct labour relationship with the Company ("Local Employment"), or via international secondment to China ("International Secondment").


Under the scenario of Local Employment, a Chinese labour contract between the Company ande expatriate will be required. According to state law, working time, leave, labour safety and social insurance contribution shall be in compliance with the PRC law. In other words, the agreement of the local employer and the expatriate with respect to the above mentioned matters as stipulated in the Chinese labour contract shall not be against the PRC law.


However, with respect to the outstanding labour matters other than the aforementioned ones, such as termination conditions, severance pay, etc., it is not clearly addressed by law at the state level if said other labour matters should also be governed by Chinese labour law in the case of an expatriate, while the rules and practices in different regions hold different opinions about this issue. Considering the above, under the scenario of Local Employment, to avoid any uncertainty and reduce the risk for the Company, it is advisable for the Company to think about these outstanding labour matters and decide whether to have all the terms and conditions in the Chinese labour contract drafted in accordance with the PRC labour law.


Furthermore, under the scenario of Local Employment, in case there is any overseas labour contract with the sending entity (such as overseas shareholder of the Company) and the expatriate, there will be two labour contracts applicable to the expatriate simultaneously. In this regard, it is advisable to coordinate and consider one with the other when drafting the two labour contracts in order to try to avoid major conflict between two labour contracts. However, as the two labour contracts are governed by laws in different jurisdictions, it is quite difficult to fully eliminate the risk arising from the potential conflict between overseas labour contract and Chinese labour contract.



Requirement for an expatriate working in China

According to the Provisions for Employment of Expatriates, for an expatriate to work in China, the following general requirements shall be satisfied:


-Over 18 years old and in good health condition;
-With the professional skills and relevant working experience for the work to be performed in China;
-No crime record;
-Will have definite employer in China;
-With valid passport or other international travel document which has the same function of passport


As introduced above, though the Chinese law only generally requires that an expatriate shall have relevant working experience for the work to be performed in China without further clarifying this requirement, in practice, the authority usually may require that the expatriate shall have at least 2 years working experience in the field of the work to be performed in China.


Legal procedures for legally working and staying in China
According to relevant Chinese law, in general the following procedures shall be followed before the expatriate can legally work and stay in China:


-Health Check in the Expatriate's Home Country
-Apply for Employment Permit
-Apply for Work Visa Notification Letter
-Apply for Work Visa
-Health Check in China
-Apply for Work Permit
-Apply for Residence Permit


However, please be noted that, the concrete procedures may differ based on the type of work and length of time for working in China, based on The Relevant Handling Procedures for Foreigners Entering China for the Accomplishment of Short-term Work Assignments (for Trial Implementation) taking effect from 1 January 2015.

BT 201503 15 Legal Attorney Prepared DocumentsContribution of social insurances
As required by the national law, the Chinese employer and the expatriate who legally works in China are obligated to pay the social insurances in China, as the same to Chinese employees, either under Local Employment or International Secondment.
However, practice of authorities in different regions differs a lot. For example, in Beijing, the practice of labour authority fully complies with the national law, meaning that it is compulsory for the employer and the expatriate to contribute social insurances, while in Shanghai the labour authority does not compulsorily require the contribution of social insurances for expatriate, meaning that the labour authority in Shanghai will not impose legal punishment for the non-compliance of the national law.


Dispute resolution
In case of a labour dispute, its resolution procedure in China according to the Chinese law would be;


-Any party may apply to a labour dispute arbitration commission for arbitration;
-If any party is not satisfied with the arbitral award, it may initiate the civil proceeding before the court for the first instance; and
-If any party is not satisfied with the judgment of the first instance, it may appeal to the higher level of court for the second instance.


In practice, the above procedures could last for several months to one year. But according to the law there is no time limit for the length of the civil proceedings. Please note the civil procedure will not be applicable to disputes on payment of remuneration (salary, severance pay, compensation, etc.) with the amount less than 12 times of the local minimum monthly salary, and the dispute about leaves, working time, social insurances. In those cases the arbitration by the labour dispute arbitration commission will be final.


Conclusion
In light of the above, disregard for hiring Chinese employees or expatriates, it is advisable to analyse the suitable employment relationship, prepare sound paper, as well as comply with the legal procedure requirements, to avoid any dispute between the parties.


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