The Interim Regulation on Labor Dispatch ("Regulation") will enter into force on March 1, 2014. Readers will recall that the Regulation clarifies a number of issues about the requirements for labor dispatch services (i.e., temporary employee services). Seyfarth Shaw will continue to issue compliance tips in connection with the Regulation in the coming weeks.

This Alert focuses on the following issues:

  1. What clauses must be included in labor dispatch agreements?

The Labor Contract Law of the People's Republic of China requires enterprise(s) using labor dispatch services ("Actual Employer") to sign an agreement governing the terms of such services ("Dispatch Agreement") with the relevant staffing agency. While the current law already requires certain terms to be included in the Dispatch Agreement (e.g., the positions to be worked by dispatched employees and the term of their dispatch to the Actual Employer), the Regulation adds the following as terms which must be included in the Dispatch Agreement:

  1. the location of work for the dispatched employees;
  2. the salary payable to the dispatched employees (based on "equal pay for equal work") and the method of payment;
  3. the dispatched employees' working hour system;
  4. treatment for dispatched employees during work-related injury, non-work-related illness, maternity and nursing period;
  5. workplace safety, sanitation and training;
  6. payments such as economic compensation (severance);
  7. term of the Dispatch Agreement; and
  8. the basis for, and payment of, the service fee for the dispatch services.

For purposes of compliance and risk control, any Dispatch Agreement that ends or is renewed or newly signed on or after March 1, 2014, must contain the above statutory clauses.

  1. What are the responsibilities of the staffing agency and/or the Actual Employer for administration of work-related injuries and occupational disease diagnosis?
  1. Work-Related Injury Identification

In general, when an employee suffers a work-related injury, the appropriate authorities must certify that the injury is work-related and assess the seriousness of the injury. The Regulation confirms that if a dispatched employee suffers an injury when working for the Actual Employer, the staffing agency is responsible for filing the relevant application with the authorities. The Actual Employer must provide necessary assistance.

  1. Occupational Disease Diagnosis

The Actual Employer is responsible to assist in the occupational disease diagnosis and identification for a dispatched employee and must provide necessary materials, such as a history of the employee's occupation as well as his/her exposure to the occupational hazard, the results of an evaluation of factors causing the occupational disease at the workplace, etc. The staffing agency should provide other necessary materials, such as the Dispatch Agreement and labor contract.

  1. Work-Related Injury Insurance Contribution and Relevant Payments

In general, employers are required to pay contributions for work-related injury insurance. The Regulation clarifies that these contributions must be paid by the staffing agency of a dispatched employee. However, the Actual Employer and the staffing agency can agree among themselves as to who bears the eventual financial cost of such contributions.

Actual Employers and staffing agencies should agree, in straightforward terms, on how they will handle between themselves their respective responsibilities in relation to these matters.

  1. If employees are dispatched cross-provincially, what rules apply to social insurance contributions?

Social insurance rules differ from province to province. The Regulation provides that if a dispatched employee is dispatched to an Actual Employer cross-provincially (i.e., to a place other than where the staffing agency is located), the participation rules for social insurance (including contribution rates) are determined according to the local regulations applicable where the Actual Employer is located.

If the staffing agency has a branch where the Actual Employer is located, the branch will handle administration of the dispatched employee's participation in social insurance programs, including payment of social insurance contributions. If not, the Actual Employer must handle such matters on behalf of the staffing agency.

There are several noteworthy points regarding this issue:

  1. The current local rules on this issue differ from location to location. The Regulation provides clear guidance on this issue and any local practices contradicting the Regulation will be changed accordingly.
  2. In the past, when a dispatched employee was sent cross-provincially, the staffing agency/Actual Employer would often have a choice as to where to pay social insurance contributions (i.e., the place of work or the location of the staffing agency). The existing practice of choosing to make social insurance contributions for employees according to the rules of the province that has lower contribution requirements will no longer be allowed.
  3. Until now, Actual Employers have not been required to make social insurance contributions for dispatched employees. However, beginning March 1, 2014, Actual Employers will be obliged to contribute social insurance payments for cross-provincially dispatched employees if the staffing agency has no branches where the Actual Employer is located.
  1. What is the risk of non-compliance?

Actual Employers and staffing agencies violating the requirements of the Regulation will be ordered to rectify the issue and can be subject to a fine up to RMB 10,000 for each dispatched employee. Any loss caused to the dispatched employee as a result of the breach is the responsibility of the Actual Employer and the staffing agency jointly and severally.