Doing business in China with a China PEO & Employer of Record
The People’s Republic of China, with a population of 1.417 billion (Worldometers, 2019), is proving to be one of the most attractive countries for foreign investment. This should come as no surprise given its rapid rise as a world-leading economy in recent years and the fruitful business environments that have been created as a result. For international companies looking to begin hiring in China for the first time, a professional employer organization (PEO) or employer of record (EOR) could prove a convenient way to test the markets and establish a core executive or professional team.
Read on to discover the benefits of using a China PEO, and get rankings of the best China PEOs/EORs.
Why use a PEO in China?
Using a China PEO can help to overcome many of the legal and regulatory challenges of doing business in China. Instead of setting up an entity in China, foreign investors can look to partner with a PEO that already has an office in China, enabling them to hire, onboard, manage, pay, and renew or terminate contracts compliantly all under one roof without the expense of setting up themselves. China PEOs are especially attractive solutions for temporary business activity or for those wishing to prove the viability of business expansion without making a more significant commitment.
Hiring through a China PEO will allow your business to establish a global team without needing to first establish a foreign entity. Additionally, many of our partnering China PEO providers have in-country entities in numerous countries around the world, so you would not need to work with multiple companies if you wish to eventually expand into more countries in addition to China.
Additionally, hiring foreign employees through your own entity can take weeks or sometimes months to successfully execute. Companies that operate as China PEOs are well connected across the majority of Chinese markets to help expedite the hiring process.
How to Hire in China
The process of hiring in China includes the practice of assembling a strong, written employment contract that specifies the details of the employee’s compensation, benefits, and termination requirements. The offer letter as well as the employment contract for employees working in China should always state the salary and any additional compensation in Yuan.
Per China’s regulatory standards, employers have 30 days to finalize the terms of the employment contract, after which employees are entitled to twice their salary while they remain without a contract up until the point where they have been employed for one year. However, it is relatively common for local employers to forgo a written contract, at least in the short term.
While it is important to remember that China offers all of its residents a basic health insurance plan and that it is not essential to provide this benefit to local employees, many employers do offer supplemental insurance as a benefit.
The process of recruiting talented professionals can be very competitive in China, depending on the exact industry you’re looking to hire in. Because of the flourishing and quickly growing job market, local candidates will usually have multiple quality employment opportunities to choose from. Also, many of the of the most skilled professionals are already employed in their field, which means they are not actively searching for new open positions. This dynamic has led to some companies choosing to work with headhunters or recruitment agencies to recruit top talent. However, working wit traditional headhunters can be a highly expensive option.
In major Chinese cities, people are already accustomed to searching for new job opportunities online. It can be useful to utilize traditional job searching websites in addition to regional and national site that feature quality job postings. Certain social media platforms are restricted in China, so highlighting job openings via social media is not a particularly helpful option in the country.
Finding quality candidates who are available and actively searching for new opportunities in China can prove to be challenging if you are trying to recruit from your office in your home country. This is where your company can likely benefit from working with a China PEO that already possesses in-country connections.
In order to successfully hire in China, it can also be helpful to work with a recruitment agency to simplify and expedite the process of hiring talented professionals in the country. On occasion, global PEO organizations will have an in-house recruitment agency that will significantly aid the process of recruiting in China. The benefits of using a recruitment agency to improve your overall hiring process include:
- Having the ability to tap into the resources and knowledge provided by local recruitment experts who are familiar with the Chinese market and the best hiring practices.
- Partnering with an organization that is designed to understand the specific goals of your business and that can create a recruitment search process that is designed to fulfill your exact needs.
- Being able to take advantage of the recruitment agency’s local legal expertise to ensure that your business is compliant with the local laws and regulations in regards to employment.
Additionally, when you partner with a China PEO that also offers recruitment coverage, you receive the benefit of having ongoing support that includes the hiring and onboarding processes in addition to the initial recruitment phase.
Below we have listed our recommendations for the 3 Best China PEOs and Employers of Record. These companies all are well-respected in the industry and have outstanding reputations for being able to hire talented professionals in China as well as ensure compliance with local employment regulations.
