Many importers end up feeling good about a particular individual, and hire him/her for a fixed salary. The objective is usually to communicate with suppliers, to follow new developments, to inspect product quality, and to source new products/suppliers.
Before you do that, you should be aware of the risks it represents for you.
When is it legal?
In theory, it is only legal in three cases:
- You have set up a company in mainland China (not in Hong Kong or Taiwan), and that company hires local workers.
- The person you want to hire sets up a company on her own, and you pay that company for consulting work.
- A company already established in mainland China hires that individual, dedicates her to your projects, and re-invoices you her full cost (plus a margin, one would guess). Actually this is not really legal either, except if that individual spends part of her time on projects for the company that hired her.
For more details on this topic, go and read Hiring A Chinese Employee Without A Chinese Entity. Good Luck With That on the China Law Blog.
If you go the illegal route…
If you are going to hire a Chinese citizen illegally, you should at least try to minimize your risks.
Do not transfer money to her private bank account, or you can be accused of not respecting the labor law, not paying social insurance, and evading taxes. It can catch you up anytime you visit China.
A less risky solution is to transfer the money to a third party that you have good reason to trust, and that third party wires it to that individual (with no way to link it back to you). This is a service you can pay for. You are still in the “dark grey”, but you probably run less risks.
Another tip is to sign no contract at all. Any signed contract will only be used against you, except if they are fully legal (no court of law will protect you on the basis of a contract that formalizes an illegal situation). Better be 100% illegal and “under the radar”.
Business risks are higher than legal risks!
That individual will know all about your supply chain: your suppliers, your prices, your products, your main customers. After talking to your suppliers, and doing a few internet searches, she will also know your main competitors.
Do you see how much can go wrong? Imagine she starts proposing your products to your competitors, and sets up a trading company (which might be owned by a relative of hers). Imagine if she contacts your customers directly with lower prices. This kind of things takes place every day in China.
If you hired that person illegally, you will not be able to sue her. Again, a Chinese court of law will not give any weight to your demands (even if you got a contract). You will have no way to pressure/punish that rogue employee.
Overall I feel importers should avoid this easy solution (see my previous post: Managing an employee based in China/HK).
Do you agree?
Disclaimer
We are not lawyers. What we wrote above is based only on our understanding of legal requirements. QualityInspection.org does not present this information as a basis for you to make decisions, and we do not accept any liability if you do so.
thanks Renaud,
so many people I think….do this though…..and have no idea the real risks….
…and many local Chinese companies are treated much differently than foreign companies – also should note that…
Chinese businessmen always say foreigners spend too much time and money on law! kind of jealous of these guys….they are at a much bigger advantage
Michael,
Foreign companies are definitely at a disadvantage. They should not play with fire, or they might get seriously burned!
Absolutely. Sometimes when westerns start to do business in/with China, and things go smoothly at first, they get what I call “invincible foreigner syndrome”. Because they can go anywhere and have all the fun they want, and because they perceive the culture as “lawless” they start to think cowboy strategies will be tolerated in business circles and regulatory agencies as well.
It’s a good idea to assume any and all vulnerabilities will be exploited by someone with an interest in doing so; regulatory agencies, competitors, unhappy suppliers, disgruntled employees, underpaid mistresses, etc.
By the way, another “less risky” way way to hire a local “off the grid” is to have him/her open an overseas or HK bank account (or even an overseas company) and transfer the money to that account. It’s not the way my company operates here, but it is do-able, and it’s less risky than trusting a 3rd party as a pass-through for the cash.
David,
You are right. I love this “invincible foreigner syndrome”.
And your tip about a HK bank account is very good. Thanks.
Great article! This is a good look into the strategy of having “locals” help with Chinese factories. It is interesting to me that so many people are trying this.
The point is, the concept of hiring a Chinese employee is problematic and short-sighted for many reasons:
— It is illegal
— It is of questionable business merit (as the article addresses)
— It is very difficult to manage
The fact that we are talking about China makes everything exponentially harder (in China, everything is possible but nothing is easy). Long distance hiring is challenging in any situation. (ie. To gain a different perspective, think of hiring a Peruvian to help your business in that country.)
The clearest solution to this problem is really to open your own office in China. One must find a way to justify the cost/challenge of that, otherwise begin to look at the alternatives.
Bucko,
Very true.
I love this sentence in your comment: “in China, everything is possible but nothing is easy”
Renaud,
Reading this article for which thanks. But isn’t it possible for a Chinese to be selfemployed or work on a freelance basis, whereby he is responsible for paying his taxes as a selfemployed person or should he in that case set up his own company?
What if you need someone in China – and let’s say there is enough trust – ocassionally. It makes no sense for him to set up a company or for the foreign company to set up an office in China for ocasionally making use of the services of a Chinese person. What is the opinion on that?
Rob,
From my understanding, there is no such thing as “freelance work” in Chinese law.
For a Chinese citizen, setting up a company for consulting/services is not expensive. But then, they have to pay all sorts of taxes, and they usually don’t want that.
My opinion is exactly what I wrote in the article: you can do things illegally without much legal risks (if you follow the right way), but you should make sure you are not putting your business under other types of risks.
Renaud,
I read your article with a lot of interest as I am currently facing this situation. The difference is that I am the one being hired in China by a company based in the USA, the other difference is that I am not Chinese but French, but I believe that being Chinese or foreigner does not change anything in that case, right ? I still have to find a way to be hired as ”legally” as possible in China. To avoid paying too much taxes, I was thinking of opening an office in Hong Kong and then pay myself in China through a staffing company, what do you think ?
Jeremy
If you open a company in HK, you can receive payments, and pay 0 tax since you’ll be performing services outside of HK.
However, I never heard of a foreigner getting hired (and getting a work permit) in China through a “staffing company”.
I would advise you to think of it carefully. It is difficult for French citizens to get business visas in China. You should have a plan to get a work permit quickly.
Hi there Renaud, thanks so much for the information. I am an American who would like to do a marketing event to promote an international brand in China. We will most likely need to hire Chinese people for about a week for a number of purposes, such as to drive our bus, to work in our temporary store, as security, and to help us translate. Do you think hiring this type of temporary employee would face the same challenges as hiring a full time employee? I’d love to hear any recommendations/warnings you have about temporary employees as well. Thank you so much.
The law is a little more lax concerning part-time jobs (less than 20 hours a week, if my memory is good). And, if it’s very temporary, you probably don’t need to care much about the law…
I can’t give you any advice on this. Better consult with a lawyer.