Employer of Record in China


​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​published on 9 April 2024 | reading time approx. 5 minutes

The concept of Employer of Record(EoR) is quite popular on the Chinese market in the recent years. Generally, Employer of Record is described as quick solution to set up commercial presence in different countries. Further, to certain extent is EoR also understood as a complete safe and cost-saving way to have a third party service provider to undertake all liabilities of an employer. Is this really the case according to Chinese laws and regulations? What are the possible legal and tax consequences under EoR in China?​

First of all, Employer of Record is not legally regulated under current Chinese laws and regulations. The current practices of EoR for local or foreign employees are mainly implemented via contracts and agreements between different parties without acknowledgement or confirmation by competent Chinese authorities. Further, the special local rules regarding labour dispatch set different qualification and/or compliance requirements not only for the service provider but also for the economic employer. Such supervision or limitation are avoided to certain extent by EoR in the general practices. In the end, it is important for the economic employer and the employees to be engaged under Employer of Record to identify possible legal and tax risks under Employer of Record and find possible solutions to avoid or reduce the corresponding risks.

Concept of Employer of Record in China

Service providers, including certain foreign invested companies, expressly offer the service of hiring employees via an EoR on the market in China. EoR seems to be more interesting for foreign investors, especially during the legal presence setup period before their own legal entities are legally incorporated and fully operational. However, EoR itself is not regulated by law.

Special local rules

The EoR concept is quite similar to the labour dispatch (also called as labour secondment) under PRC law as the service provider needs to take the obligations and liabilities as formal employer. The dispatched employee shall enjoy the right to have same remuneration offered for same job held by the employee of an economic employer in China. However, labour dispatch under PRC law is subject to the following special regulatory requirements:
  1. The labour dispatch service provider shall enter into fixed term labour contract of at least two years. During the period in which a dispatched employee is not assigned any work duties, the service provider shall pay the minimum wage on monthly basis according to the local official standard. 
  2. The employment by way of labour dispatch is mandatoryfor the officially registered permanent representative office of a foreign enterprise, a foreign financial institution or a seaman employer.
  3. However, for other companies as normal domestically-established economic employer, the dispatched employee can only be employed in temporary, auxiliary or substitute job positions. Temporary work refers to a job position for no longer than six months. Auxiliary job position is not a main business job which provides services for main business of the economic employer. Substitute job refers to a job position what can be taken by other employee as a result that an employee cannot work due to full-time study, leave etc. over a certain period of time. 
  4. An economic employer shall strictly control the number of the dispatched employees which shall not exceed 10 per cent of the total number of its employees. 
  5. In the event that an economic employer has caused a dispatched employee to suffer damages, the service provider and the economic employer shall bear compensation liability jointly and severally.
  6. Please kindly note that labour dispatch service provider can relatively easily employ a Chinese citizen as required by the economic employer. In contrast, the labour dispatch service provider cannot apply for work permit, residence permit for foreign citizen as the immigration authority normally does not issue work permit for employees under labour dispatch.

Special license required

Engaging in labour dispatch business shall be subject to administrative license for labour dispatch service. As preconditions to apply for the above permit, the labour dispatch service provider shall have a minimum registered capital of RMB 2 million, a fixed business premises and some facilities proper for the businesses as well as corresponding labour dispatch management system or regulations. No organisation or individual shall be allowed to engage in labour dispatch business without a licence. Otherwise, the labour dispatch service provider shall be subject to administrative penalties. In the event that the administrative license of a labour dispatch service provider is not renewed upon expiration or its labour dispatch service license is rescinded or revoked, the labour contract already concluded with its dispatched workers shall continue to be performed until expiration by law. However, the parties may dissolve the labour contract through negotiations.

There is no license requirement for the economic employer who intends to hire dispatched employee. Further, the duration of labour contract via labour dispatch is not limited in time.

Tax implications

There is no special tax features of the EoR concept in China. The tax treatments are the same for employees directly employed by the commercial employer or employed by an EoR and dispatched to work for a commercial employer. The double taxation agreement between China and Germany does not provide special regulations for temporary employment, either.

In terms of PE risks, according to our understanding following question may arise in the case when a German commercial employer engages a Chinese company to employ individuals and assign those employees to work for and under the instruction by the German company in China.

Theoretically such arrangement will constitute a PE of the German commercial employer in China. While under usual practice, the risk of being Chinese tax authority for a PE constitution by the German commercial employer is very limited. Because the payment received by the EoR in China from the German commercial employer, which covers the labour costs of the employees as well as the service charge by the EoR, has been fully subject to Chinese VAT and corporate income tax calculation. In practice, it is unusual for the Chinese tax authority to investigate whether the employees, legally employed by a Chinese company, are further commercially employed by a foreign company.

However, in case the German commercial employer instructs the employees to render services to a Chinese client and bills the Chinese client service fee which would be settled by the Chinese client to the German commercial employer directly, the exposure of the PE risk would be significantly increased in China, since outbound service payment by Chinese companies are always under strict supervision and administration by the Chinese tax authority.

Possible Risks

The current legislation on labour dispatch in PRC can help foreign investors to quickly involve Chinese citizen as labour force to start the business as soon as possible before its own legal presence is established. After the legal presence is established in form of a company, the requirement on using dispatched employees still exist. Technically speaking, the applicable scenarios of the labour dispatch for an economic employer is still limited. In particular, a licensed labour dispatch service provider cannot officially apply for work permit for foreign citizens. Meanwhile, certain unlicensed service provider simply employs foreign or Chinese employees without disclosing the employment nature as employment under labour dispatch or EoR to competent Chinese authorities. Currently, this practice is to certain extent tolerated but still subject to following risks:

  1. As for foreign citizen, also it is hard for competent Chinese authority to find out whether his/her employer registered in authorities is a real employer or just an employer on paper. However, the different residence address, different name card and office number or other information may show irregularities in the employment and give the authority some clues to conduct further investigation. As a result,  the timely extension of work permit and residence permit cannot be guaranteed and bring great uncertainty and risks for foreign citizen working in China.
  2. For Chinese citizen, there could be risks for work-related injury if the actual workplace of the employee is in a different city but not the registered address of the EoR or labour dispatch service provider. Additional accident insurance for dispatch employee should better be considered to transfer possible risks in this case.​


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Vivian Yao


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Li Wang

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Monica Chen

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