How to Hire in China and Increase Employment Retention

By New Horizons Global Partners — Corporate and Employment Solutions by Asia’s leading Employer Organization

Hiring and retaining employees seem like a simple and achievable undertaking given the numerous strategic approaches and methodologies made available to managers. However, this is not the case in China.

Many informed entrepreneurs are aware of China’s strong potential as an investment destination. This is mainly due to its fast growing economy, i.e. second globally according to the World Bank. Many foreign investors are therefore keen of bringing their business in China.

However, as they will soon realize, opening a business in the country is a challenging endeavor. One of the complex issues about starting a firm in China is the management of human resource and administration. This is a matter that must not be taken for granted or legal and operational risks may arise.

No foreign manager in China would want to get a random visit from officers representing the Ministry of Labor and Social Security, all suited up in military-looking uniforms. They come in highly intimidating and powerful demeanor but with facial expressions lacking in emotions.

Worse, the officer will inform the expatriate manager that the company’s operation is illegal and that necessary registrations and operational procedures must be complied with. This must be accomplished by the time they return to inspect the company again. Situations like this can cause panic. More importantly, failure to meet the requirements may cause operational delays, fines, penalties or even business closure.

Unfortunately, the relevant laws are complex, process-intensive and ambiguous. What makes it more complicated is the constant changing of the applicable laws, in some instances, several times a year.

Foreign Invested Enterprises in China

Before a foreign company can hire employees in China, it is necessary to first establish a legal entity. This can be in the form of any of the following:

· Wholly Foreign-Owned Enterprise (WFOE)

· Joint Venture (JV)

· Representative Office (RO)

· Labor Dispatch Office (such as a PEO)

Foreign companies in China may hire local or foreign employees depending on their needs, plans and expectations. However, recruitment and the management of human resources could prove difficult for foreign entities, particularly those unfamiliar with the existing and very stringent labor laws in the country.

Hiring Employees

In hiring employees, a company should take into close consideration the following applicable employment laws:

· 1995 Labor Law of the People’s Republic of China;

· 2008 Labor Contract Law of the People’s Republic of China;

· Law of the People’s Republic of China on Labor Dispute Mediation and Arbitration;

· Employment Promotion Law of the People’s Republic of China;

· Labor Union Law of the People’s Republic of China;

· Law of the People’s Republic of China on Work Safety;

· Social Security Law;

· Opinion on Several Questions Regarding the Implementation of the Labor Law of the People’s Republic of China;

· Implementing Regulations for the Law of the People’s Republic of China on Employment Contracts; and,

· Other new, related and local laws pertaining to employment.

Recruitment always comes with such other administrative procedures as labor contracts, insurance, taxes, payroll, remuneration packages, social benefits, severance pay and termination processes, all of which are governed by China laws.

The situation is not similar to the procedure in other countries, like the United States, where companies may include into the contract whatever terms the management deems necessary and termination of employees can be done at will. The laws dictate almost every important details relating to the employee.

Hiring foreign employees is more challenging and complicated than hiring local ones since there are more procedures, processes and requirements involved. The laws on the work visa alone changes many times, that it is now almost impossible to follow without the help of a legal or immigration expert. There are also national and local laws to comply with or the status of a foreign employee will be rendered illegal.

Employment Contract

When hiring employees in China, one of the most critical issues is the execution of an employment contract. Employers that hire full-time employees must execute a written employment contract as dictated by law. Article 12 of the 2008 China Labor Contract Law provided for three types of employment contracts, as follows:

· fixed-term labor contracts;

· open-term labor contracts; and,

· specific-task labor contract.

Failure to provide employees with a written contract subjects the employer to sanctions, as follows:

· fines on entities with full-time employees but no written employment contract;

· payment of double the salary if the employee is with the company for one month without a written contract; and,

· automatic open-term employment is awarded to the employee who works with a company for one year without a written contract.

If the employee is given an open-term status, the employer must retain the former until the age or retirement. It can also prove difficult to terminate an open-term employee.

