China – reform of the "labour dispatch" (agency work) system

In the past year, the labour dispatch system (the hiring of workers through employment service agencies rather than directly) underwent a major overhaul.  The Ministry of Human Resources and Social Security issued the Interim Provisions on Labour Dispatch (劳务派遣暂行规定) (Interim Provisions) which became effective on 1 March 2014.

The Interim Provisions set out further restrictions on using dispatched employment in an effort to regulate the widespread use of labour dispatch and ensure that dispatched employment supplements, rather than constitutes, the employment law contract-based workforce.  These restrictions will potentially affect thousands of employers and tens of millions of employees in China.  However, there are still certain outstanding issues to be further clarified by the authorities and the practical implementation of the Interim Provisions in various local cities remains to be seen.

The Interim Provisions provide that a dispatched employee may only be used for positions that are temporary, auxiliary or substitute in nature.  However, for substitute positions, the Interim Provisions do not elaborate on the length of the covering period.  At local government levels, some rules have provided some clarity; for instance in Shandong Province, we are aware of a local rule that provides that the covering period should be for no more than a one year period.

Under the Interim Provisions, companies using dispatched workers comprising over 10% of their overall workforce must develop an adjustment plan for their employees and submit this plan to the local human resource and social security bureau; these companies must also be in full compliance with the new rules before 28 February 2016.  However, up to now, most local governments have yet to take action to actively enforce the Interim Provisions, primarily due to the vast number of companies and employees affected.  Only a few localities, for instance Beijing, Shanghai, Jiangsu Province, have issued rules on when and how to submit adjustment plans.  It is believed that other local governments will place more attention and efforts on this issue in the coming year.

If companies with dispatched employment arrangements have not considered phasing out their dispatch arrangements, this is something they should expedite for 2015.