China’s economy is growing rapidly, reaching $17.7 trillion in 2023. This is an incredible number, considering its GDP was a mere $149 billion in 1978. Safe to say, it’s clear how the country has held its position as the world’s second-largest economy for over a decade. 

With a population exceeding 1.4 billion, China offers access to the world’s largest domestic market. Plus, the country has a rapidly growing middle class, which means more purchasing power and demand for different products and services.

These are just a few reasons China is a top destination for foreign businesses. In 2022, China attracted $189.13 billion in foreign direct investment (FDI) – an 8% increase from the previous year. The manufacturing sector brings in the most business, with a 46.1% year-on-year increase.

If you’re considering expanding your business to China, it’s a smart decision. In fact, the Chinese government encourages it, reducing bureaucracy and offering tons of incentives for foreign businesses. That’s why China was ranked among the top 10 most improved economies for business by the World Bank.

Of course, expanding your business to a new country, especially one as complex as China, isn’t easy. China’s labor laws and business regulations are nothing like the ones you may be used to in the West.

Luckily, you don’t have to do this alone. Hiring a Professional Employer Organization (PEO) in China allows you to reap all the benefits of this business-friendly country without the hassle. Here’s what you need to know about PEOs in China.

What Are PEOs in China?

A PEO in China acts as your company’s outsourced HR department. They handle all the complexities of employing staff within the country. Think of them as your local experts, taking care of everything from payroll and benefits to legal and compliance matters.

Here are some key services a Chinese PEO provides:

  • Payroll processing: Accurate and timely salary payments, including taxes and social insurance contributions.
  • HR administration: Employee onboarding, contract management, performance reviews, and leave management.
  • Legal and compliance: Staying compliant with Chinese labor laws, including those related to work permits, visas, and social security.
  • Benefits administration: Providing health insurance, pension plans, and other employee benefits that comply with Chinese regulations.
  • Tax and accounting support: Helping with tax filings, record-keeping, and ensuring compliance with Chinese tax laws.

The main reason you want to work with a PEO in China is because they’re fully familiar with all the local laws and regulations. 

For instance, the Labor Contract Law mandates that all employees must have a labor contract written in Chinese and tailored to local regulations. If your company doesn’t have a translator, you may be out of luck. But with a PEO, you don’t have to. 

Another example is the law on the Administration of Employment of Foreigners. It states that foreign employees cannot work for multiple employers at the same time, which complicates employment arrangements for expatriates like you. A PEO is the perfect partner to help you out of problems like these. 

PEO vs EOR

PEOs and EORs are often mistakenly used interchangeably, but they’re two different entities. A PEO acts as your company’s outsourced HR department. You maintain control over the day-to-day management of your employees, while the PEO handles the administrative and compliance aspects of employment.  

Meanwhile, an EOR (Employer of Record) becomes the legal employer of your employees in China. You retain control over the hiring and management of your team, but the EOR assumes all the legal and financial responsibilities related to employment. That includes payroll processing, tax withholdings, and compliance with regulations such as the Social Insurance Law in China.

The question is, which one is right for you? Well, it all depends on your specific needs and risk tolerance.

  • Choose a PEO if you’re comfortable sharing some employment-related liabilities. You’ll still be able to maintain control over your employees and HR functions.
  • Choose an EOR if you want to reduce your legal and financial risks in China. You’ll be able to prioritize compliance and want a streamlined employment solution.

Start hiring with a China PEO

Let us handle the complexities of hiring, compliance, and payroll in China while you focus on growing your team.

  • Hire employees in China with a China EOR
  • No local entity is needed
  • Pricing starts at USD 199 per employee
  • Remote People can also help you find the best talent in China
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How Does a PEO in China Work?

When a business partners with a PEO, the PEO becomes the legal employer of the staff. Meanwhile, the client company retains control over day-to-day management and operations. This way, you can bypass the tricky part of setting up a Wholly Foreign-Owned Enterprise (WFOE) or other legal entities in China.

Here’s what you can expect when working with a PEO in China.

1

Initial Consultation and Onboarding

The first step when working with a PEO is a thorough consultation. This is your chance to discuss your business needs, hiring requirements, and desired outcomes. With these needs in mind, the PEO will then recommend the most suitable solutions for your company. 

If that solution works for you, you can move on to the onboarding phase. You’ll give the PEO all the necessary employee information, including contracts and payroll details. The PEO will then handle all the necessary paperwork and registrations with relevant Chinese authorities. 

The good news is, it won’t be long until you start seeing the benefits of this process. Companies working with a PEO grow 7% to 9% faster, have 10–14% lower turnover, and are 50% less likely to go out of business.

2

HR Process Management

Once onboarding is complete, the PEO takes over the day-to-day management of your HR functions. This includes payroll processing, tax filing, benefits administration, HR compliance, and employee relations. Depending on the PEO, you can pick the areas where you want to delegate and the areas you want to retain control over.

You’ll be able to onboard employees within hours as the PEO handles employment contracts and registrations with local authorities. This can often take weeks or months if done independently.

The PEO also manages all aspects of payroll, including salary calculations, tax withholdings, and social security contributions. This is very important in China, where payroll regulations are strict and vary by region. For instance, social insurance contributions can range from 6% to 12% of an employee’s salary, depending on the city!

3

Regular Reporting

The PEO will continue to give you regular reports on key HR metrics, such as payroll summaries, tax filings, and employee attendance. This will keep you updated about the happenings in your workforce and help you make more informed business decisions. You can expect these reports weekly, bi-weekly, or monthly, depending on the payroll cycle.

