New regulations limiting the proportion of dispatch—or temporary—workers in China went into effect more than a month ago, constraining hiring choices and requiring labor force restructuring for many companies. A follow-up to the 2013 Labor Contract Law Amendment, the Provisional Regulations on Labor Dispatch and its associated implementing regulations limit the proportion of dispatch workers to 10 percent of a company’s overall workforce in China. Although employers can apply for a two-year grace period to comply with the new regulations, many US companies are taking steps now to ensure they are ready in 2016.

The US-China Business Council (USCBC) compiled suggestions and best practices based on how member company human resource departments are dealing with the challenges created by the new law. (USCBC is the publisher of the China Business Review.)

Determine the actual number of dispatch workers employed 

Companies should first determine the number of dispatched workers that they employ in China. The Labor Contract Law Amendment passed in 2013 indicates that dispatch workers include those in the following positions:

  • Temporary  A position in which the employee is hired for a consecutive period of no more than six months
  • Auxiliary  A position in which staff supports an employee in the core business
  • Substitute  A position in which staff are hired to temporarily replace employees who leave work for a fixed period of time for study, leave, or other reasons

These positions are often filled by what HR executives call “non-essential staff,” employees that have a limited impact on the core business of the company. Administrative assistants, receptionists, and cleaning staff all fall into this category. Companies may not use dispatch labor to fill a specific position in one of these categories for longer than six months. As such, any auxiliary employee that has been hired through a dispatch agency for longer than six months would qualify under the new regulations.

Lower the proportion of dispatched workers 

Many USCBC members have already begun internal reviews to evaluate the proportion and positions of dispatch workers. Once companies have determined their proportion of dispatched workers, HR professionals suggest they should—with few exceptions—lower this proportion by:

  • Hiring the employee directly: This is the preferred solution by most employees and the Chinese government. However, companies noted that converting dispatch employees to contract employees increases compensation and benefits costs and reduces hiring flexibility. One manufacturing company decided to categorize workers and sign contracts directly with those employees in positions that were critical to company operations or those who had long tenure. They also considered employees with records of high performance, but these were not as important as employees in the first two categories. Another member company said their HR department evaluates how long dispatch employees have worked for the company. If the employee has signed two consecutive contracts, he or she is eligible for an “indefinite contract” instead of the two-year contract that is typically offered.
  • Applying for an extension to convert dispatch workers to direct-hire employees: The regulation allows companies to apply for a two-year grace period by submitting a plan to the local government human resources department on how the company plans to bring the proportion of dispatch workers to 10 percent. HR executives agreed that a company should discuss its proposal with the local government’s department of human resources and social services and make recommended changes before formal submission.
  • Eliminating dispatch labor positions: If companies elect to eliminate dispatch positions they can either wait until the dispatch labor contract expires or offer a severance package in advance. Interviews indicated these two options are often impractical as company labor needs tend to outstrip existing worker supply.

After a company has finalized its conversion plan, it should proactively engage with its employee labor union on company dispatch worker plans. Most companies noted labor union support for a transition to direct contracts because of the higher wages, better benefits, and additional employment security for the worker.

Determine the role of labor dispatch agencies

Most companies interviewed noted they would continue to use two prominent labor dispatch agencies—the Foreign Enterprise Human Resources Service Co. (FESCO) and China International Intellectech Corporation (CIIC)—to administer dispatch employees converted to direct-hire staff. Companies said that many dispatch employees prefer the benefits offered by dispatch agencies, as opposed to those offered by the company directly. This can save the company benefits-related costs. HR executive interviewed encouraged companies to reach out to dispatch labor agencies directly to assess these benefits.

But what about outsourced labor?

One area the regulation does not address is how outsourced labor—another staffing tool to lower HR costs and liabilities—will be regulated in the future. The government has no formal definition of outsourced labor, but companies distinguish it from dispatch labor in that outsourcing contracts do not discuss specific individuals or employment packages. Dispatch labor contracts, on the other hand, do refer to specific positions with employee names and performance criteria. Outsourced labor currently falls outside all existing labor regulations, and is therefore expected to be addressed by the central government in the near future.

[author] Jake Parker ([email protected]) is chief representative of the US-China Business Council’s office in Shanghai. This article originally appeared in USCBC’s members-only newsletter, China Market Intelligence. To learn more about becoming a USCBC member, visit [/author]

(Photo by The.Rohit via Flickr)

Posted by Christina Nelson