How Does Labor Dispatch in China Work?
A labor dispatch agreement in China is divided into three parts:
- The Client (A foreign company wanting to run a business in China)
- The Delegate (The Client’s representative sent to or recruited in China)
- The Consulting Company or Professional Employment Organization (PEO) which is the legal representative of the delegate in China, operating as the Client’s administrative subsidiary.
While all employees are administratively managed by the PEO, the client company only has to focus on their work performance.
The PEO therefore ensures the handling of all the dispatched employees’labor market issues as well as any and all legislative challenges.
What Is Included in a Labor Dispatch Contract?
Labor dispatch, also known as an umbrella process, involves a large range of services being provided by the Professional Employment Organization (PEO) for your Consultant(s) in China, including:
- Legal Worker Registration in China
- Working Visa & Residential Permits for Foreign Employees
- Salary Sponsorship
- Tax Declaration & Optimization
- Expenses & Allowance Management
- Financial Reporting
- Recruitment & Headhunting (optional)
- Insurance (optional)
- Clients’ Payment in China (optional)
- Suppliers Invoicing (optional)
- Office Rental (optional)
The PEO is able to hire an unlimited number of employees in your place (while acquiring the necessary Chinese working licenses if they are foreigners). Among other services, it will pay the agreed upon salaries and insurance contributions (and/or maternity compensation) to your employees. The PEO can also help you rent an office space, necessary for many administrative procedures.
Depending on your business, it is possible to receive payments from your Chinese clients from within China and then pass it on to your company’s foreign account when desired. Similarly, the PEO can help you to directly invoice your suppliers and pay taxes on the profits generated by your business in China.
1. Easy Recruitment Process
The umbrella company acts as your subsidiary to build your team in China. Contracting and on-boarding are simplified.
2. Rapidity & Flexibility of Employment
You can easily and without risk manage the number of employees you need to reach your business targets in China.
3. China Staffing Specialist
As a HR specialist, the umbrella company is expert in payroll outsourcing, tax optimization, expenses management, accounting, etc.
4. 100% Business Commitment
All the Administrative and HR Management tasks are outsourced in order to save your employees time to focus on their activities in China.
5. Cost Effectiveness
You don’t pay the tax related to having a subsidiary in China, neither the extra cost represented by a HR and/or Accounting staff to manage your employees.
6. Independence & Transparency
The umbrella company is an independent partner which is not involved in your business activity. You can follow all the steps and process management in real-time.
1. Focus on Quality
The umbrella company is an external partner. When picking up a professional employment organization as a partner in China, you must focus on quality management services given that it is all about your employees performance.
2. Respect the Law & Regulations
You need a partner aware of the latest regulations in order not to suffer from but anticipate and take advantage of changes.
3. Outsource all the Non-Business Related Activities
When partnering an umbrella company, you agree not to control your China branch from A to Z (i.e. administrative and HR management departments are outsourced).