In general, business entities which are classified as “qualified” are legally allowed to hire employees in China. While all domestic businesses and some other types of entities are permitted to employ people, not all foreign companies may do so.
The most common forms of legal business vehicles in China are as follows:
Both the WFOE and the JV are qualified to hire people since both are considered to have “domestic” business status.
On the other hand, an RO is not qualified to recruit employees “directly” since this is not a domestic entity but an overseas business incorporated in a jurisdiction outside China. Instead, an RO will be able to hire employees through the services of a personnel seconding company in China.
Just as WFOEs and JVs can hire local employees, it can also hire foreigners in China to work in the country.
However, this would require the satisfaction of a series of complicated procedures and processes for the foreigner to be permitted to work in China. First and foremost, when recruiting foreigners, the qualified businesses entities must comply with the following relevant laws, rules, and regulations:
- Employment Contract Law of China
- Labor Law of China
- 2013 Administration of the Entry and Exit of Foreigners in China
- 1996 Administration Rules of Employment of Foreigners in China
- State Administration of Foreign Experts Affairs of China (SAFEA)
Not only are the rules and statutes numerous, they are also quite formidable and complex to implement.
It is close to impossible to immediately comply with these regulations without the assistance of a legal professional. However, the easiest and cost-effective route to take is via a PEO.
What is a PEO?
PEO stands for Professional Employment Organization. A PEO is a company that manages human resource (HR) outsourcing and other administrative tasks for client companies.
It serves as a co-employer of the client, which are typically small and medium-sized organizations. It is focused solely on the HR and administrative needs of the business, thereby making the latter more productive.
A PEO in China can do all the mentioned tasks for a client company and stand as the employer of record of the employees.
As an employer of record, the Global PEO is legally liable for the employees it employs in a particular country. Instead of launching a subsidiary or an umbrella company overseas, a foreign organization’s life will be greatly simplified by acquiring the services of a Global PEO to act as the employer of record. Figure 1 shows the services normally offered by a PEO.
A Global PEO can help a company with all the HR tasks it needs including the hiring of foreigners in China. It makes possible the quick, less costly and efficient manner of operating a business in China.
When all these HR and administrative tasks are outsourced to an effective and expert entity as a Global PEO, the client company will have the time to concentrate on the more important goals of the business.
To be able to appreciate what a PEO can do for a company in China, it is best to first learn all the complex processes and complications related to the hiring of foreigners in the country.
The following is a comprehensive guide on how to hire a foreigner in China.
Categories for Foreign Employees in China
When recruiting foreigners to work in companies in China, the suitable candidates fall under three categories, as follows:
- Foreigners who gained work experience in China and are living in China;
- Foreigners who gained work experience in China but have left China; and,
- Foreign candidates who have international work experience but without work experience in China.
Foreigners who gained work experience in China and are living in the country are typically the most suitable option for a company. Various advantages come with such an arrangement, including easier visa processing, cost-effectiveness in terms of relocation, and the foreign candidate need not adapt to the Chinese culture and environment.
Foreigners who gained work experience in China but have left the country is more difficult to hire given that the interview process involved is longer and the relocation cost for the right candidate has to be shouldered by the company. Moreover, it can prove challenging for the candidates to convince their families to relocate with them to China. Before proceeding with the recruitment of a foreign candidate living outside China, therefore, it is vital for the company to first ensure that no issues with the relocation of the candidate’s family will arise.
Foreign candidates who have international work experience but without work experience in China will also be confronted with the same challenges as the second category, plus the issue of adapting to a new country and its culture.
It is the company in China which can best determine what category of employee will be suitable, depending on their expectations from the foreign candidate.
Various advantages come with hiring a foreign employee. Included in these benefits are diversity, culture exchange, increased worldwide connections, education, different management style, and most importantly, special expertise and skills which is not available in China.
Moreover, a foreigner employee in China can serve as a brand ambassador, who can talk about the company and its products/services in a positive light. Foreign employees can also help companies in expending overseas.
