Hiring Employees in China: What US Employers Need to Know
Charlette has over 10 years of experience in accounting and finance and 2 years of partnering with HR leaders on freelance projects. She uses this extensive experience to answer your questions about payroll.
This article is part of a larger series on Hiring.
China has a fast-growing economy and hundreds of millions of highly skilled workers, which can help your organization grow at a fraction of the cost you’d pay your domestic workers. This makes it appealing for US employers needing to hire employees; the issue is that it’s illegal for foreign employers to hire in China. To comply with local laws, you’ll need to go through an employer of record or local Chinese staffing agency.
We often recommend US companies start their international hiring efforts by hiring independent contractors, because it’s usually cheaper and less time-consuming. However, in China, this is also illegal—only local entities can hire Chinese contractors, and for small businesses, that’s usually more trouble than it’s worth. The workaround others follow is to hire a freelancer in China (without creating an independent contractor agreement) using freelance websites, like Upwork.
If you’re still interested in hiring an employee or freelancer (which is a legal gray area), we’ll cover some things you need to consider and provide more detail on legality.
A Chinese local staffing unit is any company that’s licensed to hire in China. This could be an employer of record (EOR), international PEO (which you’ll find is essentially the same as an EOR), etc. Typically, most don’t recruit (although you can find some that do) but will take over once you’ve selected your new candidates (onboarding, compliance, payroll, etc.). They do usually provide compliance support, regardless of which part of the process you’re in.
As a US employer, you have a duty to ensure the Chinese company you’re working with is licensed because, if they’re not, both the Chinese company and your business can face stiff fines and potential bars to doing business in China in the future. Consider Papaya Global if you need a licensed company that can serve as your EOR in China.
Once again, we don’t recommend hiring in China if you have a small business. Freelancer platforms like Upwork are really the only truly legal ways of hiring a freelancer in China at this point. And because the Chinese government is so strict on international working arrangements, the legality of this could change at any time. We recommend hiring in the Philippines or India if you have any flexibility; they’re much easier to work with, and although fewer people live there, they’re just as skilled in IT and other areas as workers in China.
Factors to Consider When Hiring From China
The biggest reason US small businesses hire Chinese workers is the reduced overhead. Some major cities in China rival major US cities in cost of living but, overall, China’s cost of living is about 60% less. While you may save money by paying a lower salary, there is a downside to hiring an international employee in China, as we’ve already discussed—government regulations.
Workers in China do a variety of jobs in many industries, just like in the US. However, some jobs are more typical in China than others. To make sure your job aligns with the most frequent skills found in China, here are some of the most common jobs held by Chinese workers:
- Customer service and support
- Call center representative
- Web development
- Various positions in IT
The overwhelming majority of people in China work either in the service sector or manufacturing. However, China has been pushing computer science and related fields in schools, which has seen an increase in workforce. Many US companies are tapping into this growing sector in China to add to their domestic employees.
US companies with clients around the world can also use Chinese customer support and call center representatives. If your business has this need, you can get people who can work business hours to support your Chinese clients and speak the same language.
Chinese and US cultures are quite different. The official language of China is Mandarin, and while there are nearly 300 languages spoken in China, most residents are at least conversational in Mandarin. Be aware that only about 1% of the Chinese population speaks fluent English, so you may need to hire a translator to help manage any employees you hire.
Punctuality is crucial for businesses to succeed, and Chinese culture puts an emphasis on timeliness. However, major Chinese cities are notorious for their terrible traffic, so someone may unintentionally be late occasionally. Just like in the US, it’s good to have some leniency, but absolutely address it if employee tardiness becomes a problem.
In many professional settings in the US, workers eat lunch at their desks or take short breaks to eat. In China, however, lunch breaks are well-observed and often go as long as two hours. It’s also common for a short nap to occur after a worker takes lunch.
Finally, honor and respect are the bedrock of Chinese culture. Every worker will always attempt to do their best work, which respects your business, their community, and individual honor. Chinese employees will dress professionally, rarely raise their voice, and always be in control of their emotions at work.
Even though China spans five geographic time zones, it adheres to a single time zone so that all of China is on the same time. Called Beijing Time, it’s eight hours ahead of Greenwich Mean Time (GMT) and 12 hours ahead of US Eastern Time.
