Labor Dispatch Services: a Cost Effective Employment Option for Growing Businesses in China

By Dezan Shira & Associates

Managing human resources is a thorny issue for some foreign-invested entities in China, particularly those who have demanding deadlines or are less familiar with the HR environment. Employee administrative procedures – which include areas such as management of recruitment, work permit applications, labor contracts, and payroll and tax declaration – can slow a project down or create operational risk.

Labor dispatch is an important option for foreign companies in China that require a low cost and flexible method to hire employees. Whether it is a company that needs to staff a short-term project within a demanding deadline, or one that needs to hire temporary workers to support its business during start-up, labor dispatch proves a top choice compared with other traditional recruitment methods.

A triangular form of employment

Unlike direct employment, labor dispatch has a triangular form of employment relations, in which a host company hires dispatch workers from a dispatch work agency. While dispatched workers work for and are supervised by the host company, they are in fact employed by the dispatch work agency.

The dispatch work agency is the de facto legal entity responsible for the administrative management of the employees. Since dispatch agencies have considerable experience and knowledge of hiring local workers, foreign entities often find that hiring through labor dispatch is flexible, efficient, and cost effective.

Managing temporary workers and headcount restrictions

It is common within seasonal industries and project-based work for host companies to hire temporary workers. Given that direct hiring methods are usually tailored for recruiting long-term employees, it is typically more efficient for managers in seasonal and project-based industries to hire through labor dispatch.

RELATED: Payroll and Human Resource Services from Dezan Shira & Associates

Further, many foreign subsidiaries have headcount requirements determined by the parent company’s employment budget. These requirements can prove difficult for host companies that need more workers to maintain daily operations.

Labor dispatch is a solution for a host company that needs to hire more laborers for temporary, auxiliary, or substitute positions in addition to any allocated headcount. Since paying dispatch workers is deemed as a service fee, rather than employment expenses, hiring through labor dispatch allows a host company to efficiently recruit more labor while in compliance with the headcount requirement.

Dispatch agencies

High profile dispatch agencies can help save operation costs for the host company. According to China’s newly enacted Labor Dispatch Law, a dispatch agency should make social insurance payments on behalf of dispatched workers to local authorities in the region where the actual work takes place. If the dispatch agency does not obtain a business license that allows it to make social insurance payments at the actual work place, then the employer should be responsible for making the payments.

However, obtaining a business license for making social insurance payment can be a time-consuming and expensive process. In fact, all these troubles can be saved, if the employer choose a high profile dispatch agency that has multiple operating branch offices in China. By holding multiple business licenses in different provinces, a dispatch company can have greater flexibility to manage the social insurance payment in a more efficient way.

Dezan Shira & Associates’ Shenzhen office has recently obtained a labor dispatch license, with its Beijing, Shanghai and other branch offices expected to follow suit.

Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

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