The most important questions to consider before a hiring process are the following ones:
- How to attract and retain the talents?
- Hiring locals or expats?
- How do you integrate local expertise and global experience?
Before starting the employment process, it is important for a foreign company to well understand the Chinese employment law, which has different provisions for Chinese and foreign employees.
- A foreign company who wants to hire employees in China must first establish a legal entity in the country, either in the form of a Wholly Owned Foreign Enterprise (WOFE), or a Representative Office (RO)。
- It is then required by the law that the legal entity must pay a portion of its full-time employees social welfare benefits, which refer to pension, unemployment, medical, worker's injury and maternity insurances.
Employing Chinese employees legally without Chinese entities
- In general, Chinese citizens may not be hired directly by foreign companies. Hence, only Chinese entities are allowed to have employees based in China.
- The only way for a foreign company who wants to hire a local employee is to have a proposed employee hired by a local Chinese company and then paying the “employee” through the Chinese company, in addition to an administrative fee.
- Each provincial government sets minimum wages. However foreign companies are expected to pay much more than the minimum wage.
- Working hours no longer than 40 hours per week and at least 2 days off per week.
- An employee cannot legally be asked to work more than 3 hours overtime in any weekday, or 36 hours per month
Social Welfare Obligations
- Employers must contribute from 7% to 13% of an employee's salary to the housing fund, and the employee usually has to contribute with the same amount on its own.
- The mandatory insurances (pension, unemployment, medical, worker's injury and maternity) are calculated as a percentage of the salary with a capped amount.
- In total, these benefits can add up to 70% of the employee's monthly salary, depending on location and income.
- As the costs of social benefits can be very significant, a company could decide not to create a legal registered company. Then, they would have to hire the employee as a self-employed contractor who would be responsible to pay his own social welfare benefits.
- However having a self-employed contractor can be risky for a company, as they might not have the full dedication of the employee and he or she would be legally free to offer services to other companies, including competitors.
13th Month Salary
- Although it is not mandatory, it is very common for companies in China to give two months salary in December to its employees. They usually count it as part of the employee's benefit program.
- Fake university diplomas and other certificates are easily available. As a result, background checks are important steps in the selection process.
Motivating and Retaining Employees
- The salary and bonuses are playing a big role in retaining employees, but in China, one of the key factors could also be to set a clear progression and development track for the employee.