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12 min read

Labor Dispatch in China: Definition, Pros & Cons

12 min read

Labor Dispatch in China: Definition, Pros & Cons

Labor dispatch has emerged as a cost-effective method for companies to hire employees and manage their human resources in China. In contrast to direct employment, labor dispatch involves hiring employees through an employment service agency. This method allows businesses to circumvent administrative processes and meet workforce needs, thereby saving time and resources.

As labor dispatch grows in popularity, it is crucial for businesses operating in China to understand the relevant laws, regulations, and hiring processes. Companies should also be aware of the rights and benefits of dispatched employees, along with the types of positions that can be dispatched. Moreover, it is essential for businesses to recognize the challenges and implications this method may have on their industries and regions.

Key Takeaways

  • Labor dispatch in China helps businesses save time and resources by utilizing employment service agencies.
  • Awareness of legal responsibilities and hiring processes is crucial for companies using labor dispatch.
  • The rights and benefits of dispatched employees, challenges, and implications for the specific industry should be considered by businesses.

What is Labor Dispatch in China?

Labor dispatch is a practice where companies hire employees through a third-party agency rather than directly employing them. In China, this process is regulated under the Labor Contract Law, which was last amended in 2019. This method of hiring is popular in China due to the wide availability of labor dispatch company options, plus the flexibility and low cost.

china labor dispatch

There are two primary methods businesses in China use to meet their workforce needs: labor dispatching and outsourcing. Both of these methods help companies circumvent administrative processes and quickly adjust their staffing levels, but they have distinct differences in implementation. Labor dispatch involves hiring employees through an employment service agency, while outsourcing focuses on contracting external organizations for specific tasks or functions.

Labor dispatching has been subject to various regulations over the years. The Interim Provisions on Labour Dispatch, which were enforced on March 1, 2014, aimed to lower the proportion of agency workers in the entire workforce. The provisions stipulated that by March 2016, the proportion of agency workers should not exceed 10% of the entire workforce.

Despite these regulations, labor disputes have occasionally arisen in relation to labor dispatch arrangements. Some of these disputes involve issues such as unequal pay, lack of social security benefits, and denial of contract termination rights. Addressing these concerns has been a priority for both the Chinese government and the agencies involved in labor dispatch.

In conclusion, labor dispatch offers companies in China a flexible and cost-effective way to hire employees while managing administrative processes. However, the practice is subject to changing regulations and potential disputes, making it essential for companies to stay updated on the latest legal requirements and best practices.

Relevant Laws and Regulations

In China, labor dispatch is governed by a set of laws and regulations that aim to protect the rights and interests of both the employees and the employers. The primary regulation in place is the PRC Labor Contract Law, further clarified by the Interim Regulations on Labor Dispatch, which were promulgated by China’s Ministry of Human Resources and Social Security (MOHRSS) in 2014.

The Labor Contract Law mandates that all employers should establish labor contracts with their employees. A key aspect of this law is to emphasize the use of direct hiring as the primary means of employment in China. The law was later amended in 2012, which led to the implementation of the Interim Provisions on Labor Dispatch in 2014. This amendment aimed to limit companies from taking advantage of labor dispatch services.

The Interim Regulations on Labor Dispatch impose numerous restrictions and requirements on labor dispatch agencies and user enterprises. For instance, labor dispatch agencies must hold a minimum of RMB 0.5 million as registered capital. It is also required that they sign two-year or longer full-time labor contracts with dispatched workers. The regulations also state that user enterprises should generally put agency labor in temporary, auxiliary, or substitute positions.

In addition to the Interim Regulations, the PRC Labor Contract Law was also amended in 2019 to provide further clarification and regulation of labor dispatch practices. The latest version of the law maintains its focus on direct hiring as the primary form of employment in China and provides additional safeguards for both the employee and the employer.

To sum up, the regulatory framework for labor dispatch in China relies primarily on the PRC Labor Contract Law and the Interim Regulations on Labor Dispatch. These laws and regulations intend to create a fair and transparent labor market, ensure employees’ rights, and encourage direct hiring as the major form of employment in the country.

China business guides

Dispatch Agencies and Hiring Process

In China, one of the popular methods for managing workforce needs is labor dispatch. This approach involves hiring employees through a third-party agency, known as a dispatch agency. Companies find it advantageous due to various benefits including cost savings and increased flexibility.

Dispatch agencies are responsible for the recruitment and selection of agency workers. They match the workers’ skills and qualifications with the requirements presented by client companies. These agencies not only cater to temporary positions but also provide full-time and long-term employment options.

