Recruiting in China

TAIPEI, Taiwan -- More and more Taiwanese companies are sending employees -- both expatriates and locals -- to China, said Seraphim Mar, a senior partner with Baker & McKenzie, at an AmCham Greater China Business Committee luncheon held recently at the Sherwood Hotel in Taipei. AmCham is the largest, oldest and most influential grouping of international and local businesses on the island.
She questioned, however, whether companies have taken sufficient steps to comply with relevant laws. "Have you considered the consequences of employment relationships in both the short and long term?" she asked the gathering of international business executives. "Is it better, from a legal perspective, to send employees as expatriates from the Taiwan-based operation or to hire them directly in China?" she continued. In particular, she stressed that companies must consider the impacts of the People's Republic of China's new Labor Contract Law, which went into effect on January 1, 2008.

Mar outlined one possible scenario: "Let's say a company in Taiwan is contemplating sending 20 Taiwanese employees as expatriates to work for its affiliate in Shanghai. The company continues paying salaries from Taiwan, while the PRC affiliate pays only minimum salaries. The company in Taiwan also continues to make employee labor insurance, national health insurance and pension contributions. The question then becomes: Who is the actual employer, and how do the various laws in China and Taiwan view the employment relationship?"

Tax issues also come into play. "The worker has de-facto employment in China," said Mar. "That entails social insurance obligations as well as tax liability and transfer pricing issues. The same, however, remains true in Taiwan." One solution, she said, would be for the Taiwan-based entity to reimburse its employees the cost of insurance in Taiwan, rather than contributing it directly.

Another problem is one of termination. "If the company in Taiwan does not have a position available, whose laws govern?" she asked. "If a pension is payable, is it based on Taiwanese or Chinese salary levels?"

Mar also pointed out that, according to the PRC Employment Contract Law, a fixed-term contract becomes open-ended (long-term) contract if the employee has worked for 10 consecutive years or the fixed-term contract is signed twice, consecutively. Likewise, the same occurs when an employer fails to conclude a written employment contract with the worker within a year. "Employers that fail to conclude an open-ended contract," said Mar, "will have to pay workers double their monthly wages starting from the date that such a contract should have been put into effect."