4

Ongoing Support

Finally, the PEO will provide ongoing support and guidance throughout your partnership. You’ll have access to a dedicated team of HR professionals who can answer your questions, address any concerns, and provide expert advice on navigating the Chinese business environment.

Who Can Use a PEO in China

Any company, large or small, can benefit from the services of a PEO. However, certain types and sectors of businesses are better suited to use PEOs given their unique circumstances in China.

Startups and Small to Medium Enterprises (SMEs)

Many startups in China struggle to get funding from banks due to the country’s strict lending standards and risk-averse investment culture. In fact, 43% consider financing their biggest challenge. Plus, the average interest rate for loans to SMEs can be around 6–8% – much higher than rates for larger firms.

That’s why establishing a legal entity as a startup in China can take several months if not years. A PEO allows these companies to enter the market quickly, sometimes within 12 hours, by handling all employment-related tasks, such as onboarding and payroll management.

Companies Testing Market Viability

Businesses looking to test new products or services in China can use a PEO to gauge market response without committing to a full-scale operation. This allows you to avoid financial risk while learning more about consumer behavior and market dynamics.

If the market proves favorable, you can easily transition from using a PEO to establishing a permanent presence. On the other hand, if the venture is unsuccessful, you can exit without any heavy losses.

Technology and E-Commerce Firms

The tech sector in China is highly competitive, with a growing demand for skilled workers.

However, since late 2020, the Chinese government has implemented a series of regulatory crackdowns targeting major tech firms, including antitrust measures and data security laws. Companies like Alibaba and Tencent have seen their market capitalizations drop by up to 75% due to the hefty fines and forced restructuring of these regulations.

Luckily, PEO can help navigate these regulations and avoid costly fines while managing employee contracts and benefits.

Multinational Corporations (MNCs)

MNCs entering China may need local expertise to manage diverse teams effectively. A PEO can handle payroll, benefits administration, and compliance with Chinese labor laws. This way, you can focus on strategic objectives rather than administrative tasks.

Companies Employing Expatriates

Hiring expatriates in China comes with the hassle of complex visa regulations and work permit requirements. For instance, expatriates seeking employment in China need to get a Z visa, which isn’t easy to obtain. 

PEOs specialize in managing these processes, ensuring your foreign employees are legally compliant with local laws. Beyond work permits, they also offer support for expatriate housing, health insurance, and other benefits!

Benefits of Using a PEO in China

Working with a PEO in China can be a lifesaver when entering new markets. Here are some of the key advantages of working with a Chinese PEO.

Smooth Market Entrenchment

China has a plethora of laws that foreign companies must navigate. The Negative List for Market Access outlines sectors where foreign investment is restricted or prohibited. For example, sectors such as telecommunications and media have strict rules that require foreign firms to form joint ventures with local companies.

Simply put, entering the Chinese business market is far from easy. A PEO has all the necessary knowledge of the Chinese market and local employment practices. They can use this expertise to help you to enter the market more effectively and efficiently.

Compliance

A PEO can help you maintain compliance with China’s intricate labor laws, including employee registration, tax withholdings, and social security contributions.  They stay updated on changes in labor laws, which are frequent in China, which means you can avoid legal risks associated with non-compliance.

Non-compliance can result in hefty fines. For serious violations, fines can reach up to CNY 100 million(approximately $14 million). Meanwhile, minor infractions can cost CNY 20,000 to 50,000 (about $2,800–7,000 USD) for safety violations.

Cost Savings

By outsourcing HR functions, companies avoid the costs of establishing and maintaining a local entity. That includes registration fees and ongoing administrative expenses. 

PEOs can offer competitive employee benefits at lower costs since they have pooled resources across multiple clients. This is perfect for small to medium-sized enterprises that don’t have the funding to pay all that overhead.

Payroll Management

A PEO handles all aspects of payroll management, ensuring timely salary payments and compliance with tax regulations. This reduces administrative burdens on the company. 

With expertise in local payroll practices, they also help you avoid errors that could lead to financial discrepancies or employee dissatisfaction. In fact, a Remote survey showed that 32% of employees who experienced payroll mistakes feel more cautious about their employer. 42% also noted a deterioration in their relationship with the company.

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Scalability

A PEO allows companies to scale their workforce up or down quickly without the constraints of formal employment contracts or the need for extensive HR infrastructure. As your business needs evolve, the PEO can adjust staffing levels as needed. Without a PEO, you may struggle to adapt to China’s rigid employment structures and lengthy hiring processes.

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Find Your Dream PEO in China Today!

Expanding into China is your chance to change the trajectory of your business and take a step toward step. However, it’s no secret that China’s labor laws and regulators are pretty strict and hard to follow. 

A PEO can simplify this process by handling HR, payroll, and compliance matters. By partnering with the right PEO, you can avoid legal risks and focus on growing your business in the Chinese market.

Ready to expand into China? Contact Remote People today for expert guidance and tailored PEO solutions to help you hire and grow with confidence.

Frequently Asked Questions

A PEO can help you expand to China by providing essential HR services and keeping you compliant with local labor laws. You’ll be able to hire employees without establishing a local entity, which can be time-consuming and costly. Plus, PEOs manage payroll, benefits, and compliance with China's complex regulations.

The cost of using a PEO in China depends on the services and number of employees hired. You can expect to pay a monthly fee of $300–1,000 per employee. This fee covers payroll processing, compliance management, and employee benefits administration.

 

These costs may seem high compared to managing an in-house HR department, but the savings from avoiding legal penalties definitely justify the expense.

Yes, a PEO can help you hire remote employees in China. They give you the necessary infrastructure to legally employ remote staff while complying with Chinese labor laws. PEOs manage all aspects of employment for remote workers, including payroll processing and tax withholdings.