Best China PEOs & Employer of Record
New Horizons Global Partners
Of all the China PEO companies offering a quality level of service, New Horizons Global Partners stands out as an established and highly regarded organization, and as one of the few PEOs that actually has its headquarters in China. Fortune 500 companies trust Shanghai-based NHGP with their China PEO services, and there is no wonder given the company’s ability to hire top talent across China within days, as opposed to the usual months.
NHGP offers a full suite of business services from contract drafting in Chinese and English and employee onboarding to setting up social security and handling local disputes. Unlike other companies in this business, NHGP makes it clear that they absorb all local employment liabilities, making it a straightforward and easy process for foreign companies looking for a true ‘one-stop-shop’ for PEO services in China.
Global PEO is a well-respected globalization company that has continued to provide superb global expansion guidance in recent years. The group is based in Hong Kong, but their knowledge base in other countries is localized and up-to-date with the modern working culture. Global PEO’s focus on providing cost-effective expansion solutions is a strong selling point for businesses expanding into China and offers rates that provide strong value and remain competitive compared to industry norms. In addition to recruitment and hiring services, Global PEO also has the capability to take on a variety of duties based around entity setup, staffing, payroll, and a variety of administrative functions.
SkyExecutive is a Professional Employer Organization (PEO) and recruitment agency with local operations in China. This means that Sky Executive has the ability to combine the benefits of their recruitment services with their day-to-day employment solutions to provide a unique set of PEO benefits for companies looking to expand overseas with a single point of contact. SkyExecutive places high value on its network of local consultants based in China, with that level of local expertise being beneficial for companies looking for a smooth transition into a new business environment.
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If your company is interested in expanding your operations into China, GlobalizationPedia can connect you with a PEO that best fits your needs at a cost-effective price. Fill out the form today and we’ll use our extensive database of strategic partnerships to provide you with a full rundown of the best potential PEO matches for your company.
Below are a few of the reasons why it may make sense for your business to partner with one of our recommended China PEOs / Employers of Record.
- You currently have an independent contractor working overseas and you want to convert them to an internal employee while having them continue to work in China. In this situation, using a China PEO and employer of record can simplify the process of transitioning the employee into your own network, as opposed to doing it on your own by establishing your own legal subsidiary.
- Your business is currently facing a situation where you are in a relationship with your contractor that is not compliant with local laws and regulations.
- The financial strain and risk that come with maintaining a foreign entity from a compliance perspective is becoming too high to justify the potential benefits that your business could see from the endeavor in the long term.
Additional information on the process of hiring in China
The People’s Republic of China maintains a standard working week of five days per week that shall not surpass 8 hours of work per day or a maximum of 44 hours per week. Most companies operate within an 8am to 6pm schedule with a two hour lunch break during the middle of the day.
China celebrates 7 national holidays annually. These holidays include:
- New Year’s Day
- Chinese New Year
- QingMing Festival
- Labor Day
- Dragon Boat Festival
- Mid-Autumn Festival
- National Day.
It is common courtesy to allow employees to have increased vacation flexibility for their travels around Chinese New Year, which allows them to avoid the heavily trafficked peak holidays. This gesture of providing the day off before or after national holidays is seen as an extremely gracious benefit to your local workforce in China.
Note that the statutory minimum is legally required to be paid for mandated work on nationally recognized holidays.
The most commonly used bonus structure in China is known as the “13th month salary.” When negotiating a contract with candidates and future employees, be sure to clearly state the salary and bonus structure from the beginning so that there is no miscommunication resulting in displeased employees at the end of the year.
Similar to a typical 401k plan, employees in China are eligible to receive a housing fund through their employers. Chinese employers are legally required to contribute between 5% and 25% of an employee’s annual salary to this fund. This fund exists to provide a subsidy to the employee’s rent or housing purchasing expenses. It is common for employees to negotiate a higher housing fund percentage than is federally required. The exact percentages relating to the housing fund vary by market.
Although health and pension insurance is provided by the national government, it is common for supplementary health insurance to be provided by the employer.
We recommend allocating 25% of your China expansion employee salary budget to account for employer taxes.
Partnering with a China PEO can be a helpful way to manage employee benefits in addition to the various other responsibilities that come with employing a global workforce in China.
