Employing staff in representative offices | Doing Business with China

Since the beginning of China's opening up to the outside world, representative offices have been frequently used and are the easiest and most convenient tool to explore the local market. A registration certificate must be obtained in order legally to employ Chinese nationals and this requires a series of formalities to be completed, such as opening a bank account for foreign exchange, applying for direct telecommunication lines and securing a multiple entry visa for expatriate managers. The business activities of the representative offices may only be within the range of business networking, product introduction, marketing, technology exchange and consulting services. They are not permitted to engage in direct profit-making activities.

Technically, representative offices do not have independent legal person status and they are not supposed to employ staff as joint ventures or wholly owned operations can. According to the relevant laws and regulations governing the establishment and operation of foreign representative offices in China, they must take on staff through designated employment agencies that provide specialised services for foreign representative offices.

Employment service providers

In the early days of the opening up, when most foreign representative offices were concentrated in Beijing, the provision of Chinese nationals to work in foreign representative offices was monopolised by Beijing Foreign Enterprise Services Corporation (known as FESCO). Its services were designed to help foreign representative offices handle practical issues of human resource management such as identification of qualified local staff, welfare, pensions, residency and mobility. This monopoly ended when other government sponsored 'foreign services' companies were established to compete with FESCO.

At present there are over 70 authorized foreign services companies providing local staff to representative offices in 25 provinces and municipalities. The leading ones include:

FESCO;
China Star Corporation for International Economic and Technical Cooperation (China Star Corporation);
China International Intellectech Corporation (CIIC);
China International Enterprises Cooperation Co (CIECCO);
China International Talents Development Centre (CITDC).

The key functions of foreign employment service providers in China include, but are not limited to, the following:

Providing assistance to customers setting up representative offices in China. This service is normally fee-based and designed to facilitate the process of application;
Identifying and recommending local staff to foreign representative offices. This service is provided on the basis of different fee arrangements, which vary from place to place and from organization to organisation;
Manage as proxy labour relations of the staff assigned to foreign representative offices. Normally, foreign employment service companies maintain contractual relationships with foreign representative offices regarding staff deployment;
Providing welfare benefits to the deployed staff depending on the terms and conditions agreed between the service companies and foreign representative offices, although the latter can deal with welfare benefits on its own;
Managing personnel logistics such as the management of personal archives (a record file containing information about staff's education, career achievements, professional qualifications etc); transferring archives from previous employers ; residence permits when staff come from other parts of the country; passport applications; visa applications for foreign travel and subscriptions to social security where applicable ;
Organizing job fairs and arrange job advertisements for foreign representative offices and other foreign- related organisations;
Head-hunting senior management staff according to customer requirements;
Offering various other services related to expatriate staff, such as obtaining multi-entry visas, work permits and residence permits.

How to recruit?

Normal procedure requires a foreign representative office to enter into an employment service contract with a government authorized service agency. On the strength of this contract, the authorized employment service agency will recommend candidates to the representative office. The service agency will also sign contracts with candidates against its contract with the representative office.

Normally, staff will serve a probation period before official employment begins. According to the Labour Law of the People's Republic of China, the probation period should not exceed 15 days for a six month contract, 30 days for a six to twelve month contract and 60 days for a one to two year contract. The maximum probation period should not exceed six months.

Relevant laws and regulations provide that the minimum ratio of Chinese staff in foreign representative offices is 1:1, which means that if you have one expatriate staff member in the office, there must be at least one local member of staff. If the recommended candidates do not meet requirements, the representative offices may look for suitable staff on their own. They can even agree on the terms and conditions regarding salaries, compensation packages and other benefits with the candidates they find by themselves . However, these staff must register with an authorized employment service agency before their employment is legal.

Dismissal of staff

Normally, there are two reasons for staff to leave the representative office. One is voluntary resignation and the other dismissal for reasons such as misconduct . In either case, 30 days advance notice is required from both the staff and the representative office. As the relationship between the staff and the representative office is based on an employment service contract between the representative office and the service agency, the service agency must be duly notified of the resignation or dismissal. In the case of voluntary resignation , the representative office is free of compensation obligations; in the case of dismissal these will have to be recognized. Normally, a staff member who is dismissed after less than six months' service will not receive any compensation. For members of staff who have worked for more than six months, there are varying degrees of compensation ranging from one month's to six months' pay.

It is illegal to dismiss an employee who is pregnant, nursing or on maternity leave, or any staff receiving prescribed treatment for illness or injury . In cases of misconduct by the Chinese staff, the dismissal should be accompanied with sufficient evidence of violation of Chinese laws and regulations or corporate regulations (which should be made known to the service agency). No compensation is required if the misconduct is recognized by the service agency.