The hiring process through dispatch agencies offers a viable alternative to direct employment in China. Direct employment implicates a traditional legal labor relationship between the employer and employee, whereas dispatching involves using agency workers supplied by the dispatch agency. This enables companies to avoid time-consuming administrative processes and adjust their workforce according to seasonal or project-based demands.

Moreover, the dispatching agency serves as the legal employer of the agency workers, managing their payroll, social insurance, and other related matters. This allows companies to focus on their core business operations, reducing administrative burden and ensuring compliance with local labor regulations.

Some key aspects to consider for companies intending to opt for labor dispatch include:

  • Properly contracting with a reputable dispatch agency.
  • Ensuring the dispatch agency abides by local labor legislation and social security schemes.
  • Monitoring the dispatch agency’s performance in terms of worker management and quality control.

In conclusion, the use of dispatch agencies streamlines the hiring process for businesses in China. It allows companies to be more flexible in their employment practices while maintaining compliance with local legislation.

Rights and Benefits of Dispatched Employees

Dispatched workers in China are protected by law and entitled to the same rights and benefits as directly hired employees. These protections include equal pay for equal work, ensuring that dispatched employees receive the same level of compensation as their permanent counterparts for the same job roles. This principle is important for maintaining fairness in the workplace and promoting a healthy working environment.

In addition to equal pay, dispatched workers are also entitled to benefits. These benefits may include paid leave, safety protections, and other standard employee benefits. Such provisions help protect the interests of dispatched employees and ensure that they are treated fairly by the companies employing them.

Dispatched employees in China have the right to receive social security and social insurance. Social security serves as a safety net for such workers, providing them with financial assistance in case of unemployment, illness, or other unexpected life events. Social insurance, on the other hand, covers a range of aspects, such as pension insurance, medical insurance, and more. Together, social security and social insurance policies help dispatched employees maintain a stable financial and social status.

To safeguard the rights of dispatched employees, the Chinese government has enacted certain labor laws, such as the 2007 Labour Contract Law. This law stipulates that labor dispatch agencies must have a minimum of RMB 0.5 million as registered capital and sign two-year or longer full-time labor contracts with dispatched workers. Moreover, companies employing dispatched workers must use them for temporary, auxiliary, or substitute positions.

In summary, dispatched employees receive rights and benefits, such as equal pay, benefits, social security, and social insurance, which are in line with those of directly hired employees. These provisions, coupled with the labor laws in China, ensure that dispatched workers are treated fairly and with respect, while also providing them with a secure working environment.

Types of Dispatched Positions

Labor dispatch is a popular practice in China where companies hire employees through a third-party agency instead of directly employing them. In this system, various types of positions can be filled by dispatched workers. Some of the most common ones include temporary workers, project-based work, auxiliary positions, replaceable positions, and temporary positions.

Temporary workers are employed for a short period of time to fulfill specific tasks or to provide additional support during peak hours, seasons, or periods of high workload. They are generally engaged for a limited duration to cover the absence of a regular employee or to perform specific tasks. These workers are ideal for companies that require short-term manpower without the need to offer long-term contracts.

Project-based work involves dispatched workers being assigned to specific projects with a clearly defined scope and duration. In this case, the workers’ employment is directly linked to the completion and success of the project. Their expertise, skills, and knowledge make them valuable additions to the team for the duration of the project.

Auxiliary positions refer to support roles that do not directly contribute to the company’s core business but are still essential for smooth operations. These roles can include administrative support, human resources, accounting, and other back-office functions. Dispatched workers in auxiliary positions provide flexibility to the host companies, as they can be adjusted according to the company’s needs and may not be required at all times.

Replaceable positions are those where a dispatched worker can easily replace a regular employee. These positions generally require similar skill sets and qualifications, making it easier for the dispatched worker to step in and perform the role. These positions are often filled on a temporary basis due to turnover, leaves, or other workforce changes.

Temporary positions are similar to temporary workers, in that they are employed for a short period of time, usually to meet short-term needs. Temporary positions are often created to cover for a regular employee’s absence, such as maternity leave, sabbatical, or recovery from an illness. These positions are designed to be temporary and the employees are usually aware of the limited duration of their contracts.

Overall, companies in China can benefit significantly from using labor dispatch as a flexible and efficient strategy to hire workers for various roles, ensuring smooth operations without committing to long-term contracts or continued employee benefits.

