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Legal issues you should know about hiring local employees in China
There are two main methods which a foreign investor can conduct in hiring local staff.

1. Direct Employment

In principle, FIEs (Foreign Investment Enterprises) may recruit any PRC individual directly without going through a service company. FIE must conclude an individual labor contract with each employee. 

2. Via Staffing Service Companies 

The employment of PRC nationals by a representative office of foreign company must be arranged through a government-designated staffing/labor service companies. The representative office will enter into a service contract with the service company and the service company will provide PRC employees to work for the office. Thus, the representative office only has a contractual relationship with the service company and not with the PRC staff. Meanwhile, a supplementary contract may however be entered into by and between the foreign company and the PRC employee in order to regulate certain specific items such as salary amount, vacation, confidentiality, non-competition clauses and so on.

Social Securities

The mandatory social security to be subscribed for PRC employees are (1) pension; (2) unemployment insurance; (3) medical insurance; (4) occupational insurance (5) birth insurance (6)housing fund and (7) disability fund, which should be borne by both employer and employee respectively at certain percentage. 

Labor Dispute Resolution 

Labor disputes may be settled by mediation, arbitration, or by court proceedings. The request for arbitration shall be made within 60 days from when the labor dispute arises. An arbitration award must be made within 60 days from the date of receipt of the application. Parties unsatisfied with the award may bring a lawsuit to a people’s court within 15 days from the date of receipt of the written award.

Labor Contract 

The Chinese Labor Contract Law has come into force as of 1 January 2008. According to this new law, the establishment of employment relationship between enterprises, individual economic organizations, non-enterprise private entities and other entities and the workers thereof, as well as the conclusion, performance, alteration, discharge or termination of labor contracts there between shall be governed by this Law. Labor contracts are classified into labor contracts with a fixed period, labor contracts without a fixed period and labor contracts with a period to complete the prescribed work. 

Where the term of a labor contract is above three months but less than one year, the probation period thereof shall not be more than one month. Where the term of a labor contract is above one year but less than three years, the probation period thereof shall be less than two months. 

With respect to a labor contract with a fixed period of above three years or without a fixed period, the probation term thereof shall not be in excess of six months. With respect to any worker that is in violation of this Law because of discharge of the labor contract, or is in violation of relevant stipulations of the labor contract concerning the confidentiality obligation or limitation of competition, he shall bear the liability for compensation if any loss occurs to the employer. 

The personnel under limitation of competition shall be limited to senior mangers, senior technicians and other personnel who have the obligation to keep secrets in the entity. The range, geographical scope and time limit for limitation of competition shall be stipulated by the employer and the worker. After the discharge or termination of a labor contract, the period of limitation of competition for any of the persons referred to in the preceding paragraph to work for any other employer producing or engaging in products of the same category or conducting business of the same category as this employer shall not be more than two years.

Governing authority 

The related governing authority is the Ministry of Labor and Social Security. 
Ministry of Labor and Social Security 
No. 12 Hepinglizhongjie, Dongcheng District, 
Beijing, 100716 
Tel: +86 10 8420 1114 
Web: http://www.molss.gov.cn



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