This extreme time difference can make it difficult to collaborate with your Chinese staff, so you may need to shift hours. Your US-based employees may have to work earlier some days, while your Chinese team may have to work later. Some companies require Chinese workers to work US hours all the time. While that means they’re working overnight, it can benefit your company by having every employee on the same schedule.
You have options for the type of worker you hire: full time, part time, seasonal, or temporary. You can also hire Chinese workers as independent contractors but, as covered earlier, only if the contractor agreement is with a company that’s licensed to hire contract work in China. If you’re able to pull this off, you can avoid setting up a legal entity and reduce your overhead, but you’ll have less control over the work done and will face stiff fines and penalties for misclassification if the worker should really be an employee.
Like the US, China has regulations around misclassifying independent contractors. If any of the following occurs, your independent contractor may be considered a de facto employee under Chinese law:
- You pay the worker a set salary
- You provide benefits
- You require the worker to work certain hours and control their daily tasks
- The worker is supporting an essential function of your business
The fines and penalties your company may be subjected to if you’re deemed to have misclassified a Chinese worker include:
- Paying double salary for up to one year in the past
- Entering into an employment contract with the worker that is retroactive up to one year
While there are strict guidelines around independent contractors, many Chinese workers are used to working on an independent contractor basis. Just keep in mind that red flags may go off since the company that’s actually contracting with the Chinese worker is not actually having work done. If caught, you could be sanctioned as well for your participation, as China would see it as all parties attempting to avoid taxation.
Writing the Job Description & Determining Salary and Benefits
Job descriptions need to be clear and include the skills and prerequisites necessary to perform the job well—even on freelance websites. Whether you’re hiring an employee, you need to make clear the expectations you have for the person doing the job. Note that the average annual salary in China is just under $15,000.
Ensure Payroll & Employment Law Compliance
There is no requirement of how frequently you make payments, but most Chinese workers are used to being paid at least monthly. If you’re partnering with a freelancer, make sure you have a completed IRS Form W-8BEN-E from them to verify you’re paying them correctly; otherwise, there aren’t any other rules you’ll need to adhere to. Freelancers are ultimately responsible for ensuring they’re complying with Chinese law, paying taxes, etc.
Chinese labor law sets the workday at eight hours and the workweek at no more than 44 hours. Most workplaces operate 8 a.m. to 6 p.m., allowing for a full workday and a two-hour lunch. There are, however, some special laws you need to know:
- Minimum Wage: There is no national minimum wage. Instead, provinces, municipalities, and local governments may set their own minimum wage. Rural areas usually have lower minimum wages and the cities have higher. Beijing, for example, has the highest minimum wage, at $25 yuan per hour, or $3.94 per hour.
- Overtime: Employees receive 1.5 times their base pay for any hours worked over eight in one day.
- 13th Month Pay: While not required, it is expected that companies give an annual bonus to their employees in China. Bonuses receive preferential tax treatment in China, which can lessen the burden on employees, allowing them to take more money home.
- Social Insurance: These are mandatory deductions from an employee’s paycheck. The rates vary depending on where your employees live. Here are the most recent rates for Beijing:
Benefit | Employee Share | Employer Share |
|---|---|---|
Pension | 8% | 19% |
Medical Insurance | 2% | 10% |
Maternity Insurance | 0% | 0.8% |
Workplace Insurance | 0% | 0.2%–1.9% |
Public Housing Fund | 12% | 12% |
Unemployment Insurance | 0.2% | 0.8% |
- Paid Time Off (PTO): Any employee working for at least one year with a company is entitled to receive PTO, based on years of service:
- One to 10 years of service: five days
- 10–20 years of services: 10 days
- 20+ years of service: 15 days
- Sick Leave: There is no requirement to provide Chinese workers with sick leave, but many companies do to attract high-quality workers.
- Parental Leave: Both parents are entitled to take up to 10 days of parental leave each year until a child reaches the age of six, along with the following leave:
- Maternity: 98 days of 100% paid maternity leave
- Paternity: Seven days of 100% paid paternity leave
- Beijing and Shanghai: Mothers living in Beijing are given an additional 60 days of leave for a new birth paid at the higher rate of either the company’s average monthly salary or the mother’s wage the month of delivery. In Beijing only, if agreed by both employer and mother, the additional 60 days of maternity leave may be shared with the father.