Human Resources and Payroll Management

In China, businesses often engage in labor dispatch as a means of hiring employees. This practice involves working with a third-party human resources agency to manage employee recruitment, payroll, and other HR tasks. One of the key advantages of labor dispatch is its flexibility and lower cost compared to direct employment.

Under this model, employees are legally contracted by the human resources agency, rather than directly by the business. These agencies, also known as Professional Employer Organizations (PEOs), handle crucial HR tasks such as negotiating labor contracts, managing headcount, and ensuring compliance with local laws and regulations. This enables companies to focus on their core business functions while ensuring a seamless hiring process.

Payroll management is an essential aspect of labor dispatch. The human resources agency responsible for the dispatched employees is tasked with calculating salaries, processing deductions, and distributing payments on behalf of the business. This centralized approach helps companies ensure compliance with China’s complex labor laws and maintain accurate payroll records.

As the workforce in China continues to evolve, human resources and payroll management have become an increasingly crucial aspect of business operations. By utilizing labor dispatch and partnering with experienced human resources agencies, companies can navigate the challenges of hiring and managing employees in the Chinese market.

Compliance and Legal Responsibilities

Labor dispatch in China has grown in popularity due to its cost-effective approach and ability to manage HR compliance. By hiring employees through a third-party agency, companies can mitigate legal liabilities while maintaining a flexible workforce. As a result, businesses must understand the compliance and legal responsibilities that come with this method of employment.

One of the main aspects of labor dispatch compliance is the legal requirements set forth by the 2007 Labour Contract Law. According to this law, labor dispatch agencies must hold a minimum of RMB 0.5 million in registered capital and sign two-year or longer full-time labor contracts with dispatched workers1. They are also obligated to place agency workers in temporary, auxiliary, or substitute positions.

As labor dispatch agencies are considered employers for legal purposes, they bear the same responsibilities as traditional employers in China2. This includes the obligation to execute open-term contracts when required conditions have been met. Failing to comply with these legal responsibilities can result in legal risks and penalties for the dispatch agency and hiring company.

To ensure compliance with labor dispatch regulations in China, both the dispatch agencies and user enterprises must be aware of their responsibilities. Some key aspects to consider include:

  • Contracts: Enter into a legally binding agreement with the dispatched employees, detailing the nature of the work, remuneration, and contract duration3.
  • Employee rights: Safeguard employee rights and benefits, such as leaves, working hours, and working conditions.
  • Social insurance: Enroll dispatched employees in mandatory social insurance and housing fund programs3.

By being vigilant in their compliance efforts and understanding the legal responsibilities involved in labor dispatch in China, both dispatch agencies and user enterprises can reap the benefits of a flexible workforce while minimizing legal risks.

Challenges and Implications for Businesses

The practice of labor dispatch in China offers companies various benefits, such as cost savings and increased flexibility. However, it also presents several challenges and implications for businesses. Labor dispatch involves hiring employees through a third-party agency, allowing companies to manage their workforce more efficiently.

One challenge that businesses face is navigating the complexities of outsourcing versus direct hiring. Outsourcing may offer reduced labor costs and a more streamlined administrative process. Direct hiring, on the other hand, provides businesses with more control over their employees and the quality of their talent pool. Companies need to weigh the pros and cons of these two methods to strategize effectively.

Another issue to consider is the headcount limit imposed by the Chinese government on dispatched workers. These restrictions may limit the flexibility of companies hiring through labor dispatch. It may require businesses to adjust their workforce strategies and possibly consider other methods, such as direct hiring or combining both tactics.

Labor costs in China have been steadily rising due to increased regulation and enforcement of minimum wage laws. Companies should factor in the potential for growing labor costs when considering labor dispatch or any other employment model in the country.

Moreover, obtaining a business license for operating in China can be a complex and time-consuming process. Companies seeking to use labor dispatch services or expand their workforce through direct hires may need to work closely with the relevant government departments and agencies to ensure they remain compliant with regulatory requirements.

By carefully considering these various challenges and implications, businesses can strategically plan their approach to labor dispatch and other employment models in China. Remaining informed and aware of the ever-changing landscape can help companies maintain a flexible and cost-efficient workforce while remaining compliant with local regulations and labor laws.

The Impact on Different Industries and Regions

China’s labor dispatch system has varying effects on different industries and regions throughout the country. In seasonal industries, labor dispatch provides a flexible workforce solution for businesses experiencing fluctuating demand. This allows companies in the tourism, retail, and agriculture sectors to easily adjust the number of employees according to their needs and reduce cost burdens along the way.

