Managing human resources is a thorny issue for some foreign-invested entities in China, particularly those who have demanding deadlines or are less familiar with the HR environment. Employee administrative procedures – which include areas such as management of recruitment, work permit applications, labor contracts, and payroll and tax declaration – can slow a project down or create operational risk.
Labor dispatch is an important option for foreign companies in China that require a low cost and flexible method to hire employees. Whether it is a company that needs to staff a short-term project within a demanding deadline, or one that needs to hire temporary workers to support its business during start-up, labor dispatch proves a top choice compared with other traditional recruitment methods.
A triangular form of employment
Unlike direct employment, labor dispatch has a triangular form of employment relations, in which a host company hires dispatch workers from a dispatch work agency. While dispatched workers work for and are supervised by the host company, they are in fact employed by the dispatch work agency.
The dispatch work agency is the de facto legal entity responsible for the administrative management of the employees. Since dispatch agencies have considerable experience and knowledge of hiring local workers, foreign entities often find that hiring through labor dispatch is flexible, efficient, and cost effective.
Managing temporary workers and headcount restrictions
It is common within seasonal industries and project-based work for host companies to hire temporary workers. Given that direct hiring methods are usually tailored for recruiting long-term employees, it is typically more efficient for managers in seasonal and project-based industries to hire through labor dispatch.
Further, many foreign subsidiaries have headcount requirements determined by the parent company’s employment budget. These requirements can prove difficult for host companies that need more workers to maintain daily operations.
Labor dispatch is a solution for a host company that needs to hire more laborers for temporary, auxiliary, or substitute positions in addition to any allocated headcount. Since paying dispatch workers is deemed as a service fee, rather than employment expenses, hiring through labor dispatch allows a host company to efficiently recruit more labor while in compliance with the headcount requirement.
Dispatch agencies help save operation costs for the host company. According to China’s newly enacted Labor Dispatch Law, employers should make social insurance payments to dispatched workers in the region where the actual work takes place. This triangular form of employment relations allows for a more convenient and efficient way of paying social insurance, saving the host company time and money.
High profile dispatch agencies have multiple operating branch offices in China, meaning these agencies hold multiple business licenses in different provinces. For example, Dezan Shira & Associates’ Shenzhen office has recently obtained a labor dispatch license, with its Beijing, Shanghai, and other branch offices expected to follow suit.
This article was first published February 2017.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.