By Globalization PartnersAugust 2016
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According to the International Monetary Fund, China is the world’s fastest-growing major economy with growth rates averaging 10% over the past 30 years. If your company is going global, you’ll undoubtedly be hiring in China at some point in the very near future. Just as the country is culturally different from the West, China’s hiring practices are also unique. Here is a summary of key tips to keep in mind when negotiating with Chinese colleagues.
Direct hiring of employees: In China, foreign companies are not allowed to hire employees directly. Agencies exist to act as intermediaries between foreign employers and the local labor market. One of these agencies is called the Foreign Enterprises Service Company Limited (“FESCO”). FESCO is only allowed to work with companies that have branch offices or WFOEs (subsidiaries) in China, and FESCO can’t hire on behalf of clients without establishing a company in China. Setting up a WFOE or branch in China typically takes 6-12 months and costs at least $50,000, as well as requiring significant capital investment. This is where Employer of Record services can really help. They have already established entities and can hire and onboard employees quickly.
Health Insurance and China’s Housing Fund: Health and pension insurance is provided through the national system, however, supplementary health insurance may be provided to the employee as an additional benefit. China’s housing fund can be compared to a 401(k) program in the US, but instead of helping to save for an employee’s retirement, it subsidizes employees’ real estate purchasing costs. Employers usually contribute between 7% and 13% of an employee’s annual salary; these numbers can vary according to which region/city one is hiring in.
Vacation: The amount of annual paid leave in China depends on the length of time an employee has worked so far:
- Employee has worked between one and ten years: s/he will get five days of paid annual leave
- Employee has worked between 10 and 20 years: s/he will get 10 days of paid annual leave
- Employee has worked more than 20 years: s/he will get 15 days of annual paid leave
Most foreign companies hiring mid-level to senior executives in China will provide two to four weeks of paid annual leave. If an employee does not use all of his/her vacation days and agrees to not carry them over into the next calendar year, the employee must be paid 200% of his or her average daily wage for all unused days—in addition to the regular salary.
Employee Contracts: It is a legal requirement to draft a strong employment contract in China, which spells out the terms of the employee’s compensation, benefits, and termination requirements. Although a 13th month or annual bonus is not required in China, it is the market norm. We recommend companies clearly state an employee’s monthly salary, how many months it will be paid, and the total annual salary, when issuing an offer letter, so as to avoid any misunderstandings later on.