Hiring ‘independent contractors’ in China? Don’t do it.

Warning

Are you thinking of hiring someone in China as an ‘independent contract’ and think it’s ok?

It’s not.

Unlike Western countries, China has no concept of an independent contractor (although there has been some minor adjustments recently) which means that you’re violating Chinese labour law if you:

  1. Treat someone as an employee, with a contract in English, and transfer funds to them on a regular basis from outside of China, and
  2. Let them take care of all the legal obligations in China (like income tax, social insurance and housing fund), which they cannot do unless they have their own company.

There can be some serious consequences for your non-China employees if they visit China while this is going on.

However, we know why it is contemplated by new entrants to China.  Most institutions realise that they need to have people on the ground there to compete for students but then comes the shock:

They discover that the cost of employing people in China is way more than they expected, especially when employer costs like social insurance and housing fund are discovered (around 44% of before tax salary in most cases).

But at the end of the day employing illegally isn’t just risky from a legal perspective, it damages your employer brand and makes you look cheap and unprofessional.

And if, ironically, you’re the type of institution to insist on your ’employee’ signing a 10 page contract in English with jurisdiction in the State of New York or New South Wales etc, you just look foolish.

That English contract is utterly unenforceable in China and really only serves to prove that you’ve entered into an illegal employer-employee arrangement, one that your at-some-point ex ’employee’ could use against you and your business if they were so inclined (a contest that you would likely lose in China).

The solution?

Your best option is to establish a Wholly Foreign Owned Enterprise (WFOE) and employ your people legally through that.

But if that is too expensive or complicated to establish, work with a local partner in China to give you the coverage that you need.  And avoid employing people as independent contractors.

For more a lot more information or advice see the China Law Blog.