Depending on the tenure an employee has with a company, they will be entitled to a paid sick leave of between 3 and 24 months to address medical ailments and treatment. Sick pay should never drop below 80% of the local minimum wage.
Employees are legally entitled up to 1 year leave at full pay to receive medical treatment.
The common practice concerning paid maternity leave in China is to provide a 98 day paid leave for women during and immediately following the birth of their child. Legally, they have the option to begin this leave within 15 days before child birth. Depending on the market, women over the age of 24 are generally provided with an additional 30 days for their “late maternity leave.”
Women are traditionally granted full pay during their leave, which is either paid through social security or by their employers.
China’s laws concerning paternity leave differ significantly depending on the location where office is based, but rarely exceeds 14 days. Men in Shanghai usually receive 3 days of paternity leave while men in Shenzhen are typically granted 10 days.
Note:that is is illegal to terminate an employee who is pregnant or still breastfeeding a newborn child.
Termination & Severance
Terminating an employee in China must be supported by a strong cause for dismissal and clearly documented grievances leading up to the termination. The initial employment contract must contain an agreed upon probationary period that can last up to 6 months in length.
The time requirements for submitting notice of termination vary widely by industry. Any employer terminating an employee of one month to two years tenure must provide at least a one week notice. Employees working for a company for over two years require notice of one week for each year of completed service up to 12 weeks of notice.
Employers have the option of including “payment in lieu of notice” in employee contracts which permit employers to pay employees instead of providing them with a notice of termination. This is common in Chinese business practice.
All employees working in China are granted statutory benefits within the confines of the “five insurances” practice in China. These include health insurance, pension, worker’s compensation, maternity benefits, and unemployment insurance. Additional benefits, such as housing, are predicated by the income tax bracket of the individual employee.
Anti Discrimination & Compliance Laws
Chinese law stipulates that companies employing workers in the country cannot discriminate against employees on the basis of age, gender, race, or disability. These personal characteristics should not be publicly mentioned or discussed during the recruitment, hiring, or any facet of the employment process.
Hiring + Onboarding Chinese Employees With Direct Contracts Vs Using a China PEO
Unless your foreign entity qualifies as a limited company, you will not be able to sign contracts directly with Chinese employees. A representative company will be required to hire local workers through a licensed third party, such as a China PEO.
As stated before, whenever you employ a professional workforce in China, you will need to create contracts prior to establishing your payroll to pay employee salary and benefits in the country.
The contracts must also specify the terms of employment, which will depend on the type and status types of your employees. For example, fixed-term contracts do not require a specified notice period, but other forms of employment will require a 30-day notice period for termination without cause.
China PEOs / Employers of Record will also provide assistance for managing the payroll and HR benefits of your global workforce.
How to Establish a China Payroll
Foreign companies expanding their operations into China have a variety of options when setting up their payroll system. First, you will need to open a bank account in China and pay all of your local employees in Chinese Yuan currency.
Labor Contract Types
- Project-based (open-ended contracts)
- Probationary period: none.
- Termination: There is need for a specific reason or proof for the termination of an employee since the worker can be simply notified that the project is completed.
- Severance: Under a project-based contract, the maximum severance an employee can receive is 1 month of severance pay per year of employment.
- Key Point: This kind of contract is only possible for Chinese employees employed by a China PEO or a HR licensed company (Employer of Record).
- Fixed-term contract
- Probationary period: 1-6 months (depending on the length of the contract).
- Termination: Employer needs to provide a reason for termination along with valid proof to justify their decision to terminate the employee.
- Severance: Maximum of 2 months per year of employment.
- Key Point: For Chinese citizens the fixed-term contract will, by law, be considered as an indefinite contract upon the second renewal (see below).
- Indefinite (open-ended)
- Probationary period: 1-6 months.
- Termination: Employer is required to present a valid reason as well as legitimate proof for terminating the contract.
- Severance: Min. 12 months’ salary.
- Key Point: Chinese national citizens are entitled by law to receive a indefinite contract after completion of two fixed-term contracts of the same length with a single employer.
Contact us today if you would like to learn more about the process of connecting with the right China PEO for your business.