According to the China labor and contract laws, as well as the 2013 Judicial Interpretation on Applicable Laws in Terms of Trial and on Labor Disputes Cases, employers are mandated to include the following information into the employment contract:

· Company’s name and address;

· Name, address, and ID number of the employee;

· Company’s legal representative;

· Compensation/remuneration;

· Term, time frame or probation period (whichever is applicable)

· Employment/job description and employment location;

· protection against occupation hazards and safety measures employed;

· working hours, leaves and rest provisions;

· Social insurance terms; and,

· Others that may be required by China’s dynamic labor laws.

One of the most important provisions that should be spelled-out clearly in the contract is the term of employment, given that termination of employees is not a simple matter to be dealt with in China.

Employment contracts provides for implied terms, ie legal minimum wages, grounds for the termination of employment, and the computation of the statutory severance. This means an employer can rely on these statutory grounds for termination to relieve an employee of his services. Articles 39, 40 and 44 of the 2008 Employment Contract Law provides the limited statutory grounds for termination of employees.

Some of the grounds for termination come with the requirement of severance payment. In general, severance pay is one month’s salary for every year of service, where a month’s salary will be computed based on the average monthly salary within 12 months prior to termination.

Employment contracts in China should be written in the Chinese language, must be clear, concise and not ambiguous in its terms. It is therefore recommended that a legal expert be hired to make sure the written employment contract is compliant with the relevant laws and can protect all parties appropriately.

Employee Retention

Given all the difficulties involved in hiring an employee in China, it is only wise for employers to make sure they properly screen all applicants and get only those that would best fit their needs. More importantly, once they have the most talented and skilled employees working for them, the foreign companies must increase their employee retention efforts. Failure to do so could result to considerable losses.

Retaining talents is a challenge for numerous foreign firms in China. Several suggestions are provided hereunder to prevent employee turnover:

· Conducive Company Culture — developing a company culture that is conducive to working on a daily basis can increase employee retention. Some employees will not leave a company despite an offer of a higher pay from other companies if they are happy with their current working environment;

· Rewards or Recognition — it is only fair to give honor where it is due. In the employment setting, employees who perform well should be given their deserved recognition or rewards to motivate them to perform better and make them happy with their jobs. This can be done though promotion, increased salary, better benefits, etc.;

· Provide Challenge/Motivation — many employees reach a point in their careers when they think there is no longer anything further to learn. This can be prevented by keeping them challenged with their work and by motivating them further with new types of activities, different work environment, job rotation, promotions, trainings, etc.;

· Competitive Remuneration and Bonus System — it is common among international companies in China to employ both local and foreign employees. It can promote retention of employees, especially local ones, if they are offered comparatively reasonable salary packages. It would also motivate all employees to stay by offering a bonus system that will give them opportunities to have their salaries increased based on their performance;

· Stability — a company that can show to their employees that the business and their positions are stable and would be theirs until they retire will help make them decide to stay than gamble with other companies; and,

· Respect — the employer should be cognizant of its employees’ diversity and be able to respect each one’s culture, beliefs, traditions and values.

Most importantly, if employees will see that the employer implements rules and regulations, as well as employment policies, which are according to China’s labor laws, and will not require them to connive with employers to skirt the laws, then employee retention could be achieved.

The Solution — Professional Employer Organization (PEO)

It is highly important for international companies to acquire assistance from experts in hiring and other HR/administrative matters in China instead of direct recruitment. To get the services of a Professional Employer Organization (PEO) is currently the best option as a PEO will not only assist but provide an international company in China with all the needed services such as hiring, employment contract preparation, payroll and tax management, immigration processes, training, handing of legal matters and other HR activities. The services rendered can be customized according to the employer’s needs.

A PEO such as New Horizons Global Partners also serves as the official Employer of Record, meaning that they are officially the employer of the recruited employees and will therefore remove from the foreign company all risks and legal liabilities relating to labor. As such, the foreign firm and its managers can focus solely on the business. A PEO can provide a flexible, cost-effective, efficient and fastest means of hiring and doing business in China today.