- Holiday Leave: Chinese workers are entitled to seven paid holidays each year (confusingly, two of these holidays are actually three days long). If an employee works any of these holidays, they are to be paid three times their hourly rate:
- Lunar New Year (three days)
- National Day (three days)
- New Year’s Day
- Qingming Festival
- Labor Day
- Dragon Boat Festival
- Mid-Autumn Festival
Hiring international employees requires compliance with laws in two countries. That can be overwhelming for small businesses, and that’s why we recommend using a compliance partner like Papaya Global. Its services can help you pay your Chinese workers correctly and ensure compliance with both China and US laws.
Posting the Job Ad
Your job ad needs to be posted on job boards Chinese workers will see. Some of the most used job sites include:
Your job ad needs to clearly describe not only the role’s duties and responsibilities but also the work hours. Whether you decide to have your Chinese employees work their local hours or your hours, leave no ambiguity here and make it clear what you expect. This will help you narrow applicants down quickly, reducing the amount of time you need to spend reviewing resumes and interviewing candidates.
Reviewing Candidates & Conducting Interviews
You may receive applicants quickly. For lower-level jobs that don’t require as much skill, expect an influx of candidates in the first few days.
To help you screen applicants quickly and effectively, we recommend you make a must-haves list for the position. No candidate will match up perfectly, but the best ones should match with your handful of must-haves.
Conducting interviews with global workers will present some time zone challenges. But this is good practice for you to see how the individual candidates communicate given these obstacles, especially if you need them to work your hours.
Set up a video interview with the half dozen most qualified candidates. Doing a video interview instead of a voice call will ensure you can trust their internet connection. Be aware that China has an internet firewall that may not allow the applicant to access certain websites.
We also recommend having a list of structured interview questions for each applicant. As a result, you will be able to rate candidates based on their answers to the same questions, allowing you to narrow the candidates down to just one.
Note: If you’re working with a Chinese EOR, you can let your representative know who your chosen candidate is so that the EOR can then establish a relationship with that worker and place them with your business. Essentially, you can do the legwork to find the employee you want, and then partner with a Chinese EOR to lease the worker.
Checking References
After the interviews are complete and you have targeted the candidate you want to hire, ask for references. You want to make sure you speak with at least two supervisory references. This will give you a good idea of the candidate’s work ethic and the skills they possess. A supervisory reference will also help you understand what it’s like to manage this individual.
Checking references outside the US can be difficult. While we usually recommend all reference checks be completed over the phone, it might be too cumbersome to do so. Only if necessary, it would be acceptable to communicate with a reference via email. Ask them direct questions, as well as follow-up questions, to gauge whether the candidate is capable of doing the job.
Note: Freelancer websites, like Upwork, have a place where you can see reviews from a freelancer’s previous customers. This can serve as a reference check if there are enough to make you comfortable.
Making a Job Offer
Completing all of the above steps will lead you to a successful conclusion of your hiring process: making a job offer. We recommend connecting with the chosen candidate to discuss the offer and any remaining details. Once you’ve agreed on all the terms, present the candidate with a formal employment contract—a requirement in China—which includes:
- Salary and pay frequency
- Job title
- Start date
- Specific working hours
- Benefits
Also include the job description for the candidate to sign off on. This will allow you to hold the person accountable should they not meet your expectations. Give the candidate at least a week to review the proposed employment contract and return it to you.
Freelance websites will facilitate this for you (there won’t be benefits or specific working hours, but you’ll enter the necessary details, and they will be communicated to the worker.) EORs and international PEOs with recruiting services (many don’t offer this) may also handle this part for you. You’ll still need to specify the details, i.e., start date, salary, etc., but they will handle the documentation process.
Bottom Line
Employing someone in China or partnering with a global independent contractor will present international challenges, especially for small businesses. If you can, we recommend choosing other countries to recruit from. If you’re still set on hiring there, you can streamline the process considering the information we discussed above. Seek advice from an international employment lawyer to ensure your company remains compliant.
