When you wish to grow your company, you may hire globally to support your goals. Before you begin recruiting, you should consider the legal parameters for independent contractors in China to ensure compliance.
An independent contractor in China is a person who provides temporary services to a company or organization under the terms of a business or service contract. Therefore, an independent contractor is a self-employed person or entity hired as a non-employee to perform work for or provide services to a company.
Hiring independent contractors in China
Before you begin the hiring process, it’s crucial to understand the regulations surrounding independent contractors to keep your company compliant throughout the working relationship.
Employees vs. independent contractors
The law refers to the concept of an employment relationship to determine the worker classification that applies. Below are 3 non-exhaustive factors that constitute an employee-employer relationship:
- Both parties must be legally allowed to enter an employment relationship.
- The employer has rules and regulations the employee must abide by.
- The employee is subject to the direction, supervision, and control of the employer.
- The employee’s work is a part of the employer’s core business.
Local courts consider various other factors when determining whether an individual is an employee or independent contractors. While employees are covered by employment laws and regulations in China, independent contractors are not covered by such laws, but rather contract and commercial law.
Penalties for misclassification
Companies that misclassify employees as independent contractors are subject to penalities, including:
- Retroactive payment for wages and benefits for the misclassified employee
- Back-payment of taxes which should have been withheld for the misclassified employee
- Publishing of your company name and violation for public display
- Fines and sanctions
- Inspections by the Bureau of Labor (random or scheduled)
How to hire independent contractors in China
The contractor hiring process should involve 3 key steps.
1. Carefully conduct interviews.
During the contractor interview process, you should focus on skills and experience rather than character traits or an individual’s contributions to the company culture.
2. Create a service agreement.
While independent contractors are not provided benefits like paid leave or social security contributions, creating a contract for services will clarify the terms of the relationship. Your service contract should include:
- Payment method and schedule
- Description of the project and deadlines
- Applicable termination policies
3. Introduce necessities.
An important step in engaging the services of independent contractors is understanding how to work with them. Independent contractors should not receive the level of control or supervision that employees do. This worker type is generally free to perform the work according to their own schedule and methods.
Introduce your contractor to any team members they may interact with and clarify when you’ll meet to review the project progress and who they can turn to if questions arise.
How to pay independent contractors in China
You may choose to pay your contractor hourly or with a single fee once the designated project is complete. You may also offer a pre-payment arrangement or a partial deposit where you provide part of the fee at the beginning of the agreement and pay the rest when the project is done. Contractors are responsible for paying their own taxes.
Terminating independent contractors
A company can terminate an independent contractor with notice based on terms set in the contract for service or in the Contract Law of the People’s Republic of China. If a termination violates your contract or contract law, your contractor may claim compensation for damages.
Turn to G-P when hiring independent contractors in China.
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