China’s labour framework and the underlying HR complications impact foreign investments in the local economy. Finding and hiring staff in China is a delicate and complex process, especially for foreign SMEs, which are less likely to look at putting in place a legal or HR in-house team of counsels, especially in the start-up phase.

Can you hire staff in China from overseas?

Foreign entities located overseas are not allowed to directly hire employees in China, so UK companies indeed need to establish a representative office or a subsidiary in China. The most popular option for foreign companies is a wholly foreign-owned enterprise (WFOE). It’s worth noting that whenever entity incorporation seems like a step too far for an initial presence in China, UK companies can engage a so-called “employer of records,” i.e., a licensed provider that will hire employees under its name in exchange for a fee calculated on their salary’s total company cost.

Best practices for recruitment in China

Global headhunters have a strong presence in the Chinese market but are usually only engaged for middle to senior and high-level management positions given their databases and the fees involved (usually 20% of the candidate’s yearly gross). Companies usually dedicate in-house recruiters to managing online HR platforms (Job.cn, Zhaopin.com, 51job, etc.), where candidates and job-seekers directly upload their CVs and apply for job postings. Recently, social media channels and apps (especially WeChat official accounts) have created a direct link between employers and candidates, especially for companies in the consumer, luxury and fashion industries, or those that are well known in their sector. 

What you need to know about Chinese employment contracts 

Firstly, companies should note that written employment contracts must be in China’s official language: Mandarin. According to the provisions of Article 19 of China’s Labor Law, these are the terms to be included in employment contracts:

• Duration and type
• Description of duties with related protection and conditions
• Remuneration and benefits
• Discipline and conditions for termination
• Liabilities for breach of the employment contract.

Paying compulsory provident funds 

China’s wages are coupled with compulsory provident funds (five main categories), a government-run housing fund for rent and mortgage benefits, and individual income tax declaration liabilities, representing an additional burden on the employer’s monthly declarations. Social contributions for work-related injuries, pensions, maternity leave, unemployment, and medical insurance provided by the state are also capped depending on the previous year’s average salary published every summer by each municipality.

The hidden costs of hiring procedures

Training and induction programmes are usually expected by candidates, especially the youngest generation, who have more detailed expectations for their work commitments. Employers wishing to implement non-compete clauses should budget for the related remuneration that becomes a must when these are put into use. The minimum wage connected to non-competes is usually 30% of the employee’s monthly salary but candidates are free to negotiate that amount up to their liking and can’t be forced into similar obligations.

China’s evolving working culture 

Since the appearance of unicorn tech companies and internet giants, China has been noted for a culture of unpaid overtime that clashes with official regulations; under official Chinese law, employees can work a maximum 44-hour workweek and any work beyond that requires extra pay for overtime. There is a high turnover rate in the job market; candidates that change jobs after three to five years of work experience are seen as having a relatively reasonable job hopping rate but it can be much more frequent. It is worth noting that GenZers and young talents are more likely to frequently switch roles, but employers can combat this by providing a positive working culture and good advancement opportunities.

How do commissions and bonuses in China differ from the UK?

The majority of Chinese labour contracts are usually based on 12-month arrays with a clause for discretionary bonuses typically set in the months in the proximity of Lunar New Year festivities (January-February). Multinationals keep 13 months’ wages with performance bonuses and commission schemes on top, even though local regulations don’t prescribe fixed arrangements on this matter. The main difference is that 13th-month bonuses and the like are considered part of the employee’s salary and represent a fixed commitment from employers, whereas bonuses and commissions are discretionary.

Hurdles to recruitment by foreign companies

Foreign-invested enterprises should have two systems in place for recruitment: 1) background checks, including prior records of labour arbitration cases with other employers, and 2) mental health check-ups due to the fast pace of life and work in China’s major cities. Close attention should also be paid to candidates’ interpersonal relationships while handling tasks under pressure and their ability to integrate with existing teams as some companies may encounter highly educated Chinese returnees who are fluent in English but tend to feel easily disappointed with their careers versus their investment in studies abroad. As a general principle, the potential negative impact on the overall staff by candidates who have not been thoroughly committed and engaged outweighs issues arising from employees not skilled or trained for the set of tasks they’ll need to look after.

The regional divide in HR issues

In addition to the differences in the social insurance provident funds mentioned above, welfare policies such as sick leave, maternity leave and marriage leave differ from city to city. The overall process and regulations for terminating labour relations with employees also follow different precautionary measures and practices according to China’s local courts and arbitration committees, and companies should pay attention to these divides. Finally, foreign enterprises should implement internal SOPs for non-resident workers to apply for household registration and residence permit points in the municipality where they operate, as these create additional requirements for the payment of social security and the issuance of corresponding documents during the application process.

Letting go: The challenges of firing

The process of labour relationship terminations should be based on performance appraisals and individual business cases. HR teams will need to prepare different supporting documents for different cases, but severance pay should be put forward based on China’s Labor Law and its clauses on unilateral and mutually agreed termination. The usual set of causes ranges from dissatisfactory performance during probation, irregular or false attendance records, objective major changes in the company’s business outlook, and major disciplinary violations. National laws and regulations do provide for special labour protection and treatment for female employees during pregnancy and workers who have experienced labour-related injuries. In most cases, companies can avoid lawsuits and arbitration through severance and compensation packages, helping them to convey an employee exit without any repercussions on their main operation and enterprise credit.

This article is part of a series on exporting to China. See all the articles in the series below.

Part 1: How to conduct market research
Part 2: Protecting your trade mark
Part 3: How to choose the correct route to enter the China market
Part 4: The dos and don’ts of choosing a distributor
Part 5: How to find and hire staff in China

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s Launchpad service gets your company boots on the ground in China quickly and cost effectively.

