Foreign companies that have established a representative office (RO) in China do not have the ability to hire local staff directly. Instead, Chinese staff must be seconded from an agency that will take the title of official employer.
The reason for restricting the right of an RO to employ staff is quite simple, it is not a capitalized legal entity in China. An employee must have the right to claim against their employer, and an RO will not be a suitable entity to claim against. By forcing ROs to employ staff through an agency (which is a capitalized legal entity in China), the interests of the employee are protected.
Labor Dispatching Agencies
ROs in China must recruit their Chinese employees through labor dispatching contracts. A labor dispatching contract (secondment) describes the situation in which an agency dispatches an employer to work at another organization.
Typically, an RO will sign a "contract for service" agreement with an agency. Under these types of contracts, agency agrees to provide (and the RO agrees to pay for) employee hiring services and the administration of the employment relationship.
Once the RO has decided on a candidate, agency will sign an employment contract with the employee. Meanwhile, a supplemental employment contract may be entered into between the RO and the employee to provide for detailed rights and obligations of the employee (for example, based on the company HR policy). It is commonly understood that the supplemental contract may not come into conflict with the primary service contract between the RO and the Talent Spot. Supplemental provisions typically include details of compensation, holidays, work duties, office rules and regulations, confidentiality, etc.
Talent Spot will also handle the employee's mandatory contributions for unemployment insurance, medical insurance, housing and retirement. It will also initiate, renew and terminate employment contracts with the employees. ROs must pay Talent Spot fees for these types of services, which vary according to different locations.