Challenges Confronting Foreign Employees in China
Foreigners who will enter China for the first time to work full-time will face various challenges, including the following:
- Language Barrier – depending on the location of work, the industry and the department, the foreign employee will face issues relating to language barrier;
- Culture Clash – Chinese culture is deeply imbedded in its traditions and beliefs. It is therefore necessary for foreign employees to be able to learn and adapt to them in a humble manner to avoid conflicts and miscommunications; and,
- How the Chinese do Business – The Chinese differ from other nationalities in doing business and therefore does not follow international standards. It is important for foreign employees therefore to adapt to the Chinese style to be able to successfully immerse into the business culture. For instance, to many Chinese, a “yes” or “no” cannot be taken at face value. Instead, to them, it means “I want to negotiate.”
Prospective foreign employees may find job opportunities, just as other local Chinese candidates among sources as professional recruitment agencies, internet offerings, job boards, career events or job fairs, and personal networks.
China Employment Taxation System
Prospective employers in China often face challenges by understanding the tax regulations in place. We can assist you with tax consulting services so that you understand how much of your foreign employees’ income is subject to individual income tax. The basic rules depend on the amount of time the worker has resided in China, subject to the following guidelines:
- Residence of less than 90 days in a tax year – Foreign employees who have worked in China for fewer than 90 continuous or cumulative days are only taxed on the income they earn from Chine companies while working in China.
- Residence of less than one year – Workers who have worked less than one year but more than 90 days are subject to individual income tax for all income they have earned while in China, including from domestic and foreign companies. Overseas earnings are exempt.
- Residence of one to five years – Workers who have worked in China for more than one year but less than six years must pay individual income tax on their income earned in China.
- Residence of six years or more – All earned income of a foreign worker who has resided in China for six years or more is subject to individual income tax, whether they received the income from overseas work, a domestic employer or a Chinese employer.
Salary Package for Foreign Employees
The salary package of a foreign employee in China for mid-management to executive level roles normally include: base salary, bonus (fixed and/or variable), social insurance, additional international insurance (for the whole family in China), housing allowances (rent), school expenses for kids in China, round trip home flights (once or twice a year), business expenses, car/transport allowances, relocation (if the candidate is based out of China), and in some companies, stock options.
The salary package between a foreign employee and a local Chinese candidate differ, particularly when it comes to the former’s social charges, international school expenses for their children, international insurance, housing allowances (rent), and round trip home flights. The company also takes care of the visa processing and all related expenses for foreigners.
It should also be noted that regulations involving foreign employment in China are process-intensive, including the drafting of employment contracts. The employment contract with a foreigner is quite a challenge. It should be drafted professionally, complying will all the relevant and stringent labor laws. These laws allow for numerous legal pitfalls and vary considerably from the laws applied to domestic employees.
Expat compensation packages with the parent company outside China will almost never be deemed a compliant employment contract for China’s labor law purposes. However, foreign employees in China are generally entitled to the same benefits and protection as Chinese employees, including vacation and rest time, and overtime pay.
Fundamental Eligibility Requirements
For a foreigner to be eligible to legally work in a company in China, the following basic requirements must first be met by the prospective candidate as provided under Article 7(1)-(5) of the 1996 Administration Rules of Employment of Foreigners in China:
- 18 years of age or older and in good health;
- with professional skills and job experience required for the work of intended employment;
- with no criminal record;
- has a clearly-defined employer; and,
- has a valid passport or other international travel documents in lieu of the passport.
These formalities will not be enforced in cases where the foreigner will work at such entities as international organizations, consulates, embassies or the United Nations. Otherwise, the foreigner will have to go through various levels of state bureaucracy in China and submit a huge amount of documentary requirements.
5 Steps Procedure for Hiring Foreigners in China Before the 2017 Reform
The system for hiring foreigners in China is indeed quite complex and comprehensive, particularly when it comes to visa requirements and employment permits.
What makes everything more complicated and more difficult to achieve is the fact that the procedures and policies undergo changes continuously. Modifications are made multiple times annually. In 2017, more reform programs have been enforced.
Prior to these 2017 reforms, the system for acquiring employment permits for the hiring of foreigners in China is handled by the Ministry of Labor, later named Ministry of Human Resources and Social Security of the Government of the People’s Republic of China (HRSS), and their local bureaus.
