China continues to be an attractive market of opportunities for international businesses despite the ambiguous outlook due to the US-China trade wars. According to PwC’s annual survey for the the 2018 APEC (Asia-Pacific Economic Cooperation) CEO Summit, 51% of business leaders plan to raise investment levels, an 8% increase from the 43% two years ago.
For businesses looking to penetrate the China market, hiring people in China is the most effective way to have a meaningful local presence in China.
Two of the most common ways of establishing a local presence in China are setting up a legal entity and using PEO or EOR employment. If you’re thinking of entering the China market for the first time, don’t assume you need to setup a China company! This is not your only option and instead may end up wasting a ton of time and money! There are countless stories of foreign companies expanding into China and experiencing application or licencing delays which extend the setup process of their legal entity to 6 - 12 months!
Instead of setting up a legal entity in China, one of the most easiest and most cost-effective ways to enter the China market is by using PEO employment or secondment and hiring staff under an EOR (Employer-of-Record).
Secondment PEO/ EOR is the perfect solution for companies expanding into China who:
- Don’t have an existing legal entity set up in China to hire staff locally; or
- Looking to test the Chinese market without making a significant investment; or
- Have little to no knowledge of Chinese labour law and payroll rules; or
- Looking for a more secure solution avoiding corruption related incidents.
Employment under a PEO/ EOR service provider is becoming increasingly popular in China (and throughout Asia) as companies look for more cost-effective and flexible ways to set up a presence in Asia Pacific.
What is PEO Employment and Secondment EOR?
Simply put a PEO or EOR solution legally employs your staff in China on your behalf and seconds them back to you under a service agreement. With this arrangement, the PEO/EOR service provider becomes the employer of record in China, bypassing the tedious process tied with setting up a legal entity in China and making expansion into the market much simpler.
Generally speaking PEO employment and secondment EOR deliver similar results of taking on headcount for a company. However, each solution takes on different levels of legal responsibility, so depending on your business needs one solution may be more appropriate than the other.
On the whole, PEO/ EOR employment is a solution that enables you to effectively hire staff immediately to perform key duties such as sales activities, market research, set-up activities without the need to incur the costs, commitment and time delays associated with setting up a legal entity.
In general, hiring under a PEO/ EOR arrangement is at least 45% - 60% cheaper than setting up a legal entity in China. The below table compares the costs of setting up a 100% foreign owned company in China and using PEO/ EOR employment in China:
Why Do Companies Use PEO/ EOR Employment Solution to Set up a Presence in China?
We’ve already gleaned on this a little earlier, but here’s the key reasons why many companies choose to use PEO/ EOR solutions when setting up a presence in China.
Greater flexibility & reduced cost
Hiring staff in China under a PEO/ EOR employement solution gives you a much higher level of flexibility than if you set up a China company. PEO/ EOR arrangements effectively lowers the barriers to entry into the China market.
Not sure whether the China market is right for you? PEO/ EOR employment solutions ensures that you can quickly scale up and down before taking the plunge. Six months in and want to put operations in China on hold and focus on another market?
Simply cease the China PEO/ EOR employment and turn it back on again once you are ready. Try to do this with a legal entity and you are still going to bear the ongoing administration costs, any other wind down costs and the inevitable questions from finance about how to recover the cost!
Speed to market
Not only is the actual process of setting up a legal entity a hassle, but the process of receiving the approval from your HQ is arguably even more tedious. From obtaining the relevant documentation, arranging sign offs to completing the legal entity set up in China, all these steps can really slow down the process, impeding opportunities that rely on a timely delivery.
Since PEO/ EOR is a relatively low commitment solution, it fast tracks your time to market by skipping the lengthy process involved in setting up a legal entity in China, enabling companies to go to market in as short a timeframe as a single day.
Services covered under PEO/ EOR employment solutions
Standard services you should expect from a good China PEO/EOR company will include:
- Arranging an employment contract and onboarding of the employee
- Arranging any employee insurances, e.g. employee compensation
- China visa processing in the event that your employee is a foreigner who needs an employment visa in China
- China salary and payroll processing, including CPF, tax and any other required statutory submissions
- Maintenance of annual leave and sick leave records
- Service delivered from an HR Portal, where seconded staff can access their HR records, pay slips and apply for leave online
- Recruitment service solution, in the event that you need help to find the right person in China and go to market quickly
- HR support and advice on China employment law and any employment risks
Employment under a PEO service provider is becoming increasingly popular in China (and throughout Asia) as companies look for more cost effective and flexible ways to set up an office in China without having to commit to a legal entity in China.
Know your company needs
Expanding your business into another location can be very exciting. However, that is no excuse for sloppy work. Make sure you carefully examine the needs of your company, this way you can take advantage of the market and better evaluate the solutions that will work to build your business foundation in this new location.
A great approach is to catalogue the vital responsibilities of this new opportunity and prioritise key functions while outsourcing secondary and tertiary tasks out to professional service providers, streamlining your business.
Do your research
PEO and EOR are great solutions to help you expand your company, but make sure you use the right solution for your needs. Research the terms of what each solution covers so you can better find the solution for you.
Need help deciding? Drop us an email or call so we can help you find the solution for you.
Find a vendor that works for you
Not all PEO/ EOR service providers are created equal. Do the research and make sure they cater to your needs and that they hold up to their promises. How experienced are they? Do they offer a holistic solution to your needs, if their service line is too restrictive you may find that you have another problem in your hands.
- HR Leaders Should Know the Difference Between PEO & EOR
- How to expand your business in Asia through Secondment/PEO
- How to build or expand in Asia under a headcount freeze
- Your Ultimate International Business Expansion Framework
Links International is an industry leader in innovative HR outsourcing with services such as payroll outsourcing, visa application, Employer of Record (EOR), recruitment and more! Contact us for more information on how we can help leverage your HR function.