In this article, we provide a summary of how to solve the biggest problem with independent contractors in China:
- The situation of contractors in China
- What are independent contractors
- Identifying the biggest problem
- Solving the problem
1. Contractors in China
China is the world’s second-largest economy in the world, a country that opens its doors to all foreign inventors that bring in conservable amount of job opportunities. China welcomes foreign employers and investors to expand business, however, different countries have their own laws and regulations to obey, so that foreign enterprises are challenged by hiring independent contractors.
Independent contractors are becoming a trend in many large economies, for instance, United States and Japan. In these countries employers are embracing new employment system without stopping. However, many Chinese companies are not as welcoming of this method as other countries.
China’s strong preference for an employment system that puts emphasis on the security of their workers in aspects such as social insurance and other statutory benefits that their law mandates is a big factor why independent contractor system is not a very popular choice by their law. It seems that China is more concerned for the well-being of their people in the long term run rather than having an abundant present but without any assurance for the future.
Due to China’s standpoint when it comes to independent contractors it is virtually impossible to use such a method to outsource workers without having to take legal risks against the government. Before we look into the challenges of independent contractor in China, first we need to address and analyze what this method is.
2. What is an independent contractor?
An independent contractor means a person that provides goods and services to another company, business, or organization with terms specified in a form of a contract. An independent contractor is a self-employed person or entity contracted to perform work for—or provide services to—another entity as a nonemployee. Independent contracting is more on how the employee was hired rather than the nature of employment. It revolves around the idea of whether an employer-employee relationship, in accordance with what is mandated to their law, is established between the parties concerned.
When hiring an independent contractor, the rule of thumb is that the customer (service payer) is seeking for non-permanent workers and only has the right to control the outcome of the work, not the right to control the way of work is over.
Independent contractor method is not common in In China. When a company plans to have independent contractors in China, the popular way is to outsource personnel to third-party employment agencies through talent dispatch or employee leasing solutions.
3. Identifying the challenges
The biggest question currently is: what are the risks? China isn’t as accepting of independent contractors compared to other leading economies in the world. The following are seen as the biggest problems with independent contractors in China:
1) A matter of legality
.Independent contractors are not completely illegal in China. Just to make it legal, it involves a lot of complicated paperwork, which usually leads to two things: foreign companies refuse to hire independent contractors or act cautiously, which means illegal. However, there are two other issues that fall into this category.
Foreign companies cannot recruit employees without a legal entity in China. This is why many Americans think twice when outsourcing Chinese employees.
A reliable Chinese employment contract is required.
In recent years, due to the implementation of the President’s Order No. 73 “Decision on Amending the Labor Contract Law of the People’s Republic of China”, the trend of direct recruitment in China has accelerated significantly.
Under this order, companies may hire employees as independent contractors only if the job they will carry out is temporary, auxiliary, or backup.
However, when hiring a solid contract that is compliant with the law. Drafting a contract that complies with Chinese labor laws is often challenging for companies, especially if they wish to hire some temporary employees.
On the other hand, failure to provide and sign a contract for every employee will have legal consequences, which is why foreign companies have once again refused to hire independent contractors in China.
In 2015, due to the slowing economy, the Chinese government doubled the tax collection. This move by the Chinese government is especially aimed at foreign companies in China. Although employers’ taxes and benefits vary from city to city, they usually total about 40% of their employees’ wages, which is absolutely detrimental to foreign companies.
3) The need for China work visa
Although not as big as the two listed above, if you look at the situation from a larger perspective, obtaining a work visa in China is definitely an obstacle for foreign companies.
If a foreign company plans to expand its business in another country, it is a common practice to deploy the company’s local employees to a new location, especially in the early stages of international expansion.
All foreign employees in China need to obtain employment license and certificates. Therefore, having a proper visa is a necessary condition for being able to work and stay in China legally. Any violation of these employment requirements will have serious consequences, not only will be punished with huge fines, but also include the termination of the employment contract.
4. How to Solve the Problem
From a legal point of view, the best way to solve these biggest problems is much easier than most enterprises expect. Fortunately, there are specialized organizations help these companies to solve recruiting and visa problems.
These organizations have experts who can handle almost all employment and business solutions required.
These companies are known as PEOs or professional employer organizations. They can cover services such as employee leasing, payroll processing, accounting and booking, and visa processing.
If you are a foreign company looking to expand in different countries/regions, please consider them as a one-stop service point for all your business solution needs.
Employee leasing and business solution companies have perfected the process of formulating a perfect system to meet the company’s business solution needs. China Payroll provides all kinds of employment services include the following:
- Employment solution
- Payrolls & Tax Administration
- Visa Applications
- Legal Advisory and Legal Documentation Services
- Office Rental Services
If you have any interest to learn more details about payroll, recruitment or labor cost, please contact us for a free quote.