- a foreign employment permit must be applied for by the prospective employer to render the latter eligible to employ foreigners;
- once the employer’s permit is obtained, a copy should be provided to the candidate foreigner including a letter of visa eligibility notification;
- The foreigner must apply for a work visa before a Chinese consulate;
- Upon the entry of the foreigner in China with the appropriate visa, his employer must apply for a work permit on his behalf; and,
- With the work visa and work permit on hand, the foreigner must apply for a residence permit before the Bureau of Public Security, China’s police department.
While the five steps seem simple and clear enough, the tasks involved to achieve the steps are quite comprehensive.
Firstly, the position that the foreigner is being considered for must be of a special need, ie a local labor cannot satisfy it.
Before the employer can conduct the first step in the five-step procedure, the foreigner should first apply before the concerned trade authority and submit the following:
- Filled out Application Form for the Employment for Foreigners;
- Health certificate;
- Letter of intention of employment;
- A report containing the reason for employment; and,
- Any other documents as may be required by the authorized body or the law.
Upon completion of this procedure and the examination and approval of the trade authority, the entire process must be repeated, this time by the employer and before the Labor Administration in the location where the foreigner is expected to work.
Upon approval, the documents will go to the Certificate Office, where the comments made by the Labor Administration and the trade authorities will be evaluated. If approved, the Certificate Office will issue the Employment License.
If the involved employers are foreign-funded, which are already allowed to hire foreigners at the onset, or if there are no trade authorities in the area, the employer can directly submit the foregoing applications and paperwork before the Labor Administration.
Once the foreigner entered China, he has 15 days from entry to go to the Certificate Office along with his employer to apply for an employment/work permit.
To do so, the following steps must be accomplished:
- Submission of a filled-up Foreigner Employment Registration Form; along with,
- the Employment License;
- an employment contract with a maximum of five years employment duration; and,
- the passport of the foreigner.
Once the Employment/Work Permit is issued, the foreigner is authorized to work for the employer but only within the location specified in the permit. This Work Permit also allows the foreigner to commence an application for a Resident Permit.
A yearly inspection of the foreign employee’s Work Permit will be conducted according to a deadline set by the authorized body. Should this deadline expire without the appropriate inspection carried out, the Work permit will instantly be revoked and the foreign employee may no longer work in China.
Moreover, in cases where the foreigner violates any Chinese law that results to the revocation of his residence permit, or if the employment contract has been terminated, then his Work Permit will also be immediately revoked.
Local Employee vs. Foreign Employee
A legally employed foreigner in China possesses the same rights and privileges as a Chinese employee (born in China). This includes the following:
- receipt of at least the required minimum wage;
- hygienic working standards;
- legal work hours;
- vacation and rest benefits; and,
- other privileges provided by the law like, for instance, maternity and marriage leave.
However, unlike their Chinese counterparts, a foreign employee is not permitted to find work anywhere in China.
He is only allowed to work in the area provided in his permit, the same as that of his employer. A change in location of his job will result in the revocation of his Work Permit. Should the need to work in another area arises, the foreigner and his employer will need to go through the same process previously carried out.
Three Significant Changes in 2017
Drastic changes relating to the hiring of foreigners in China occurred on 1 April 2017. Of these changes, three noteworthy reforms were imposed, as follows:
- The authorized body in-charge of the recruitment of foreigners, including the provision of permits and the approval thereof, are transferred from the Labor Administration and its bureaus to the SAFEA and its branches countrywide;
- A nationwide unification of the work permit system now referred to as the Permit System of Foreigners working in China, which used to be two administrative procedures involving the application and approval of the Foreign Expert Certificates and Foreign Working Permits. The former involves foreign experts with R visas while the latter relates to ordinary foreigners with Z visas; and,
- The implementation of the foreign employees’ administration method into a categorization system, where the foreigner’s status is classified under three categories, ie Classes A, B, and C. Each class is administered separately, with its own standards, rules and procedures.
The New Unified Work Permit System
This reform program was implemented all over China effective 1 April 2017. This novel system utilizes a three-tier, point-based system of classification in assessing the qualifications of the foreign candidate who apply for a working VISA in China.
The procedure allows for better transparency in the evaluation of applications, less paperwork is required, and the period of processing is shorter.
However, while this new unified system aims to make the entire process of hiring foreigners clearer, simpler, and less time-consuming, the application system remains complex.
