HR Due Diligence in China

For a company, adequately comprehending the HR environment, hiring appropriate people and managing them effectively is critical to maintaining a successful operation on the mainland. Unfortunately, mainly due to lack of reliable information in English (and the proliferation of unreliable information) as well as the rapidly changing nature of both the labor market, it is very difficult for foreign investors and managers to understand the overall situation in enough detail.

Businesses need to make sure all payments and contributions have been made to the employees such as individual income tax and social insurance. Also ensure that all employment contracts are checked for non-compete and confidentially obligations that could give rise to liability on his or the employees part. Staff still have legal claim as employees of the business. Ensure that the head count and payroll match, and request a written statement from the HR department as to the matching of these.

In cases where a labor union is involved, it is also wise to make sure you have identified the charter and payments that have been made to the union. The business has a liability of 2 percent of all staff salaries to be paid to union funds, so ensure you know what this is and that it matches up against payroll.

To read the full version of this article, please purchase the March 2010 issue of China Briefing, which can be found in the Asia Briefing Bookstore. Companies requiring assistance may contact any Dezan Shira & Associates' nine national offices at china@dezshira.com for advice or visit www.dezshira.com.