As per China’s Labor Laws, we can think of “employees” in a simple way. Employees are individuals who work for a company or an individual business in China, or they may have employment contracts with government agencies, institutions, or social organizations. So, whether someone is considered an employee depends on whether there is a work arrangement between them and the employer.
In China’s labor laws, there isn’t a specific category for “independent contractors.” However, according to civil laws, individuals can make special agreements with companies under certain conditions. The question of whether someone is an employee or an independent contractor often comes up when a company hires a person who isn’t retired and chooses to make a special agreement instead of a regular employment contract. This can sometimes lead to confusion between these two types of agreements.
What is an employee?
An employee is a person that a person or a company hires to do a job. An employee’s job usually involves less independence compared to a contractor’s role. They are part of the workforce and report to their manager. Their working hours are specified in their contract, but some employers offer flexibility. They follow their manager’s guidance.
Employees commit to working a specific number of hours or shifts, taking on the responsibilities their employer assigns. When they apply for a job, go through interviews, and agree on a job offer, employees share personal information, like their taxpayer ID and bank details for payment purposes.
When you hire someone as an employee, you need to follow government regulations. Here’s what employees are entitled to:
1. They get a written job contract in Chinese, often with an English translation.
2. There can be a trial period, which might last up to six months.
3. Typically, they work about 40 hours each week, in line with local laws.
4. They earn at least a minimum wage.
5. Employees enjoy benefits like medical insurance, retirement plans, and unemployment insurance. These are part of their social security contributions.
6. Money is set aside in the Housing Reserve Fund.
7. They have the right to take paid time off.
8. Public holidays are days off for employees.
9. If they leave the job, they might receive severance pay.
10. There are special leaves for parents, like maternity leave for moms and paternity leave for dads.
What is an independent contractor in China?
In China, contractors are individuals who work for themselves and make a “contract for service” with employers. Sometimes, they’re called freelancers or consultants. Unlike full-time employees, these individuals don’t receive employee benefits and aren’t covered by the same job protections. Hiring independent contractors in China is a useful strategy for short-term projects that don’t need full-time employees.
How to classify workers in China?
In China, they have clear rules to tell the difference between contractors and employees. These rules are strict to make sure companies can’t avoid their responsibilities under labor laws. To decide if someone is an employee, Chinese labor courts look at a set of criteria from the “Circular of the Ministry of Labor and Social Security on the Establishment of Employment Relationship.”
To be considered an employee in China, these three things need to be followed:
- Both the person and the employer must be allowed to have an employment relationship by law.
- The person follows the employer’s rules, works under the employer’s direction, and gets paid for their work.
- The work the person does is part of the employer’s business.
If these things are all correct, the person is usually seen as an employee. However, if there’s a disagreement, the Chinese government looks at everything about how they worked together. They check payment records, work certificates, how the person was hired, how they showed up for work, and even talk to co-workers to see if the way the person was classified is right.
Penalties for misclassifying workers in China
In China, they have strict rules about who’s an employee and who’s a contractor. Employees get lots of protections, fair pay, and benefits like health insurance. If someone has been working like a regular employee, they have the right to be treated that way. Contractors who should be employees can ask for help through labor arbitration or legal action to get the right classification.
When someone is correctly called an employee, their boss has to pay them at least the minimum wage and, if they work extra hours, more for overtime. If the boss doesn’t do this, they might have to pay fines. They could also get in trouble and even be banned from doing business in China.
Also, if an independent contractor challenges who owns the work they did, the company could lose the rights to that work.
But it’s not just about money. If a company misclassifies its workers, it can lead to legal battles, harm the company’s reputation, make it hard to find new workers, upset current employees, and make the government take a closer look at the company.
In China, the Labor Law says employees have a certain relationship with their boss. On the other hand, independent contractors are like their own bosses. Employees have to follow their boss’s rules and the boss owns the work they do. Independent contractors and their bosses are seen as equals, with no one being the boss of the other.
