On 28 December 2012 China’s legislators adopted proposed amendments to the Labor Contract Law. These amendments will change the rules regarding the use of workers supplied by so-called secondment service companies (manpower agencies) and are due to come into force on 1 July 2013.

The key changes are these:

  1. Employees supplied by so-called secondment service companies will only be allowed to be seconded for temporary, auxiliary or substitute positions, but not for extended or executive roles.]
  2. The formation of a secondment service company will require its owners to possess a minimum registered capital of RMB 2 million and approval from the Labor Bureau.
  3. The policy of “same work, same pay” will have to be specified in contracts, so that staff engaged through secondment service companies will have to be on the same pay as those engaged directly by the employer if they are doing the same work.
  4. There will be limits placed on the number of employees that can be engaged through secondment service companies – the employee secondment rate will not be allowed to exceed a certain proportion of the workforce, as determined by the labor authorities.
  5. A breach of the new provisions may result in fines, confiscation of illegal income and revocation of approval by the Labor Bureau.

Employers operating in China need to be aware that the practice of outsourcing labor will be strictly regulated after these amendments come into force. Companies will need to consider whether they still wish to use staff through agencies given the reducing differences between seconded service workers and the employer's permanent staff. Serious breaches of the new provisions by secondment service companies could result in fines ranging from RMB 5,000 to 10,000 per affected employee.

All companies operating in China should ensure they are prepared for the introduction of these changes.