Welcome back to our Entity Essentials series. As we navigate the intricacies of managing business entities in China, we’re tackling both the anticipated and the unexpected hurdles. In this blog, we delve into a policy with significant implications for foreign companies hiring across multiple cities in China.
This week, we focus on China’s Administrative Supervision Measures for Social Insurance Funds (Ministry of Human Resources and Social Security (MOHRSS) Order No.48). To keep things straightforward, we’ll refer to it as “China’s Bermuda Triangle of HR.” It’s a policy directive with significant implications for foreign companies intending to establish operations in more than one Chinese city.
The policy essentially mandates that entities and their employees operate from the same city. While this works for many, it poses challenges for those needing employees spread across China. Let’s delve deeper!
Understanding China’s Bermuda Triangle of HR
In March 2022, China unveiled its new employee management policy. This “Bermuda Triangle of HR” entwines an employee’s labour contract, social security payments, and individual income tax within a single city’s borders.
In essence, an employee’s work address, location of social security payments, and tax payments must all converge in the same city. For example, if an employee’s labour contract is registered in Shenzhen, their social security contributions and individual income tax should also be aligned with Shenzhen.
Here’s where it gets stormy: To fulfill these city-specific obligations, the entity employing them must be harbored in that same city.
Hiring Across Multiple Cities in China: The Big Dilemma
What should companies do when they’re hiring in several Chinese cities? Imagine you want to hire someone based in Shanghai, but your company is registered in Beijing. There are basically three options:
Option 1 – Establish a Regional Entity
You can set up a separate company entity in the employee’s city. At first glance, this might seem like an optimal solution, especially if you have a growing team in another city. Setting up an entity solidifies your presence and ensures full compliance.
However, if you have just one employee stationed there, this becomes a massive investment – both in terms of time and resources – for just a single person’s compliance. Moreover, for teams dispersed across China, this strategy can morph into a logistical and fiscal maze, requiring multiple entities in different locations.
Option 2 – Negotiate a Remote Contract
You could ask your Shanghai-based employee to sign a contract stating they work in Beijing, even though they don’t. This means their social security would also be based in Beijing. However, this is a move that many Chinese employees are uncomfortable with.
Many people are hesitant to change their social security base due to the Hukou system. This household registration ties benefits to a specific city or region. Moving social benefits from one city to another can impact various aspects of life, such as children’s schooling, medical services, and even property-buying abilities.
A remote-work contract could also be an option, but this entails similar problems.
Option 3 – Use an Employer of Record (EOR)
Sometimes, it’s wiser to charter a seasoned ship! An Employer of Record (EOR) is an organization that legally employs workers on behalf of another business, managing all administrative, payroll, HR, and tax matters, while the company steers the day-to-day activities of the employee.
Using an EOR means you won’t be burdened with the labyrinthine paperwork and compliance related to multi-city hiring in China. With them at the helm handling the administrative complexities, you can focus on charting your business’s course.
By partnering with an EOR, you can sidestep the intricate challenges of multi-city hiring in China and focus on your business’s core operations. For companies aiming to smoothly navigate this landscape, The China Desk by Kinyu is an optimal choice. We specialize in supply chain-focused EOR services, with expertise in regions including Guangzhou, Tianjin, and Ningbo.
Need A Compass?
Kinyu is here to help you set your course. As China and supply chain specialists, we ensure you don’t get lost in “China’s Bermuda Triangle of HR.” We specialize in helping companies seamlessly operate under this new framework. If you’re looking to hire talent on the ground in China, please book some time with one of our team members, or download a case study!
