The Interim Regulations on Labor Dispatch has come into effect as of March 1, 2014. The key contents are as follows:

  1. Permitted percentage of dispatched employees no more than 10%: The number of dispatched employees shall not exceed 10% of the total number of the company’s employees. Here the total number of the company’s employees is the sum of directly-hired employees plus dispatched employees;
  2. Avoidance of being recognized as "labor dispatch under outsourcing’s cover": It will be regarded as labor dispatch if the employer uses employees by way of labor dispatch in the name of contract for work or outsourcing;
  3. "Democratic and publicity procedures" to determine auxiliary positions: The auxiliary positions which the company determines to use for dispatched employees shall be discussed, proposed and commented by the employee representative congress or all the employees, consulted and determined with the company's trade union or employee representatives on an equal basis, and published within the company;
  4. Circumstances for Company to Return Dispatched Employees: Based on the PRC Employment Contract Law, the Regulation expands the circumstances under which the company may return the dispatched employees to the labor dispatch agency, such as material changes to the objective circumstances, statutory redundancy, bankruptcy or early dissolution, and expiration of labor dispatch agreement;
  5. Social insurance for trans-regional labor dispatch: The labor dispatch agency shall contribute the social insurances for the dispatched employee according to the local regulations where the company locates.
  6. Transitional period and adjustment of labor dispatch: If the company exceeds the limitation of 10% before March 1, 2014, it shall formulate an adjustment scheme and reduce the percentage to the permitted number within 2 years since March 1, 2014. However, the employment contract and labor dispatch agreement which were concluded legally before December 28, 2012 with the expiration date after March 1, 2016 may be executed till the contract end.

KWM Comments: The Interim Regulations on Labor Dispatch will impose a significant effect on employers’ employment model. While it is important to abide by relevant provisions stipulated in the Interim Regulation on Labor Dispatch, it is also advisable that employers seek for other alternatives, such as labor outsourcing.