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Employment of Chinese Staff by Permanent Representative Offices
Resident Representative Offices, also known Permanent Representative Offices (ROs) cannot employ Chinese staff
directly. Chinese staff can only be employed through local
foreign service companies or other entities designated
by the local government. These foreign service companies
enter into employment contracts with Chinese individuals
and should be responsible for managing the personal files
of the Chinese employees. These foreign service companies
are also responsible for paying salaries to the Chinese
employees and providing social benefits such as retirement
packages and medical insurance.
A foreign service company usually enters into a service
contract with a Permanent Representative Office, whereby the foreign service
company seconds these Chinese employees to Permanent Representative Offices
of foreign enterprises. Therefore, from the legal perspective,
Rep Offices and their Chinese staff do not have a direct
employment relationship. The Chinese staff members are
only service providers. The relationship between the
Chinese staff and the foreign service companies is an
employment relationship.
Because Permanent Representative Offices are not employers of the Chinese staff members,
Permanent Representative Offices are therefore not obligated to abide by the Chinese
labor law. In practice, Permanent Representative Offices usually deem themselves
to be employers of the Chinese staff and hence abide
by the PRC labor law in dealing with the Chinese staff.
However, due to the special status of the Permanent Representative Offices,
they do not have the ability or capacity to provide
some compulsory obligations of employers. For example,
Permanent Representative Offices cannot purchase pension insurance for their Chinese
employees. On the other hand, foreign service companies
are able to provide all such benefits.
Foreign service companies usually charge a monthly
fee to the Permanent Representative Offices. Part of the fee would be used
for payment of salaries of the Chinese staff of the
Permanent Representative Offices. Another part of the service fee would be
used in provision of social benefits to the Chinese
staff of the Permanent Representative Offices. The remaining part of the fee then
is the service charge of the foreign service companies.
In practice, the salaries paid by foreign service companies
to Chinese employees are relatively low. Permanent Representative Offices
always directly pay allowances to the Chinese staff
in order to reach the salary rate agreed upon between
the Permanent Representative Office and the Chinese staff.
This system has changed a lot. Many foreign service
companies have already begun to adopt a more flexible
attitude. For example, they are now willing to collect
basic fees from the ROs. Such basic fees only cover
the profit of the foreign service companies and do not
cover the Chinese staff's salaries and social benefits.
The current employment system was formed in the early
1980's. Pursuant to Article 11 of the Tentative Provisions
of the State Council Concerning the Administration of
ROs of Foreign Enterprises issued by the State Council
in 1980, ROs should entrust a local entity designated
by the Chinese Government to lease offices and employ
Chinese staff members. It should be noted that the above
requirement regarding lease of offices is no longer
implemented in China. ROs may lease offices in their
own name or the name of their parent companies. On the
contrary, employment of Chinese staff members must be
handled through local foreign service companies as required
under Article 11 above.
The most significant problem arising from the above
system is that Rep Offices are actual employers. Chinese
staff members work for the ROs every day. However, there
is no labor relationship between Permanent Representative Offices and Chinese
staff members. Theoretically, disputes between Rep Offices
and Chinese staff members are not labor disputes. Such
disputes do not need to be submitted to the local labor
arbitration commission before a labor action is filed
before a people's court. However, in practice, in order
to protect the interests of the employees the labor
contracts between Permanent Representative Offices and Chinese staff members
are generally deemed to be valid by labor arbitration
commissions. The disputes between Permanent Representative Offices and Chinese
staff members should first be submitted to the labor
arbitration commission before any labor action is filed
before the people's court. This is a major distinction
between PRC law and practices.
See also: Labour Law of the People's Republic of China
Regulations on the Labor Management of the Foreign-Funded Enterprises |
