How can a foreign company "employ" someone in the PRC?
This will depend on the manner in which you structure your business in the PRC. More particularly, whether or not you have established a PRC entity (i.e. a PRC representative office or a PRC company).
What if I have a PRC representative office?
Representative offices are not allowed to employ PRC individuals directly. Instead they have to recruit PRC individuals using the artificial layer of a "labour agent". The most well known labour agents are FESCO and CIIC.
In such scenario the labour agent will be the formal employer and will second the PRC individuals to work in your business. The labour agent will typically seek to pass all of its obligations and potential liabilities as an employer of the PRC individuals (i.e. contractual and statutory obligations) on to you through a "labour service contract" and, unless you are a very large entity, you will have limited bargaining power to resist this arrangement (although it is always worth negotiating!).
How about if I have a wholly foreign owned enterprise (WFOE) or a joint venture company (JV)? Does this change the position?
If you have established a WFOE or JV in the PRC, then that PRC company can enter into labour contracts directly with PRC individuals. In these circumstances the WFOE or JV will be the employer and will be subject to all the employer's obligations under the PRC law.
It is not uncommon for some WFOEs and JVs to continue to use a labour agent to employ individuals for them. This tends to be the case where the WFOE or JV is able to exert bargaining power over the labour agent to require the labour agent to accept certain of the employer's obligations under the PRC law.
What if I don't have any PRC entity?
If you have not set up a PRC entity at all then you can engage a PRC individual in the PRC as an independent contactor. PRC law has not developed any specific regulations concerning the "independent contractor" concept. However, in practice, the relationship between the foreign company and the PRC independent contractor is likely to be treated as a civil relationship and PRC employment law should be irrelevant.
As an alternative, you may try to persuade a labour agent to employ the PRC individuals and second these PRC individuals to work for you in the PRC. Some labour agents are prepared to adopt this approach but they will typically require the foreign company to pay a special deposit or to make payment in advance. As this route enables the individuals to be treated as "employees" under the PRC law, this is the option generally preferred by the individuals.
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