In general, business entities which are classified as “qualified” are legally allowed to hire employees in China. But it is another question whether that company is allowed to hire foreigners in China. I.e., Employees from outside of China. This is a complete guide for businesses in China to hire foreign employees.
Hiring in China
The most common forms of legal business vehicle in China for foreign companies are as follows:
Both the WFOE and the JV are automatically qualified to hire local employees, since both are considered to have “domestic” business status.
On the other hand, an RO is not qualified to recruit local 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, they 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:
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.
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.
Infographic shows the services normally offered by a PEO such as Horizons.
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 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:
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:
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:
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.
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:
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:
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:
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 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 (Z Visa).
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:
The three categories are as follows:
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:
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:
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:
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:
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:
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 Horizons 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 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
Horizons offers a solution to all the mentioned hurdles when hiring a foreigner in China.
NHGlobalPartners is a Global Professional Employment Organization (Global PEO) with offices in China, Germany, France, Italy and the United-States. 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.