Labour authorities are reported to be closely supervising local labour dispatch practices in order to ensure strict enforcement of the Interim Regulations on Labour Dispatch (the “Interim Regulations”).1 Labour authorities of large cities, including Beijing and Suzhou, have called for labour accepting entities to reduce the ratio of the number of labour dispatch employees to meet the statutory cap of 10%. Only labour accepting entities that have a ratio above 10% have been asked to file plans to reduce their labour-dispatch headcount. The final date for filing in Beijing and Suzhou is 31 August 2014.

On 30 June 2014, the Shanghai labour authority promulgated the Circular Hu Ren She Guan Fa (2014) No. 27 (the “Circular”) which not only calls for filing but also provides guidance on selected aspects of local implementation.

The Circular urges labour accepting entities who have a ratio above 10% as at the commencement of the Interim Regulations on 1 March 2014 to formulate a time-scaled plan to reduce the ratio to the cap of 10% and file such plans with the local labour authority. No timeframe for the filing is specified. In contrast to other cities, Shanghai has further filing requirements. Labour accepting entities that operate below the cap for the permitted number of dispatched employees but that use newly dispatched employees due to special production and operation needs after 1 March 2014, must also formulate the same plan and file with the Shanghai labour authorities.

The Circular emphasises the implementation of the “equal work, equal pay” principle to dispatched employees. In case of non-compliance, the Shanghai labour authorities will first provide a period for rectification. Should the company fail to rectify the issue within this period, administrative sanctions may be imposed. The Circular also highlights the collective consultation requirements for defining the auxiliary positions. The same consequences (i.e.,rectification first, then administrative sanctions) applies to the non-compliance with the collective consultation process.

The Circular specifically mentions the conversion from labour dispatch to human resource service outsourcing. As required by the Circular, management of employees under the existing labour dispatch relationship must be adjusted to reflect the conversion. While, it provides no specifications but it does imply an indirect management structure for the new model of service outsourcing. If the current management of the dispatched employee remains the same, the Circular considers such service outsourcing as circumvention of law and consequently, restrictions and liabilities under the Regulations will apply.