China’s New Labor Dispatch Rules to be Enforced March 1

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SHANGHAI – After long consideration, China’s Ministry of Human Resources and Social Security (MOHRSS) promulgated the “Interim Regulations on Labor Dispatch” (MOHRSS Order No. 22, hereinafter referred to as the “Interim Regulations”) recently, which will come into force on March 1, 2014. As the first comprehensive labor dispatch regulation at the country’s Ministerial level, the Interim Regulations introduce several changes to the current rules and will present challenges in human resource management for foreign invested enterprises in China.

Key information about the Interim Regulations can be found below.

Applicable Scope

According to the Interim Regulations, labor dispatching arrangements are only applicable for the following three types of positions:

  • Temporary position: A position with a duration of no more than six months;
  • Auxiliary position: A position that provides auxiliary services to the main or core business of the employer;
  • Replaceable position: A position that can be performed by a dispatched employee in place of a permanent employee during the period when such employee is away from work for study, vacation or other reasons.

The applicable position type must be specified within the applicant’s dispatch contract.

The Interim Regulations stipulate that the number of total dispatched employees used by an employer should not exceed 10 percent of its total number of employees, including regular employees and dispatched employees. Representative offices (ROs) of foreign enterprises, however, are not subject to this restriction on dispatched employees’ positions. The previous draft of the Interim Regulation only limited the number of dispatched employees used on auxiliary positions.

Contract Signing

Labor Contract between the Dispatching Company and the Dispatched Employee

According to the Interim Regulations, the contract signed between the labor dispatching company and the dispatched employee should have a fixed employment term of at least two years. The previous draft allowed non-fixed period labor contracts.

The dispatching company may arrange a probationary period of employment with the consent of the dispatched employee. However, such probationary period is only allowed once for each dispatched employee.

Dispatching Contract between the Dispatching Company and the Host Entity

The Interim Regulations add several essential items required for drafting the dispatching contract between the dispatching company and the employer (i.e. the host entity). Below is a list of all the essential items:

  • The title and type of the dispatching position (temporary, auxiliary, or replaceable)
  • The location of work
  • The number of dispatched employees and the allotted time
  • Payment amount determined in accordance with the “equal pay for equal work” principle
  • The payment method and the amount of social insurance premiums
  • Work hours and vacations
  • The relevant treatment for work injury, maternity leave and illness
  • Work safety and hygiene, and other relevant training
  • Financial compensations
  • The valid term of the dispatching contract
  • The payment method and the standard of dispatching service fee
  • The penalty for violating the dispatching contract
  • Other required items

“Equal pay for equal work” principle

The Interim Regulations stipulate that the principle of “equal pay for equal work” shall be applied to all labor dispatching agreements, meaning that the employers should apply the same remuneration standards for dispatched employees as those for its direct-hire employees who hold similar positions, including overtime salaries and bonuses.

Where the employer has not hired any employee holding a similar position, the labor remunerations payable to the dispatched employee should be determined with reference to those payable to employees holding a similar position in the place where the employer is located.

Termination of Labor Contract

The dispatched employee may terminate the labor contract by giving a written notification to the labor dispatching entity 30 days in advance. During the probation period, such notification may be given 3 days in advance.

The Interim Regulations stipulate that the host entity may return the dispatched staff back to the dispatching company due to the following reasons:

  • Major change in objective circumstances;
  • Mass layoffs due to financial difficulties;
  • The host entity is dissolved or its operation is discontinued;
  • The term of dispatching contract is due.

If the dispatched employee is returned because of the above reasons, the labor dispatching entity is responsible for redistributing the dispatched employee. The labor dispatching entity may only terminate the employee’s contract if the employee refuses a new dispatch offering equal or greater conditions.

Cross-Region Labor Dispatch

Under the Interim Regulations, if a labor dispatching entity dispatches employees to an employer located in another region, the social insurance to be enjoyed by the dispatched employees should be provided according to the rates and standards of the place where the employer is located.

With respect to who makes the insurance payment, if the labor dispatching entity has a branch in the region where the employer is located, the local branch of the labor dispatching entity should pay the social insurance for the dispatched employees; If it does not have a branch in the region, the host entity should pay for the social insurance on behalf of the labor dispatching entity.

Penalties

For employers and dispatching entities who violate the rules, if they fail to correct the violations within the time period specified by the relevant labor bureau, they may be fined between RMB5,000 and RMB10,000 per dispatched employee, and labor dispatching entities may get their business licenses revoked.

For dispatching entities that violate the Interim Regulations in terminating the labor contract with the dispatched employees, they should make financial compensation to the former dispatched employee, ranging from half-month salary to triple salaries depending on the work period of the employee.

Dezan Shira & Associates 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 emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

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