Because every country has its own labor laws, customs and cultural differences surrounding employment, hiring internationally can be a challenge, particularly if your organization doesn’t have local HR resources and expertise.
It’s even more challenging when some governments, like in the case of China, exert greater control over a foreign entity’s actions. If long-term success is the goal, then international companies must tread carefully by Chinese hiring and labor laws.
Here’s what to consider for hiring in China.
Establishing a legal entity
In order to hire workers directly, you must establish a legal entity in China. For foreign companies, this is a wholly foreign-owned enterprise (WFOE), which is a type of limited liability company.
A company seeking to register as a WFOE must abide by the processes and requirements of the specific region within China that they wish to operate in. This can be a lengthy and convoluted process for a foreign employer, thanks to bureaucracy and paperwork.
The first task is to designate which type of WFOE you’ll operate as:
- Consulting WFOE – This is used for consulting services, and it’s often the simplest WFOE to set up.
- Trading WFOE – Also known as a foreign-invested commercial enterprise (FICE), this is used for trading, wholesale, retail, or franchising.
- Manufacturing WFOE – This is used for manufacturing purposes.
Once this has been decided you’ll need to follow the documentation procedures, including:
- Register business under a Chinese name
- Provide documentation (may include):
- Articles of Formation
- Business plan
- Estimated investment
- Estimated number of employees
- Estimated size of production
- Feasibility study report
- List of products
- Permission for land use
- Statement of business purpose
- WFOE’s operational structure
- Acquire business licenses from the Ministry of Commerce (MOFCOM) and State Administration for Industry and Commerce (AIC)
- Obtain a tax registration seal
- Register with the Ministry of Finance, Technology Supervision Bureau and State Administration of Foreign Exchange
In addition, there are a plethora of pre-licensing and post-licensing requirements.
Working with an employer of record
Because of the difficulties and high costs associated of setting up a WFOE, many companies opt for an alternative route to hiring in China: partnering with an employer of record. The employer of record is already registered with the government and likely has a local presence and in-country HR resources. An EOR helps foreign organizations ensure when they hire new workers in China, all local labor laws, including payroll, tax withholdings and benefits requirements, are met.
Because it has in-country HR expertise, the employer of record also knows how to handle language and cultural differences during the hiring process, and what hiring rules and regulations an employer must satisfy.
Considering language and cultural differences
In China, there are significant cultural, language, and regional differences you must account for—especially during the interview process—including:
- Spoken language – Within mainland China, approximately 300 different languages are commonly spoken. However, nearly 70% of the population speaks Standard Mandarin. While there is a small portion of Chinese citizens who speak English, in the majority of cases, interviews should be conducted in Mandarin, unless the job entails a specific English language component.
- Body language – When greeting potential candidates in Europe or North America, a handshake is common. In China, it’s common for both sides to exchange a handshake or to make a brief bow to each other. Knowing how you come across even in subtle ways is important in maintaining the work culture you desire.
- Attire – If you’re operating in the U.S., you may have recognized how office wardrobes have laxed over the years. In China, what you wear is still a reflection of professionalism—meaning suits and conservative business attire.
It’s important to understand and recognize these differences before hiring, so your human resources team can build these adjustments into the process itself.
Setting employment contracts
Once you’ve identified the right candidates, it’s time to set the employment contracts. There are three types of written employment contracts:
- Fixed-term labor contracts – As the most common labor contract in China, a fixed-term contract states a term limit on the employment contract.
- Open-ended contracts – Contracts don’t have a set term limit, and they can only end with a mutual agreement between both parties.
- Project-based contract – The contract lasts until a project or a specific task is completed.
If you hire a Chinese employee without a written contract, upon the first day of work, you have a 30-day grace period to provide one. If you miss that window, they’re entitled to a monthly double wage penalty. Should this go on for a year, the contract automatically is re-classified as open-ended.
And what must an employment contract contain? Required details include:
- Employer’s name and location
- Employer’s legal representative
- Employee’s name, place of residence, and resident identification number
- Contract terms
- Place of work
- Job description
- Hours worked
- Leave entitlements and rest periods
- Social insurance
- Working conditions
If an employer expects a job contract to run for at least 90 days, they can include a probationary period that runs from one to six months. The allowable length depends on the specific contract’s length:
- If a contract lasts three to 12 months, there’s a one-month maximum probationary period
- If a contract lasts one to three years, there’s a two-month maximum probationary period
- If a contract lasts more than three years, there’s a six-month maximum probationary period
The standard work week according to Chinese labor laws is 40 hours a week with at least one day off each week. While that is the legal standard, for decades, the unofficial practice was closer to 70 hours a week. But recently, the courts and governing bodies have attempted to quash such work customs and more stringently enforce reasonable work hours.
When hiring, you can technically extend the normal workday by an hour—up to three hours in special cases—so long as it's been affirmed by China’s sole labor union, the All-China Federation of Trade Unions (ACFTU). That said, setting stricter caps on maximum hours could make your hiring position more attractive to candidates, seeing as there’s a labor movement pushing for improved work-life balance.
Compensation must be agreed upon by both the employer and employee. That figure can be whatever the two parties decide, so long as it’s higher than minimum wage levels set by the local province, autonomous region or direct-controlled municipality. This conversation should be broached during the interview stage and then continued as you narrow down your top candidates.
Employees have the right to receive a monthly or bimonthly salary, paid in either cash, direct deposit or check. And before wages are paid, employers may take deductions for individual income taxes, social security payments, court-ordered payments or additional expenses according to legal requirements.
If an employee is asked to work beyond 40 hours in a week, they’re entitled to a maximum of 36 hours of overtime pay, unless there are special circumstances that dictate even more work. This figure is calculated according to the following criteria:
- Regular working day: 150% of regular hourly wages
- Rest day: 200% of regularly hourly wages or compensatory time off
- Statutory holiday: 300% of regular hourly wages
If you expect that candidates will be regularly required to perform overtime duties, this should be broached during the interview and contract phase.
Discovering more candidates
If you’re coming into China without already having candidates identified, advertising on the major regional job platforms is a good option. The top three channels include:
- 51 Job – The top recruitment website in China, 51 Job has more than 81 million registered members, 300 million average daily page views, 3.2 million weekly job postings, and 38 million weekly applications.
- WeChat – A popular social networking site, WeChat is ideal for posting jobs in a major metropolitan city.
- LinkedIn – More than 40 million Chinese employees are currently active on LinkedIn. If you post a job on this platform, be sure to make it in standard Mandarin or for the local dialect if you’re operating in a regional location.
Remember, these are but a few of the potential online avenues for finding top talent. Other popular sites worth posting to include Zhaopin, ChinaHR, and CareerBuilder.
Finding the right partner for hiring in China
For foreign companies, legally operating a business in China is rarely a straightforward process. This is why many companies elect to partner with a China employer of record, which helps simplify hiring and ensures compliance with all local employment requirements for contracts, payroll and benefits.
Learn more about the requirements for hiring in China and how an EOR can help—speak with a global solutions expert today.