- Government officials have been concerned by HR services companies offering social security payment services for employees with “no real labor relationship”
- Large-Scale HR outsourcing services providers like FESCO and CIIC will no longer be able to provide social security services in several major Chinese cities
- Questions remain about how this will affect large-scale HR outsourcing services providers in the future in other cities in China
What Services Do HR Service Institutions Currently Offer?
PEO (Professional Employer Organization) is a form of employment outsourcing where workers are employed by a third party at a client’s request. The third-party PEO services provider typically handles all aspects of the employee’s HR and compliance needs, including organizing social security contributions and allowing companies to operate in new markets without a local entity.
Currently, FESCO and CIIC represent two of the largest providers of these employment outsourcing services in China. However, as both companies are partially state-owned, the danger remains that they are highly subject to interference and changes from the central government.
Social security contributions are an essential part of the employer-employee relationship in China, summed up as the “5+1” system of the “5 social securities”, namely pension, medical, unemployment, maternity, and industrial injury insurances, plus a housing fund.
The law in China explicitly makes these payments mandatory for all workers. The complexity of the systems involved is a large part of why foreign companies in the past have chosen to use HR outsourcing services to save time and money.
These contributions are primarily applied at a provincial or local authority level. However, they are subject to central decisions, as with the current change.
What is Changing?
Beginning July 2020, the government is restricting the ability of state-owned or partially-state-owned large-scale HR service providers to manage outsourced employee social security contributions in two of China’s largest commercial cities, Beijing and Shenzhen. Similarly, employees in Hangzhou will be restricted in the type of contracts they can sign with these companies in the future.
These companies will have to instead further sub-contract outsourced employees to other companies or shift workers’ contracts to those of independent contractors, thus making them unable to properly receive essential social security services.
While there hasn’t been a public reason for the change, these restrictions prevent state-owned companies from acting as an employer without a “real labor relationship”. This could be seen as an attempt to ensure correct worker classification and close several loopholes that had previously risked employees being improperly managed.
How Could this Affect Your Overseas Employees in China?
While currently restricted to a few cities, it could be expected that these changes will spread to other cities across China, limiting how companies can interact with these large-scale providers in terms of employment outsourcing.
In general, this will cause many staff currently managed by these companies to find themselves in much less stable positions.
As it stands, this means these services can now only be offered by fully private companies like INS Global.
What Can INS Global Offer?
INS Global is an international PEO and global EOR (Employer of Record) HR outsourcing services provider based in Shanghai, China, offering quick and effective employment outsourcing for clients wishing to employ staff in China without a local presence.
We handle all of the typical compliance issues related to recruitment, onboarding, payroll, tax, and benefits management across China and 80+ countries worldwide. Our PEO solution allows you to hire and manage workers without going through the complex process of setting up a separate local entity, all for a single monthly fee.
Our INS Global expansion and mobility advisors use tech-based innovative solutions to ensure you and your employees are covered for every change to local labor regulations. Our expertise in the market comes from 15+ years of providing world-class services to over 600 clients across the globe.
Talk to one of our team today to learn more about our HR solutions and how you can expand quickly, effortlessly, and fearlessly.
