September 28, 2021
Outsourcing in businesses is a management strategy that allows businesses to have their activities outside the field of expertise done in the most appropriate, faster, and cheaper quality standards by experts in this field. The first services under the umbrella of Professional Employer Outsourcing (PEO) started in the USA.
How Does a PEO Work?
A PEO employs on behalf of another company. The PEO provider recruits to work for another company under the conditions determined by that company. PEOs are generally registered employers and operate in compliance with local applicable employment laws. The service itself and the company providing the service are defined as follows.
PEO in China
China continues to attract foreign investors. Many foreign investors in China want to find a qualified workforce and fulfill their legal responsibilities arising from workforce employment through expert PEOs. Although companies claim to provide PEO services in China, this is not possible under local law.
According to Chinese law, all employers have to pay their employees' wages, compensation, social benefits, and all responsibilities determined by the employment contract. In short, companies operating in China cannot transfer the rights and services arising from their employees' employment to an intermediary company or employ by signing an employment contract through an intermediary company.
Still, some companies in China try to provide quasi-PEO-like services even though the legality has some risks.
PEO vs. EOR
By definition, a Registered Employer (EOR) is a third-party organization that acts as a business partner. EOR is a legitimate employer, on behalf of its client, fully responsible for managing its client's staff and compliance with local legislation. There is no need to provide office space, equipment, training, or sign any contract with new staff; all of these works are performed by EOR.
The main difference between a PEO and EOR is that the EOR acts as an intermediary for the employment of some of a company's employees. PEOs, on the other hand, undertake to employ all the employees of the client company, so the PEO undertakes all the HR-related work and responsibilities of the client. PEOs and EORs offer different services, but in China, it is often seen that the two types of services are mixed or even used to describe the same thing.
What PEO Services Include
Preparation and signing of Employment Contracts
PEO prepares an employment contract under the conditions specified by the customer (salary, bonus, benefits, leaves, etc.). PEO signs this contract with the personnel to be employed in the client company following local labor laws. In short, like a brokerage firm, PEO signs employment contracts with personnel who will work on behalf of its customers. When recruiting foreign labor, PEOs prepare these contracts in both Chinese and English (or the native language of employed personnel).
Payroll processing
The payroll process is the process of recording social insurance payments, tax withholdings, etc., in which the wages of a company's employees are calculated for the work they do. PEO services undertake this entire process as an intermediary employer.
Human Resources Services
One of the main features that make PEOs attractive is their specialization in local laws and regulations and their promise to provide a buffer service, especially saving foreign companies from having to navigate local regulations. In addition, PEO provides a complete HR management service on behalf of its client, not just documentation and follow-up on recruitment or legal employment conditions.
Benefits administration
PEOs mostly manage the benefits for employees on behalf of their clients, including social security, health insurance, retirement, contributions, and unemployment insurance.
Social security in China is handled under two main headings, the first being social insurance and the second being the housing fund. PEOs manage both the rights arising from these basic benefits and the processes to be provided to employees, such as vacation pay, maternity leave, sick leave.
Visa Procedures
While again, local companies in China are supposed to be responsible for all recruitment and employment processes, those businesses needing foreigners to work for them and using PEO services while requiring visa processing support from the PEO.
Please contact us (inquiries@chinalawsolutions.com) to get in touch with a recommended PEO and EOR firm which can assist you in China. All inquiries are treated as confidential.