Labour dispatch is not a tool for flexibility of workforce arrangement in China.

As of 1 March 2014, China has implemented the new Interim Regulations on Labour Dispatch (“Regulations”) to further regulate the labour dispatch  practice. A number of companies have reportedly been undertaking employment restructuring to ensure  compliance with the new rules.

Restriction on applicable positions

The Regulations re-affirm that employees may only be dispatched to three types of positions, i.e.,  temporary, auxiliary and substitutable positions:

  • Temporary positions refer to those existing for a period of no more than six months
  • Auxiliary positions refer to positions which serve for non- primary business and support  positions conducting main business
  • Substitutable positions mean positions which may be taken by other employees during the period  when an employee of the labour accepting entity is absent for study, vacation or other reasons

While the above definition of the positions as provided by the Labour Contract is repeated, the  Regulations require a labour accepting entity to conduct collective consultation when it defines  the auxiliary positions. The collective consultation procedure includes gathering comments and  suggestions raised by employee representative congress  or from all the employees, confirming the  positions with the in-house trade union or employee representatives and publishing the final  decision.

If the collective consultation procedure fails to be completed, the labour accepting entity will  receive administrative warning and be ordered to make rectification; in case a dispatched employee  suffers damage, the labour accepting entity will be required to make compensation.

Cap on the number of the dispatched employees

The Regulations cap the number of dispatched employees at 10% of the total headcount of the labour  accepting entity (including non-dispatched and dispatched employees). A grace period of two years is provided to the labour accepting entities for reducing the current ratio down to the cap. Before the actual ratio is reduced down to  the cap, a labour accepting entity is not allowed to accept new dispatch employees.

Social insurance for cross-region labour dispatch

It is clarified that the social insurance contributions shall be made at the place where the labour  accepting entity is located. If the labour dispatch firm has a branch at the place where the labour  accepting entity is located, the local branch of labour dispatch firm will be responsible for the  relevant formalities; if no such local branch, the labour accepting entity shall hand the formalities.

Restriction on return and termination

In general, only under the limited statutory situations, a labour accepting entity may return a  dispatched employee to a labour dispatch firm. The Regulations provide the new situations  supplementary to those provided by the Labour Contract Law.

Under the Labour Contract Law and the new Regulations, a labour accepting entity is permitted to  return a dispatched employees if one of the statutory grounds for individual and mass dismissal  under direct employment structure applies. New situations provided by the new Regulations  for  return include closure of a labour accepting entity (due to bankruptcy, liquidation or revocation  of business license, etc.), substantial change of objective circumstances, statutory situations for mass lay-off,  expiration of a labour dispatch service agreement. However, if any of the statutory situations  prohibiting dismissal as provided by the Labour Contract Law applies to a dispatched employee  (e.g., a female employee in her statutory maternity leave), the dispatched employee may not be  returned based on some of the statutory reasons (e.g. substantial change of objective  circumstances) and the labour accepting entity has to maintain the employee until such situation ceases to exist.

Moreover, a return does not necessarily justify dismissal of a dispatched employee by a labour dispatch firm. Under some of the conditions for return (e.g., closure of a labour accepting entity), dismissal is not allowed. The labour dispatch firm will have to keep the returned employee until the employment contract expires unless the dispatched employee disagrees on being dispatched to a new labour accepting entity with the same or better terms and conditions of the existing employment contract.

Minimum wage increase in some of China’s big cities

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Chinese law requires employers to provide monthly salary  in an amount not less than the minimum salary after  the deduction of additional salary components, such as  overtime payment, statutory subsidies for working under  special working conditions (e.g., subsidies for middle or night  shifts, high or low temperature, etc.), statutory benefits (i.e.,  employee’s contributions of social insurance and housing  fund), etc. The specific amount of the minimum salary is  determined and announced by cities and is adjusted on  annual basis by most cities.

Comments

With the implementation of the Regulations, the direct  employment structure is expected to be promoted.  Companies are advised to conduct internal checks in order  to ensure that positions taken by dispatched staff conform  to the new rules. Direct employment provides for a clear  structure as well as minimizes risks of de facto employment  claims. If a company does not have delegated HRs,  outsourcing HR work to a service provider may prove to be a  cost-efficient solution.