When doing business in China, foreign companies have long been working with local distributors to manage their business operations. In case the foreign company needs to employ staff in China directly (e.g. brand ambassadors, marketing, quality control), the distributor is most likely the first stop to go.
The following article discusses the 3 main reasons why it can be the perfect fit for foreign companies in China to select a Professional Employer Organization (PEO) over their local distributors to employ staff onsite.
Only a PEO (company with HR license) is able to offer an employment agreement on behalf of a foreign company. Therefore, the employee is directly signing his/her labor contract with his home organization, creating a direct link between the foreign company and the China-based employee.
In addition, a foreign company is showing professionalism by collaborating with a top PEO making it easier to enroll the best talents.
A direct employment relationship will help the employee to develop the feeling of belonging to his international organization, instead of being an external contractor under employment agreement with a business partner (distributor company) of the foreign company. This will ensure long-term commitment for work through actual seniority with the foreign company.
Distributors are not committed to supporting their employees to the maximum extent, and especially even less for employees that do not directly work for them.
The reason for this can be found that HR tasks in China are considered time-consuming and require high administrative attention (complicated rules + many changes in the tax and HR system, authorized deduction for tax optimization). Hence, creating a high turnover in most of companies’ HR department and reducing the willingness of standard HR employees to anticipate upcoming issues as well as offer alternatives in order to support other employees.
In addition, standard companies do not invest a lot of in their HR employees in China, selecting mostly above average candidates to take care of the job.
When working with a PEO, the core target is to increase the productivity of the employees, by providing reactivity and risk anticipation to any personal issue such as:
- Visa application;
- Social insurances matters;
- Housing fund request;
- Payroll management;
- Payslip preparation;
- Ongoing HR support to individual application with certified employer letters (for bank loan requests, mortgage, business visa application and family visa application, etc.).
In conclusion, PEO companies select the best HR and legal advisors due to competition between PEO companies (who has the higher standard of services) hence easing the mind of the employee.
When engaging Chinese representatives through a PEO, the employee has no direct contact with a partner company, therefore reducing the risk of dependence or having to show gratefulness to the distributor.
In case of conflict between the foreign company and the China representative, the actual employer remains the distributor. Therefore, the contract termination will be negotiated directly between the employee and the distributor. In case the distributor (Chinese company) is on the side of the China representative (Chinese employee), which happens naturally by working on-site for some years together (friendship), then the termination negotiation is going to be more difficult and cost are likely to be much higher.
Additionally, the local distributor does not have any edge over the foreign company (you own me something because I helped you), and no information about how much the foreign company can pay its local employee, the job description, the commission/bonus they pay, etc. (budget insights).
Lastly, the foreign company does not have any liability in case they are looking to change distributor one day, or work with several distributors instead. Keep in mind that that China is a large country, with many provinces, and competition between distributors is benefiting the actual commitment to results.
To conclude, working with a PEO rather than a distributor to employ staff in China implies working with an HR specialist company. Therefore, administrative tasks such as employment contracts, payroll and possible terminations are outsourced to a licensed company.
In addition, in case of discrepancies between the foreign company and the distributor itself, the employment relationship between the China employee is most likely likely to suffer. Hence the quality of work as well as the representation of the foreign company in China.