Managing human resources is a thorny issue for some foreign-invested entities in China, particularly those who have demanding deadlines or are less familiar with the HR environment. Employee administrative procedures – which include areas such as management of recruitment, work permit applications, labor contracts, and payroll and tax declaration – can slow a project down or create operational risk.
Labor dispatch is an important option for foreign companies in China that require a low cost and flexible method to hire employees. Whether it is a company that needs to staff a short-term project within a demanding deadline, or one that needs to hire temporary workers to support its business during start-up, labor dispatch proves a top choice compared with other traditional recruitment methods.
A triangular form of employment
Unlike direct employment, labor dispatch has a triangular form of employment relations, in which a host company hires dispatch workers from a dispatch work agency. While dispatched workers work for and are supervised by the host company, they are in fact employed by the dispatch work agency.
The dispatch work agency is the de facto legal entity responsible for the administrative management of the employees. Since dispatch agencies have considerable experience and knowledge of hiring local workers, foreign entities often find that hiring through labor dispatch is flexible, efficient, and cost effective.
Managing temporary workers and headcount restrictions
It is common within seasonal industries and project-based work for host companies to hire temporary workers. Given that direct hiring methods are usually tailored for recruiting long-term employees, it is typically more efficient for managers in seasonal and project-based industries to hire through labor dispatch.
Further, many foreign subsidiaries have headcount requirements determined by the parent company’s employment budget. These requirements can prove difficult for host companies that need more workers to maintain daily operations.
Labor dispatch is a solution for a host company that needs to hire more laborers for temporary, auxiliary, or substitute positions in addition to any allocated headcount. Since paying dispatch workers is deemed as a service fee, rather than employment expenses, hiring through labor dispatch allows a host company to efficiently recruit more labor while in compliance with the headcount requirement.
Dispatch agencies help save operation costs for the host company. According to China’s newly enacted Labor Dispatch Law, employers should make social insurance payments to dispatched workers in the region where the actual work takes place. This triangular form of employment relations allows for a more convenient and efficient way of paying social insurance, saving the host company time and money.
High profile dispatch agencies have multiple operating branch offices in China, meaning these agencies hold multiple business licenses in different provinces. For example, Dezan Shira & Associates’ Shenzhen office has recently obtained a labor dispatch license, with its Beijing, Shanghai, and other branch offices expected to follow suit.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
An Introduction to Doing Business in China 2017
Doing Business in China 2017 is designed to introduce the fundamentals of investing in China. Compiled by the professionals at Dezan Shira & Associates in January 2017, this comprehensive guide is ideal not only for businesses looking to enter the Chinese market, but also for companies who already have a presence here and want to keep up-to-date with the most recent and relevant policy changes.
New Considerations when Establishing a China WFOE in 2017
In this edition of China Briefing, we guide readers through a range of topics, from the reasons behind foreign investors’ preference for the WFOE as an investment model, to managing China’s new regulations. We discuss how economic transformations have favored the WFOE, as well as the investment model’s utility, and detail key requirements that businesspeople need to examine before initiating the WFOE setup process. We then walk investors through the WFOE establishment process, and, finally, explain the new and idiosyncratic “Actual Controlling Person” regulation.