Some companies have been hesitant to set up in China because of the complexity, cost and restrictions involved in being an employer. There are strict conditions for terminating the employment of a worker in China.
This has led to the growth of global employment outsourcing (GEO) companies, which act as legal employers of record for a client company in a country where the client company is not registered.
A GEO arrangement involves three parties: a client company, an employment company and a dispatched employee.
The employment company will sign a labour dispatch service agreement with the client company and an employment contract with the dispatched employee. The employment company will be the employer of record and perform all employer’s duties such as paying the salary, social insurance and other benefits, withholding and paying the individual income tax (IIT).
The dispatched employee will be assigned to work for the client company during the dispatching period. The client company will be liable to pay not only a service fee but also the costs of employment of the dispatched employee under the labour dispatch service agreement.
GEO is not a recognised concept under Chinese laws, but the structure of GEO service is very similar to labour dispatch service defined under law.
A labour dispatch is subject to various legal restrictions, among others, include:
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