As China continues to solidify its position as the world’s second-largest economy, its market potential is undeniable. With a GDP surpassing $18 trillion in 2024 and a workforce exceeding 780 million, China offers a vast array of opportunities for international businesses. However, the intricate web of mainland Chinese labor laws and regulatory requirements presents significant challenges, particularly for companies considering ways of employing without a legal entity in China.
Hiring Foreign Employees Without a Legal Entity in China
While setting up a local company is generally thought to be the best way to hire in a new market, this isn’t always the case. In fact, it is possible to hire foreign employees in China without establishing a legal entity in a way that’s safe and more cost-effective.
Methods to Employ Without a Legal Entity in China
Independent Contractors
Hiring independent contractors in China can be a temporary solution, as they manage their own taxes and benefits. However, this comes with risks of misclassification and compliance issues if contractors perform duties akin to employees.
Staffing Agencies
These agencies hire employees and lease them to your company. While this is a quick solution, it may be costlier and less aligned with your company culture and long-term goals.
Employer of Record (EOR) Services
An EOR in China can employ staff on your behalf, managing payroll, taxes, benefits, and compliance with Chinese labor laws while you retain control over daily employee activities.
EORs offer a practical solution to local employment needs, managing all administrative and legal responsibilities associated with employment. This allows your business to operate in China and oversee employees without the complexities and expenses of creating a local subsidiary.
EOR Costs in China
The cost of EOR services in China varies based on factors such as the number of employees, location, and specific services required. Typically, EORs charge 10% to 20% of the employee’s gross salary.
This fee usually covers payroll processing, tax compliance, employee benefits management, legal and HR support, and onboarding and offboarding processes. Despite the additional cost, using an EOR can be more economical than establishing and maintaining a legal entity in China as it takes care of everything on your behalf without the costs of setting up and running a new company in China.
Compliance and Legal Assistance from an EOR
An EOR ensures compliance with China’s complex and frequently updated labor laws and regulations. Key compliance areas include:
- Labor Contracts – Chinese law mandates written employment contracts within one month of employment. An EOR ensures these contracts are constructed and managed in a way that complies with all local employment laws.
- Social Insurance – EORs manage employer contributions to social insurance schemes, including pension, medical, unemployment, work-related injury, and maternity insurance. China’s “5+1″ social insurance system can be complicated, especially when managing foreign employees in the country, so local EOR support can simplify the entire process without any need for action on your part.
- Tax Withholdings – EORs handle all local tax withholding and filing requirements for both employers and employees, taking into account local variations plus any tax agreements that may exist between China and your employees’ countries of origin.
- Termination Procedures – EORs manage the employment process from start to finish, ensuring legal compliance in the event of termination processes, thus reducing the risk of disputes.
Efficient and Compliant Hiring in China with INS Global EOR Services
Hiring in China without a legal entity is efficient and compliant with INS Global’s EOR services. We offer a seamless solution for businesses aiming to expand into the Chinese market without the administrative burdens and costs of establishing a local entity. INS Global enables you to swiftly and compliantly hire the talent necessary to drive your business forward in China.
Employing without a legal entity can be straightforward with the right EOR partner. However, potential risks include non-compliance with local laws, cultural misunderstandings, and employee integration challenges. A reputable EOR like INS Global mitigates these risks significantly.
By choosing INS Global’s EOR services, companies can navigate the complexities of international hiring as a local legal employer, ensuring smooth, compliant, and efficient expansion into the Chinese market.
Contact our expansion experts today to see how our expertise and local knowledge help you focus on growing your business without limits.
FAQ
What is a PEO in China?
A Professional Employer Organization (PEO) provides co-employment services and HR outsourcing to companies as a third-party partner. While often spoken of interchangeably with EOR services, PEO providers employ the latest in HR tools and systems to integrate locally-based employees with your own payroll systems to save time and streamline multi-country processes.
Opposed to EORs, PEOs still usually require the client company to have some legal presence in China or retain a degree of liability, making other options more suitable for companies wishing for a greater degree of legal separation.
Can I hire contractors in China instead of full-time employees?
Yes, hiring contractors is an option, though extra steps should be taken to ensure that contractors are genuinely independent and not misclassified employees to avoid legal and financial penalties.
This may ensure checking that the freelancer arrangement meets legal criteria for independent contracting, including control over work schedules, provision of their own equipment, and the ability to take on other clients. Clear contracts outlining work scope, payment terms, and intellectual property rights are the first step in this process.
How do I handle payroll and taxes in China without a legal entity?
An EOR manages payroll and taxes, ensuring compliance with local tax regulations by handling salary payments, tax withholdings, and social security contributions.
Is it possible to transition from an EOR in China to a legal entity later on?
Yes, transitioning from an EOR to a legal entity is possible. An EOR can assist with a smooth transfer of employees to a new local entity and ensure continued compliance with legal requirements.
What happens if there are disputes with employees hired through an EOR in China?
Disputes are typically handled through the EOR with its own team of legal experts. These provide assurance on local employment best practices and regulations and can provide access to legal representation in cases where it’s required.
Can U.S. companies hire foreign workers in China?
Yes, U.S. companies can hire foreign workers in China in any of the ways described above. Using an EOR simplifies the process and ensures compliance with Chinese labor laws and visa requirements.
Do foreign workers need visas or work permits in China?
Yes, foreign workers typically need visas and residence permits to work in China for any period of time. An EOR can help navigate the visa application process from start to finish and ensure compliance with immigration laws.
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