So, if you mix up employees and independent contractors, it could cost you money and even the rights to your own work. To avoid this, some companies use a global contractor management platform like HRone to make sure everything is done right.
How to avoid misclassifying your workers
Avoiding worker classification errors in China is vital. First, understand the local labor laws, including any specific rules in different regions. Clearly define each person’s role as either an employee or an independent contractor. Seek guidance from legal experts to ensure you’re following the rules correctly. Keep the records of contracts, payments, and certificates. Allow independent contractors to have control over their work methods and schedules, avoiding micromanagement. Consider consulting agencies like HROne for help. Regularly review worker classifications to ensure they remain accurate.
Managing a worldwide team can be a challenge, especially when it comes to dealing with different labor laws in each country. However, with HROne, you can easily bring on board and pay contractors in China using a single system. We offer tailored onboarding and the flexibility to make payments in the local currency (RMB) or any specific currency for that country.
What are the labor laws in China?
Before you start hiring workers in China, it’s crucial to understand their labor laws and how things work when it comes to taxes and payroll. If you’re thinking of employing people from China, here’s what you need to keep in mind:
1. Written Contracts: Chinese laws want employment contracts to be in writing, mainly in Chinese but with an English translation if possible.
2. Probation Period: There can be a probation period, but it shouldn’t be more than six months.
3. Working Hours: People usually work eight hours a day or 40 hours a week, but this can change in different places. Overtime is limited to three hours a day and 36 hours a month.
4. Minimum Wage: Minimum wages vary from one region to another based on the cost of living.
5. Payroll: Payroll is done monthly.
6. Paid Leave: The amount of paid leave you get depends on how long you’ve been working. It can range from none if you’ve been there less than a year to 15 days if you’ve been working for more than 20 years.
7. Public Holidays: China has about 11 public holidays, but these can differ depending on where you are.
8. Ending Employment: Ending a job in China can be tough and expensive for employers because the law protects workers. The amount of severance pay depends on how long someone has been employed.
9. Severance Pay: When someone’s job ends, they usually get a written notice period of at least one month. If they don’t want to work out the notice period, the employer has to pay their monthly salary along with severance pay.
10. Maternity and Paternity Leave: Pregnant women can have 128 days of maternity leave, and new dads usually get 15 days of paternity leave.
11. Benefits: Chinese workers get benefits like life insurance, medical insurance, maternity insurance, unemployment insurance, and more.
Knowing these labor laws is useful if you’re thinking about changing your contractors into employees in the future. But remember, these rules don’t usually apply to independent contractors in China.
The best ways to hire and pay contractors in China
When hiring independent contractors in China, it’s crucial to avoid misclassification, which can occur when treating freelancers like full-time employees. To prevent this, your contract should clearly outline:
- Specific tasks to be completed.
- Project’s start and end dates.
- Compensation amount and payment method.
- Rights to any intellectual property (IP).
- Responsibilities and liabilities related to tasks and resources.
- Inclusion of non-disclosure statements (NDAs) or non-compete clauses if necessary.
- Guidelines for contract termination.
By following these practices, you can ensure a clear and compliant working relationship with your independent contractors in China.
Hiring and paying independent contractors in China can be quite complex due to differences in tax regulations, holidays, and minimum wages that vary by location. It can be a challenge to stay compliant with the legal requirements, manage payroll, and ensure accurate payments. However, HROne provides a solution to streamline this process. With HROne, you can efficiently onboard contractors using localized contracts, maintain compliance with Chinese labor laws and tax regulations, automate payroll and invoice management, and manage all your global contractors in one convenient platform.
In summary, correctly categorizing employees and contractors in China is essential to follow the law properly. Misclassification can result in serious consequences, such as financial penalties, loss of intellectual property, and harm to a company’s reputation. To avoid these problems, it’s important to understand the differences between employees and independent contractors, adhere to local labor laws, and seek legal advice when needed. HROne, a global certified provider can be a good choice to ensure accurate classification and simplify the hiring and payment processes.