As part of our mission to provide business intelligence on the legal, tax, and operational issues of doing business in China, China Briefing presents a series of case studies based on the practical experience of professionals at Dezan Shira & Associates.
A company hired a foreign worker, Mr. H., and signed him to a labor contract in June 2014. The company did not initially complete all the relevant employment procedures for Mr. H, so he started to work for the company while waiting to receive his work permit. The company managed to get Mr. H a formal work permit granting him official working rights in China in November of that year, after he had already been working for the company for five months.
Although the company procured Mr. H a work permit, he was unexpectedly fired in May 2015. When he was terminated, Mr. H was only paid severance from the date he received his work permit in November 2014. Mr. H thus took his former employer to court, arguing that he should be paid severance based on his tenure dating from when he started working for the company in June 2014.
In the end, the court ruled in favor of the company but ultimately punished both parties for breaking laws regarding foreign employment. Foreign workers are only allowed to work in China if they have a formal work permit, and are not allowed to work while applying for one. As such, Mr. H was working illegally between June 2014 and November 2014, and was therefore not eligible to receive severance compensation for his work during that period.
Although the company escaped paying extra severance to Mr. H, both were given significant fines for their offences. The company had to pay a sizable fee for illegally employing a foreign worker, while Mr. H was also fined for working illegally in China.
RELATED: Payroll and Human Resource Services
In accordance with Article 7 of the Labor Contract Law of the People’s Republic of China, an employer shall be deemed to have established a labor relationship with an employee with effect from the date of employment. Article 10 clarifies that where an employer and an employee have signed a labor contract prior to employment, the labor relationship shall be deemed established on the date employment begins, not when the contract was signed. However, this is not the case for foreigners working in China. As stipulated by Article 8 of the Administrative Regulations on the Employment of Foreigners in China, a foreigner may only commence work within Chinese territory after first obtaining a work permit and a residence permit.
Therefore, even though the foreign worker signed a labor contract with the company, the labor relationship with the company was not yet deemed to have begun, as the foreigner could only start working legitimately after obtaining the work permit and residence permit.
According to Article 80 of the Law of the People’s Republic of China on Administration of Embarkation and Disembarkation, foreigners working in China illegally shall be subject to a fine ranging from RMB 5,000 to RMB 20,000. Where the case is serious, the offender shall also be detained for a period of more than five days but less than 15 days and in addition to a fine ranging from RMB 5,000 to RMB 20,000. Persons who employ foreigners illegally shall be subject to a fine of RMB 10,000 for each illegally employed foreigner, subject to a total fine of not more than RMB 100,000. Illegal income, if any, shall be confiscated.
Any foreigners seeking employment in China shall meet the following conditions:
The Chinese government uses a licensing system for the employment of foreigners in China. This means that an employer shall apply for the employment permission if it intends to employ foreigners and may do so after obtaining approval. The licensing system for the employment of foreigners in China consists of three stages:
Foreigners with an employment license must enter into China with a work visa and are only allowed to work within China after they obtain the work permit and the residence permit. In China, requirements may vary from city to city. For instance, in Shanghai, foreigners need to have two years of work experience to qualify for a work permit; whereas in Hangzhou, there is a stricter requirement of over three years’ work experience.
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.
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Human Resources and Payroll in China 2015
This edition of Human Resources and Payroll in China, updated for 2015, provides a firm understanding of China’s laws and regulations related to human resources and payroll management – essential information for foreign investors looking to establish or already running a foreign-invested entity in China, local managers, and HR professionals needing to explain complex points of China’s labor policies.
Labor Dispute Management in China
In this issue of China Briefing, we discuss how best to manage HR disputes in China. We begin by highlighting how China’s labor arbitration process – and its legal system in general – widely differs from the West, and then detail the labor disputes that foreign entities are likely to encounter when restructuring their China business. We conclude with a special feature from Business Advisory Manager Allan Xu, who explains the risks and procedures for terminating senior management in China.
Employing Foreign Nationals in China
In this issue of China Briefing, we have set out to produce a guide to employing foreign nationals in China, from the initial step of applying for work visas, to more advanced subjects such as determining IIT liability and optimizing employee income packages for tax efficiency. Lastly, recognizing that few foreigners immigrate to China on a permanent basis, we provide an overview of methods for remitting RMB abroad.
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