The post Finding and hiring staff in China appeared first on Focus - China Britain Business Council.

1. Increases your time

Depending on the jurisdiction, managing the payroll can be complex and time consuming. When this task is outsourced, the hours spent on ensuring the company is compliant, keeping up with changing regulations, and training staff on internal systems is eliminated. In return, this time can be spent focusing on the core capabilities that drive your company’s growth.

2. Reduces your costs

Outsourcing payroll tasks is often the more affordable solution for many small to medium-sized business, as related expenses such as personnel, software and training are eliminated. Furthermore, the hidden costs that are linked with incorrect payroll handling should be considered, such as penalties and fines for late filing to authorities.

3. Lets you focus on your core business

Outsourcing is a growing trend. In fact, nearly every business outsources at least one critical function, such as website hosting, accounting, or HR services. Partnering with a professional provider to handle your payroll allows your organisation to focus on core capabilities and invest in strategic resources to increase the value of your company.

4. Mitigates risk

A critical task of a payroll provider is to ensure your company is following local rules and keeping up to date with regulations. Especially in jurisdictions like China, this is not an easy task, as regulations and local laws are complicated and dynamic. With the help of a professional payroll provider, you’ll have the assurance and confidence in your preparation and filing of payroll-related paperwork and tax matters.

A critical task of a payroll provider is to ensure your company is following local rules. In jurisdictions like China, this is not an easy task

5. Improves security

Professional payroll service providers invest significant amounts in specialised staff and software to maintain a robust and fully secure payroll system. It would be detrimental to any business if confidential information were to mistakenly be made available to individuals not meant to see it. By outsourcing the task of calculating and distributing this data, it’s possible to limit risks involving a breach of confidentiality.

CSC offers corporate administration and international expansion services. Their HR and payroll services include preparation of monthly payroll slips, managing required pension contributions, and employment visa applications. To learn more, visit cscgfmapac.com or contact apacbusinessadvisory@cscgfm.com

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Last year, seven regions (Chongqing, Shaanxi, Shanghai, Beijing, Hebei, Fujian, and Qinghai) in China announced an increase in their minimum wage. In 2018, 15 out of the 31 regions in mainland China increased their minimum wages, while 20 provinces did so in 2017.

Local governments in China are required to update their minimum wages at least every few years but have the flexibility to adjust wages according to local conditions. Most provinces set different classes of minimum wage levels for different areas depending on the given region’s level of development and cost of living. For example, a higher minimum wage class for the provincial capital and the most developed cities, and a lower class for smaller cities and rural areas.

A complete guide to China’s minimum wages can be found below.

China’s minimum wage: Understanding regional variation:

Hunan, Gansu, Guizhou, Tianjin, and Zhejiang are among the regions likely to adjust their minimum wages in mid to late 2020, given that they have not done so in the past two years.

Chinese regions often opt to increase minimum wages to keep pace with the cost of living increases, so other regions may also adjust their wage standards later this year.

That being said, 2020 might see fewer wage increases than usual given the coronavirus pandemic, which has shifted the need to reduce the financial burden on enterprise and job stabilisation to the forefront. The reorientation of priorities are also set against the backdrop of an ongoing US-China trade war and an economic slowdown.

Regions may opt to freeze local wages in order to maintain their economic competitiveness amid the uncertainty.

Currently, the highest minimum wages are in parts of Guangdong, Jiangsu, and Zhejiang provinces, which have all surpassed the RMB 2,000 (US$289) mark, as well as in the municipalities of Beijing, Shanghai, Shenzhen, and Tianjin.

Shanghai continues to have the highest minimum wage in China, at RMB 2,480 (US$358) per month, followed by Shenzhen and Beijing, both at RMB 2,200 (US$318) per month.

At the lowest end, the minimum wage in certain rural areas of Liaoning (RMB 1,120/US$162), Hunan (RMB 1,130/US$163), and Anhui (RMB 1,150/US$166) slightly higher.

However, while China is still among the most unequal countries in the world in terms of income inequality, it has made some progress over the past decade.

According to China’s National Bureau of Statistics, the country’s Gini Coefficient dropped from 0.491 in 2008 to 0.465 in 2016, where a higher number denotes greater inequality.

Impact on China’s labour costs

Minimum wages only tell part of the story of labour costs in China. As China’s economy moves up the value chain and transitions to innovation and services, most workers employed by foreign-invested enterprises earn above the minimum wage. For example, workers in Shanghai made an average of RMB 9,723 (US$1,405) per month through the first quarter of 2019 – over four times the local minimum wage.

Moreover, employer social insurance and housing fund obligations add an additional 37.25 percent to an employee’s salary on average. China’s rapidly rising wages are partly explained by the country’s labor pool which, while enormous, is gradually shrinking.

In 2018, China’s employed population declined for the first time ever, falling by 540,000 to a total of 776 million. This trend is exacerbated in China’s wealthy coastal regions – a traditional hotbed of foreign investment and manufacturing – which migrant workers are leaving in favour of inland China.

According to the National Bureau of Statistics, in 2016 the migrant worker population in coastal provinces fell by 0.3 percent, while that of Western provinces grew by 5.3 percent.

For foreign investors, rising wages are an unavoidable feature of doing business in China. Nevertheless, when other factors like productivity, infrastructure, transportation costs and access to a massive domestic market are considered, China may still emerge as the more cost-efficient option compared to countries with lower statutory labour costs.

When comparing locations for foreign investment into China, minimum wages are a helpful barometer to gauge labour costs across different regions.

From there, identifying industry-specific wage levels, availability of talent, and access to regional incentives offer a more nuanced view of ultimate labour costs within a given region.

This article was first published by China Briefing

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