Prior to the 2017 reform, two government bodies are in-charge of the foreigner work visa application process, ie the HRSS and SAFEA. The former administers and issues to applicants of Z visas, the Alien Employment Permit, and the Employment License, while the latter issues to applicants of R visas the Foreign Expert Certificate and Foreign License Expert.
With the 2017 unified system, only SAFEA is authorized to process foreigner work visa applications for both Z and R visa applicants.
Furthermore, a single Notification Letter of Foreigner’s Work Permit replaces both the Foreign Expert License and Employment License, while the Foreigner’s Work Permit ID card replaces both the Foreign Expert Certificate and the Alien Employment Permit.
This unified ID card will be assigned a number that will be maintained and will not be changed despite a change in employer or renewal of the permit. This is a unique number that will be used by the same foreigner for life.
Three Classes of Foreign Employees in China
Another profound change in the system for the foreigner’s application of work permit is the introduction of three categories under which the applicant will be classified. The reason for doing this is three-fold:
- to encourage high-end talents;
- to control foreign employees with ordinary quality; and,
- to limit foreign employees with low quality.
The three categories are as follows:
- Class A – Elite Foreign Talents
- Class B – Foreign Professional Talents
- Class C – Miscellaneous Foreigners
To classify the foreigners, the New Work Permit System employs two methods, ie the “standard conformity method” and the “integral method.”
In utilizing these methods for classification, it is apparent that China wanted to impose “quantitative restrictions” on the foreigners working in the country. It does not place a limit on the Class A applicants, it limits Class B applicants depending on the demand of the market, and it places strict control on the Class C applicants.
In classifying foreign applicants under the “standard conformity method,” conditions for each Class are set forth based on local labor employment protection and personnel structure optimization. On the other hand, classification using the “integral method” employs the calculation of the applicant’s personal comprehensive quality score.
Classification of Foreign Applicant – Standard Conformity Method
Under the “standard conformity method,” a foreigner applicant is deemed to belong in Class A if he meets any of the conditions provided below:
- Recipient of recognized international rewards;
- Selected by China’s talent import plan;
- Will take a China-encouraged scarce job;
- Selected under the Youth-Talent project; or,
- Shown entrepreneurial and innovative talents.
Class A foreigners are those previously referred to as “foreign experts” prior to the 2017 reform. These include members of state engineering or science academies, Nobel Prize recipients, investors in China, Fortune 500 senior managers, and post-doctoral degree holders. They should be aged 40 or below.
These foreigners are able to get work visas and permits easier than those belonging in the other classes.
Foreigners will be classified under Class B if they meet any of the following conditions
- Holder of a Bachelor’s degree or higher has no less than two full years of work experience, and meets the work criteria;
- Holder of a Master’s degree taken from any Mainland China university;
- Holder of a Master’s degree taken from any of the top 100 universities worldwide as ranked by the Shanghai Jiao Tong University; or,
- For foreigner applicant who will take an English teaching position, holder of a Bachelor’s degree or higher has no less than two full years of teaching experience, the language to be instructed is the applicant’s native language.
The Class B foreign applicants are those referred to as “non-expert level foreign employees” prior to the 2017 reform. These are foreigners who receive salaries which are no less than 4x the domestic average social wage standards the year before.
Finally, those applying as foreigner employees in China will be classified under Class C if they meet the following conditions:
- Those who will work in China or with an internship under a government agreement;
- Domestic helpers that will be hired by Class A individuals; or,
- Those who enter China for seasonal employment.
The Class C or Miscellaneous Foreigners are those who are typically in China to work temporarily for no more than 90 days. They also include foreign students, interns, and graduates.
Classification of Foreign Applicant – Integral Method
Another way the Chinese government classifies foreign job applicants is with the use of the “integral method.”
This is a point-based three-tier classification system. Under this, each category has a corresponding number of points, ie above 85 points for Class A, 60 to 85 points for Class B, and less than 60 points for Class C.
Figure 2 illustrates this classification.
SAFEA is in-charge of assigning the appropriate scores for each foreign candidate based on ten factors, including the age, education, work experience, level of salary, Chinese language proficiency, the location of work, and the amount of time foreigner has been working in China, etc. Figure 3 provides the mentioned Work Permit Point Scoring System table.
Source : SkyExecutive
Given the foregoing definitions and descriptions for each Class, it is clear that the typical expatriates that JVs and WFOEs in China seek to employ will be classified under Class B.