In contrast to urban cities, rural areas may see few benefits from the labor dispatch system due to the limited availability of skilled temporary workers. However, those working in urban cities, particularly in manufacturing and service sectors, may experience a more significant impact. By using labor dispatch services, companies operating in urban centers can gain access to a larger pool of skilled workers, while efficiently managing resources and fulfilling workforce requirements.

Furthermore, labor dispatch can help bridge the gap in staffing for specialized roles and projects. For example, industries that require highly skilled and experienced technologists or engineers can also benefit from this system by having a readily available talent pool.

It’s essential to recognize and understand China’s labor dispatch system’s impact on different industries and regions to anticipate future trends and proactively adapt strategies. The existing labor dispatch system can be a valuable asset for a wide variety of sectors but will require adjustments to adapt to the unique requirements of each locale and industry.

Future Trends and Predictions in Labor Dispatch

Over the years, labor dispatch in China has evolved into an essential part of the labor market, offering both stability and flexibility to enterprises and workers. As we analyze the future trends and predictions in this domain, it becomes clear that certain aspects need attention. These include stability, flexibility, equal treatment, and the growing demand for temporary employees in various industries.

One major trend likely to emerge in China’s labor dispatch is the increased emphasis on stability. As the country’s economy continues to expand, demand for a stable workforce is anticipated to grow. New measures, such as limiting the proportion of dispatched workers to 10% of a company’s workforce by the Interim Provisions, signify a move towards providing a more stable working environment. This will promote long-term employment and minimize reliance on temporary employees.

Conversely, labor dispatch has always been known for its flexibility. With the economy shifting, there may be an increased demand for skilled employees who are available, often on a temporary basis, to fill a particular need. This model not only provides flexibility to businesses but also gives workers access to different job opportunities, enabling them to gain diverse experiences and potentially higher pay scales.

Thirdly, equal treatment for dispatched workers is set to become a critical aspect of China’s labor dispatch in the future. There have been concerns about workers not receiving fair compensation and benefits compared to their directly-employed counterparts. In response to this challenge, the Amendments to the Labour Contract Law have been put in place, aiming to promote equal treatment among all employees, regardless of their employment type. This regulatory development signifies an important step towards ensuring dispatched workers are not subjected to unfair practices.

Finally, the demand for temporary employees is also expected to rise in specific industries where the need for workers fluctuates throughout the year, like seasonal manufacturing or occasional projects. This provides an opportunity for short-term contracts, appealing to both employers and employees who prefer flexibility.

Still want to dispatch labor to free up time and resources in your company? Clearly, labor dispatch in China is bound to undergo various changes as the economy evolves, placing emphasis on stability, flexibility, equal treatment, and matching the changing employment demands. By navigating these trends, however, businesses and employees can effectively adapt to the evolving labor market and ensure mutual benefits for both parties.

Frequently Asked Questions

China's labor dispatch system involves hiring employees through an employment service provider or third-party agency, as opposed to direct employment with the company. This practice, also known as staffing, talent dispatch, or employee leasing, allows companies to outsource the recruitment, training, and management of employees, which can lead to cost savings and reduced administrative processes.

China's labor laws stipulate specific provisions for labor dispatch, including limitations on the type of employees that can be hired under this arrangement and the number of dispatch workers in a company. The regulations ensure that dispatched workers are granted the same rights and protections as full-time employees, such as minimum wage, working hours, and social insurance coverage.

Dispatched laborers in China are typically required to comply with the same working conditions as regular full-time employees. They are often entitled to the same benefits, including wage levels, working hours, and social insurance. However, since they are employed through a third-party agency, the dispatching company holds primary responsibility for workers' rights and interests. As a result, there might be instances where dispatched laborers face challenges in accessing equal treatment and job security.

Under China's labor laws, dispatch workers are subject to the same working hours as full-time employees. This typically includes an eight-hour workday, capped at 44 hours per week. Dispatch workers are also entitled to overtime pay if they exceed these hours. Moreover, they are granted the same days off and public holidays under the law.

Dispatch workers in China may encounter several challenges due to their employment status. As they are hired through a third-party agency, there might be potential discrepancies in wages and benefits compared to regular employees. Additionally, dispatch workers may have limited job security and could face unstable work conditions, leading to less opportunity for long-term career development.

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At RemotePad, Lech draws on his professional experience to write about employment taxes and payroll (both remote, and in-office). Lech holds a Bachelors’ degree from the University of Kent, a Master of Arts (MA) from Kings College London, and professional payroll and tax qualifications. He has 20 years experience advising on all manner of tax and business planning matters.