China has the second-largest economy in the world. Thus, it invites foreigners to set up their business in China. The Chinese economy provides opportunities for foreign companies to increase their revenues and market share in the country.
Foreigners can use different business entities to set up their business in China. A Wholly Foreign-Owned Enterprise and Joint Venture are the most common business entities adopted by foreigners.
It is beneficial for foreign employers to hire local employees and understand the country’s culture. However, according to the National Statistics Bureau, 44% of the businesses face a shortage of skilled workforce in the past year. This might pose a challenge for foreign companies when hiring people in China.
Whether hiring people in China, companies must comply with the local employment laws and regulations. Even though companies have the technical knowledge of hiring employeesin China, businesses must understand the culture, interview process, recruitment steps, and the importance of complying with the Chinese employment laws.
Things to Know Before Hiring in China
With increasing international businesses setting up their offices in the country, the Chinese market has active employment requirements. These businesses can either hire employees to be in China or local Chinese workers. However, before doing that, companies need to know a few things before hiring in China:
- China’s current market situation: Many international companies set up their business in China. Being a thriving economy, the country offers many work opportunities. Hence, employers should understand the market requirements to ensure that they hire the correct employees to meet the market requirements.
- Languages spoken: There are about 300 languages spoken in China. Thus, employers must research well on recruitment locations for the language spoken in that area before recruiting the people. Recruitment and selection in China would largely depend on language proficiency to achieve operations and performance efficiency.
- Employment contracts: It is legally binding for employers in China to have employment contracts signed by their employees before the commencement of the work. When recruiting, employers must ensure that their employment contract contains the details such as information about the business, the nature of work, terms of employment including the working hours, and the compensation details of salary and benefits.
- Minimum wage and working hours: The Chinese labor law mentions no specified minimum wage. Instead, provinces and municipalities are allowed to set their minimum wage.
The Chinese labor law clearly states the working hour requirements. According to it, employees should not work for more than 8-hours a day with a lunch break of two hours. It also states that the working hours for the employees should not work for more than 44 hours in a week.
If the employees work overtime, employers have to pay 1.5 times the regular wages. If employers require their employees to work on off-days, they are entitled to pay their employees two times their average compensation.
It is also customary for the employees to award a 13th-month bonus annually.
- Statutory benefits: The Chinese labor law mandates employers to provide their employees with health insurance, unemployment insurance, worker’s compensation, maternity benefits, pension plans, and housing funds. These funds must be contributed both by the employer and the employees.
- Required leaves: Employees are entitled to 7 public holidays, and if these holidays fall on weekends, the employers should give them a paid day off during the week. There are no minimum leave requirements stated in the Chinese labor law. Employees are also entitled to sick leaves, which again depends on the employee's tenure in the company.
Moreover, employers should give their employees some vacation days. Generally, these vacation days depend on the employment tenure of the employee in the company. The leaves are as follows:
Tips for hiring employees in China:
- ~Understand the Chinese labor law requirements and their impact on the business.
- ~Learn the labor union terms and conditions for recruiting in China.
- ~Keep the documents - licenses and visa requirements in order.
- ~Keep track of the continuous license renewals when hiring employees in China.
- ~Be updated with the changing labor laws and their requirements in the country.
The Cost of Hiring an Employee in China
China is the world's largest labor market. With the growth in the economy and the rise in wages, the cost of hiring employees in China also increases. The cost of hiring employees in China generally consists of gross salary and social security contributions. The employee compensations and benefits are usually divided into -
- ~Wages and Salaries
- ~Incentives and bonuses
- ~Social securities
These are dependent on the position of the employees and also include the consideration of the leaves and holiday entitlements of the employees. However, the cost of hiring staff in China can be greater than the general costs because -
- ~The foreign employee would expect to have a decent standard of living.
- ~30% salary of the foreign employees in China includes allowances for housing, relocation, daily meals, rebound trips for a home visit, additional international insurances, stock options, travel expenses, and international school fees.
- ~The employer has to bear the visa costs for the international employees.
An international business incurs the following recruitment costs in China:
- ~Business establishment costs.
- ~Partnering with a third-party employer of record costs.
- ~Recruitment fees in China include the compensation and benefits of the employees and consist of fees of the recruitment agency.
- ~Establishing a hiring department in China.
