International companies are eager to hire their Chinese employees, and they constantly asking us to draft employment contracts between their company and their Chinese employee. However, such contracts violate Chinese law.
Under Chinese law, only Chinese entities are allowed to have employees based in China. In addition, China does not generally allow for the hiring of independent contractors. If a person (as opposed to a legitimate registered business entity) is going to be performing employment-like services for you in China, that person is your employee and that means you must comply with all Chinese laws that go along with an employment relationship. This means if you are an International company selling widgets you cannot hire someone in China as your employee to sell widgets for you. This means if you are a computer software company, you cannot hire someone in China to do your coding for you.
Some companies hire the Chinese "employee" directly and just wire that "employee" his or her paycheck every month. Years ago, this sort of arrangement was pretty common, but it is becoming far less so as word is spreading that the Chinese government and tax authorities are very much on to this scheme and are quashing it. The problem with this set-up is that your client's "employee" is at some point going to have to explain to the Chinese government why it is that he or she is monthly depositing foreign currency into their bank account and why they are not paying taxes on this.
Talent Spot has received a number of calls/emails from companies seeking our help in keeping their Chinese "employees" after they were told by their "employees" that the existing relationship must be discontinued.
Without spending a fortune and going through all the legal paper to set up a Chinese entity (WOFE, JV or Rep office), the only workaround is to have the proposed employee hired by a Chinese local company and then pay the "employee" through the Chinese company (plus an administrative fee).
