● Hiring Local Staff through China Representative Offices  Nov. 13 – Foreign companies that have established a representative office (RO) in China do not have the ability to hire local staff directly. Instead, Chinese staff must be seconded from an agency that will take the title of official employer.

The reason for restricting the right of an RO to employ staff is quite simple, it is not a capitalized legal entity in China. An employee must have the right to claim against their employer, and an RO will not be a suitable entity to claim against. By forcing ROs to employ staff through an agency (which is a capitalized legal entity in China), the interests of the employee are protected.

Labor Dispatching Agencies ROs in China must recruit their Chinese employees through labor dispatching contracts. A labor dispatching contract (secondment) describes the situation in which an agency dispatches an employer to work at another organization. In China, the market for labor dispatching services is a very large and lucrative one including many organizations using the name “FESCO,” which stands for Foreign Enterprise Service Company.

Many foreign investors assume that FESCO is a single organization, but in fact it is a generic term used by dozens of local HR companies around the country. There are often multiple competing “FESCO” organizations in each city; some subsidiaries or affiliates of companies in another part of the country, some partially state-owned, and some 100 percent privately-owned. Because of the widely-held misconception that FESCO is one company, the “brand” is a powerful marketing tool, and the term is often casually used to refer to companies providing similar services.

It is important that foreign investors realize that FESCO is not a single organization and that organizations using other names can also offer the same services. Also, many general managers operate under the misconception that their organization has no negotiating power with FESCOs, and simply accept the quoted price they provide without question.

 ●Foreigner Participation in China’s Social Insurance System

Nov. 12 – China’s Social Insurance Law provides that foreigners working in the country are required to participate in the national social insurance scheme. In September 2011, the MHRSS further promulgated the Interim Measures for Participation in the Social Insurance System by Foreigners Working within the Territory of China (Interim Measures), which became effective on October 15, 2011 and laid out the specifics of the requirement.

According to the Interim Measures, foreigners working in China should participate in the five insurances, i.e., pension, medical, work-related injury, unemployment and maternity insurance programs in accordance with the law, with the social insurance premiums contributed by both themselves and their employers. “Foreigners working in China” refer to individuals who:Do not have Chinese nationality;

Have obtained the Employment Permit for Foreigners, the Certificate of Foreign Experts, the Press Card for Foreign Resident Correspondents and other employment permits and residence permits for foreigners pursuant to the law;

Hold a Permanent Residence Permit for Foreigners; and are lawfully working within the territory of the People’s Republic of China.

Individuals from Taiwan, Macau and Hong Kong are included. Foreigners who are dispatched to work in branches or representative offices duly registered in mainland China after having entered into employment contracts with overseas employers are also required to participate in these insurance programs, with the social insurance premiums to be contributed by themselves and the domestic entities.

If the foreigner leaves China prior to reaching the prescribed statutory age for pension withdrawal, his/her social insurance personal account will be retained, and the contribution years will be calculated on a cumulative basis if he/she comes back to China to work again in the future. Alternatively, upon submitting a written application for terminating the social insurance relationship, the in-charge social insurance agency can make a lump-sum payment of the money deposited in the social insurance personal account to him/her.

Foreigners who reside outside China and receive monthly social insurance benefits should, on a yearly basis, submit to the in-charge social insurance agency a certification of existence issued by a Chinese embassy or consulate, or one that is notarized or certified by the relevant authority of his/her resident country and then certified by the relevant Chinese embassy or consulate. The balance remaining in the personal social insurance account of a deceased foreigner can be inherited pursuant to the law.

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