Just updated our research regarding China Representative Office rules relating to employees and note the following.
A. A Rep Office may hire no more than four foreign persons, each of whom is called a representative. These people are hired directly by the Rep Office and are treated as normal employees under China’s employment law system. That is, they are to be hired pursuant to a written contract and their taxes and social benefits must be paid.
Q. If four foreigners work for the rep office, can the rep office directly or indirectly hire any Chinese employees? If yes, how many?
A. A Rep Office cannot directly hire any Chinese nationals. It instead must hire Chinese nationals indirectly through a Chinese dispatch company such as FESCO. There is no limit to the number of Chinese nationals who can be hired indirectly.
Q. Can the foreigners work directly for the American home office?
A. All foreign employees of the Rep Office resident in China must be hired by the Rep Office. They cannot work directly for the American home office.
The Rep Office must appoint a Chief Representative. The Chief Representative is not required to be an employee of the Rep Office and is also not required to reside in China. However, if the Chief Representative is not an employee of the Rep Office it must be an employee of the parent company. It is therefor possible to have a situation where four foreigners work in the Rep Office in China as representatives while a fifth foreigner who works for the parent company is designated as the Chief Representative. That is, the Rep Office has four resident representatives and a fifth, non-resident Chief Representative.
Q. Can the Chinese work directly for the American home office? Or do they have to work for a third party agency, like FESCO?
A. No Chinese individual can work directly for a foreign Representative Office. The Chinese nationals must work for a dispatch company under a contract between the dispatch company and the Rep Office.
Q. If the Chinese are the Representatives (let’s say there are only 3 Chinese workers and no foreigners), can they work directly for the US home office? Or do they have to work for a third party agency, like FESCO.
A. As noted above, all Chinese nationals must be indirectly employed under a dispatch agreement with a Chinese dispatch company such as FESCO. They cannot work directly for the foreign parent of the Rep Office. In addition, the dispatch agreement must be between the Rep Office and the dispatch company.
It is important to note that the Rep Office needs a good contract with Chinese dispatch company and also must make sure that the Chinese dispatch company has an agreement with the Chinese workers that protects the foreign company. Just by way of example, if the foreign company wishes to protect its trade secrets, it should make sure that the employment agreement between the Chinese workers and the Chinese dispatch company mandates that the employees not reveal trade secrets of the foreign company.