- ~Travel cost of sending the recruitment department if sent from the home country.
- ~Translator charges for smooth flow of communication.
- ~Advertising costs.
- ~Costs of conducting background checks.
The cost of hiring people in China as an international business, which makes the recruitment fees in China, is high. Thus, it is beneficial for international businesses to recruit employers of record (EOR) services in China.
What Does a Company Need to Hire Employees in China?
International employers require three essential things before hiring employees in China:
- ~Establishing a Chinese business entity - A joint venture, wholly foreign-owned enterprise, or a representative office.
- ~Registrations - You must get a business license, organization code, tax registration, and social security registration.
- ~Licenses and permits - Employers must obtain special licenses and permits for specific business operations and activities.
Conditions for hiring employees in China
The employers should ensure that the foreign workers meet the following conditions when recruiting in China:
- ~The candidate should be more than 18 years of age.
- ~The candidate should be in good health.
- ~There should be no criminal record of the candidate.
- ~The candidate should have a valid passport, work permit, or license to work in China
Problems faced by Chinese and International employers when hiring people in China
- ~Employees cannot recruit interns in China unless they study at a Chinese university.
- ~Foreign working permits and foreign expert certificates are two different documents required by different Chinese government bodies, and it is challenging to understand which document is required by which agency.
- ~Foreign workers should have their defined work length mentioned on their employment contracts.
- ~The time for recruiting foreign employees is not fixed and can take anywhere from four weeks to several months.
Various Options of Hiring Employees in China
There are two recognized options for international employers to hire staff in China:
- ~Use a Professional employer organization (PEO) or employment service for hiring employees if the international business is not a legal Chinese business entity.
If the international business is a Wholly Foreign-Owned entity in China, it can directly hire people in China.
The Steps to Hiring in China
The recruitment process in China follows a series of sequential steps which employers must follow in China:
- Create job advertisements highlighting the requirements of the vacant positions. HR should post the created job advertisements on various job portals and post them on the website. The most popular job websites are 51 jobs, Zhaopin, and ChinaHR.
- Evaluate the applications received for shortlisting the qualified candidates according to the business requirements
- Conduct interviews of the shortlisted candidates. If scheduling online, check for the video calling service available in both China and the international country.
- After choosing the top candidates, send them an offer letter.
- Once the chosen candidates accept the offer letters, send them the employment contracts.
- Hire the employees and welcome them onboard by fulfilling the necessary documents.
The steps mentioned above are suitable if the employer recruits Chinese locals. On the other hand, if an employer recruits a foreign employee, it becomes essential to follow the below-mentioned hiring process:
- The employer should obtain an employment license from the local labor authorities in China.
- Then, the employer must obtain a work visa invitation from the region's foreign affairs authorities by providing the employee's confirmation letter.
- Foreign employees must use this work visa to apply for a work visa in their country of permanent residence.
- The employee has to obtain the alien employment permit from the local labor authorities and the People’s Republic of China on arriving in China.
- The last step is to ensure that the employee obtains the alien residence permit from the public security department located in the province.
Let Multiplier be Your EOR Platform in China
Hiring staff in China could be intimidating for the new or foreign employers in the country. Fortunately, Multiplier can help you in hiring employees in China.
Equipped with several years of experience in the human resource domain, Multiplier is your go-to hiring partner. We are always updated on the latest Chinese employment laws and legislation.
Thus, we can smoothly take care of your hiring and compliance needs. This way, the employer can concentrate on business expansion in the international market while outsourcing the employment needs and compliance requirements to us.
Frequently Asked Questions
How can Multiplier help international business?
Multiplier offers employment solutions to international businesses to concentrate on expanding and developing their business in China. Multiplier offers Employment of record solutions to businesses without setting up a business in China.
Is it necessary for the business to be a Chinese business entity before legally hiring employees in China?
It is interesting to note that if the business is a registered Chinese business entity, it can hire employees directly. On the other hand, an international business that does not have a registered business in China can hire employees in China through the EOR service provided by Multiplier.
What is the employment contract term in China?
The employment contracts are signed for a fixed-term period. Depending on the performance of the employee, the contract can be renewed. However, the contract is converted into a permanent contract if renewed for the third time. Thus, signing a two or three-year employment contract is common in China.