Given the usual credentials and the normal salaries offered to foreign employees, they will likely meet the standards set by the Chinese government, ie level of education, required salary level, and work experience.
Current Application Process before the SAFEA
The five fundamental steps for hiring a foreigner in China still applies but with some modifications after the 1 April 2017 reform. Today, the employer may apply before the SAFEA either online through its website, or personally through its branches.
For the electronic application process, the following steps must be followed:
- The foreign candidate and the employer must both file electronically the application to work in China through the website of SAFEA;
- A preliminary review of the submitted documents online will be made by SAFEA;
- If satisfied with the preliminary review, SAFEA will require the hard copy of the documents submitted online from the applicants to be able to conduct a confirmation review. If not satisfied, SAFEA will no longer notify the applicants;
- Once the confirmation review is done and SAFEA is satisfied, the applicant’s data will be forwarded to the police department, ie the Bureau of Public Security. Information about the applicants of R or Z visas will be forwarded to the local labor bureaus;
- The applicant must then apply online for a work permit, with the hard copies of the documents submitted to the office of SAFEA;
- Upon review and satisfaction of the respective authorized government bodies, the work permit will be approved and the applicant notified, who should visit the SAFEA office to get the Work Permit Certificate; and,
- Finally, the applicant may get the residence permit from the police department after showing the work permit.
This process alone is proven complicated despite the actions of the government to make the hiring of foreigners in China simpler.
Challenges of the Procedure for Hiring Foreigners in China
Ideally, this application process must be accomplished in one to two months. However, this barely scratches the surface and is only the start of more complicated procedures relating to the hiring of a foreigner.
For instance, the employment contract with a foreigner is quite a challenge. It should be drafted professionally, complying will all the relevant and stringent labor laws. These laws allow for numerous legal pitfalls and vary considerably from the laws applied to domestic employees.
Besides the foregoing considerations, conditions, complications, and requirements that come with hiring a foreigner in China, there are many other legal and important matters to consider. These include the following:
- compliance with the applicable handbooks for foreign employees;
- overtime pay regulations;
- annual and sick leave rules;
- employment termination for foreigners;
- social security management;
- taxation rules;
- severance packages;
- other similar disciplines.
Given the complexities of the procedures, processes, and laws relating to the hiring of a foreigner in China, it is necessary to acquire the services of a professional to ensure compliance, mitigate risks, reduce liabilities, and avoid legal problems.
This is where the role of New Horizons Global Partners can be of great value.
What Attracts Foreigners to Work in China – Selling Points
There are many reasons why foreigners are attracted to work in China despite the challenges that confront them. These include the following:
- The foremost reason is the international experience and opportunity they will gain by working outside their respective countries, particularly for those foreigners not residing in China;
- More attractive expat packages. The salary packages offered to foreign employees in China are typically better than what they can get in their home country, thus making it a good motivational point in convincing foreign professionals to move to China;
- Better or newer job scope than the foreign employee’s current position. Foreign candidates are usually attracted to jobs that provide them with new or better challenges, where they can develop new skills, meet new people, explore new market, gain new opportunities for self-development, etc.;
- Career development;
- Interesting industry/market, especially with China’s “booming industry” that offers new technologies in sectors such as Fintech, IT, biotech, medical device, etc.; and,
- Opportunity to develop professionally and personally, particularly in companies in China that provide good professional training.
The company’s geographical location is also a very important consideration if the foreigner employee that the company in China wants to hire already lives in the country. It could prove difficult to convince foreign residents of China to be assigned in rural or remote locations if they are from comfortable tier 1 cities in China.
On the other hand, it is easier to recruit foreigners living outside China as they are normally excited about gaining an international experience and acquiring an expat package. The location of the company in China will not be their main concern.
Partner with the Reputable and Experienced Global PEO
New Horizons Global Partners (NHGlobalPartners) offers a solution to all the mentioned hurdles when hiring a foreigner in China.
NHGlobalPartners is a Global Professional Employment Organization (Global PEO) with a strong presence in China, Germany, France, and Italy. It can offer HR services, recruitment management and other administrative services any company in China may require. Allow us to help you with all of your HR and administrative needs and we guarantee a customized and personalized solution.