Setting up an employer of record solution in China requires understanding the general operating principle. We explain in detail the important points that you need to know. Once implemented, this solution simplifies the daily lives of our customers and has many advantages. We also give the various situations in which our customers use it.
Employer Of Record
Principles and benefits using
Employer of Record (EOR) solution in China.
Employer of Record (EOR)
is a solution used by foreign companies that do not have their own legal structure in Mainland China and therefore cannot hire any employee. An Employer of Record (EOR)
manages HR, Legal, Compliance and Taxation responsibility of the employees on your behalf in a country where you don’t have your own legal entity. This solution is mainly used in these situations:
Prospecting or evaluating the potential of the Chinese market
Companies want to hire a Chinese or foreign employee (including V.I.E), in charge of sales or marketing for a period of 1 to 2 years. Then, depending on the results, the company decides whether to invest and create its own legal structure.
Technical Site monitoring
The company sends its engineers and technicians to supervise building sites. These technical experts work in China full time. In the past, it was common to send foreign personnel under the guise of business visas. Since the last quarter of 2018, in view of the reinforcement of the controls and the penalties incurred, the Chinese companies where these engineers and technicians worked with a business visa, expressed their decision to no longer accept such arrangements. Work permits are mandatory.
Company in the process of being created
In China, the creation of a company can takes between 4 and 6 months. The client uses “employer of record” on a temporary basis until its own company is operational.
The business model does not require its own legal structure
Depending on the type of business model specific to each client, it is not always necessary to create its own legal structure in China.
We have seen this with some of our clients who had started with employer of record service to assess the Chinese market and who in practice have chosen to stay in wage portage.
This is the case, for example, when the team in China has a commercial prospecting function and the final order is placed directly with the company in France or Europe. In the past, companies then used the “Representative Office” but this legal structure is less and less used, among other things because of its cost: with no ability to bill, the Representative Office cannot be taxed on any profits and is therefore taxed on these costs (office rental, employee salaries, travel costs, marketing costs, etc.),
Another example is the sourcing office. The employee(s) in charge of sourcing, purchasing and logistics do not need their own legal structure and have been using employer of record in China for several years as well.
Employer of Record (EOR) is advantageous:
- Employer of Record (EOR) simplifies business, remove complexity.
- The administrative burden this creates exceeds the capacity of your existing HR teams.
- When you do not have the legal expertise to identify the appropriate regulatory framework for China.
- Modest cost.
- Ease, flexibility: no creation of a legal structure, no limitation of the quota of foreign employees, no bookkeeping, nor administrative employees. This allows you to focus your energy on the core business: customer relations and the technical part.
- Comfort: our customers sign a minimum contract of 1 year, but more than half of our customers use our services for 4 years, some of them have been using our services for 80 months.
- We take care of all the filing and obtaining work permits, legal watch regarding changes in the law, payment of salaries (in China or outside China), payment of salary tax.
- Allows being perfectly in order from a legal point of view in China but also in the country of origin.
- We currently host around sixty employees, who work for around forty clients.
The principle of Employer of Record (EOR):
- Contract between 3 parties: the client company in Europe, the employee , one of our local companies in China (Shanghai, Beijing or another city depending on the employee’s workplace).
- We study each employee’s file before submitting the request.
- We identify the possible difficulties of a file.
- We take care of the work permit application and its follow-up.
- We sign a local employment contract with the employee to porter (his contract with his employer in Europe will be suspended while he is working in China, then will be reactivated when he will be assigned to another site outside China).
- Every month, we pay employees’ salaries to their account in China or to their account in their country of origin.
- We pay income tax every month in China, and we collect proof of taxes paid in China for each employee.
- We pay social security contributions every month when there are any. Currently (Q3 2022), there are no compulsory contributions in Shanghai for foreigners.