Q&A on the employee recruitment in China

1. How should I search for the right person for my company in China?

There are several methods, and the effectiveness of each method depends on the level and type of job being recruited for. Here are four common methods:

A. DIY: Do It Yourself.

Network with recommended China contacts, industry associations, or take a recommendation from a Chinese local partner. This is a low cost, and personal approach and can work well for highly technical / industry specific roles.

B. Search Online.

Your HR department does the search, the benefits of which include a clear understanding of exactly what is required for the role, and lower costs. Relevant search sites for Senior roles in China includewww.linked-in.com, and www.lietou.com(Chinese) or www.michaelpage.com.cn, (particularly Finance and Legal roles) For mid-level to junior roles, search on www.zhaopin.com, www.chinahr.com, andwww.51job.com.

C. Advertise, online or in industry specific media/publications.

Online advertisements can be inexpensive. Advertising will require professional internal screening capability, in China. Issues include the large number of CVs to read, high fail rate of relevance to the advertised role, and the strong possibility that the desired person did not see the advertisement, AND may not be looking for a job.

D. Enlist a recruitment company.

The key issue is this is the highest cost approach, ranging in cost from 20% to 35% of salary. The benefit is that the recruitment company does a lot of the work. They should help develop a very clear Job Description, a personal profile of the likely candidate, and search in the right places. Also they do all the initial screening of CVs, before presenting a short-list of candidates. The second benefit is the recruitment company should know where to look, in what is a vast labour market. Thirdly, perhaps most importantly, the recruitment company should do private reference checks of CVs and qualifications, and will ensure the correct contractual requirements are in place when signing on.

2. What recruitment mistakes have you seen NZ Companies make?

The key mistake in general, is a lack of understanding about the vast difference between the respective sizes of the NZ and Chinese Labour markets. There are many great candidates in China, and also, like any market, there are also poor candidates. So clearly the screening processes need to be better. Few companies interview well in China. Fewer still use Assessment tools. When thinking about recruiting, most New Zealand companies tend to take the same approach as they would at home; find a few candidates, do some interviews, and then push for a quick result, probably to fit with the milestones of the commercial plan.One common route is to recruit a recently graduated Chinese national living in NZ, who may also have some work experience. Sometimes this works well. The logic test is whether the Company would hire this same calibre candidate for the same role in New Zealand. If the company is prepared to train diligently, then this can be a good approach. However, although young Chinese graduates have good language skills, they often have limited industry experience and networks in China. The key question is, can the person do the job in China? A common mistake is prioritizing mandarin language skills ahead of business skills.Other recruitment mistakes encountered include a verbal referral from a JV partner or “reliable local contact,” or some other derivative version of local “guanxi.” After a year, and with high expectations on both sides having been deflated by poor performance, (by both employer and employee) the employment relationship meanders, or ends. The result is often a new search, and sometimes mediation after an illegal dismissal.

3. What are Social Insurance costs?

The standard Social Insurance costs for a local Chinese person are: 18% of gross salary is paid by the Employee, and 44% of the Salary is paid on top, by the Employer, up to a maximum (ceiling) cost of 14,076 RMB. (This level is the current standard for Shanghai municipality, in 2013, and varies slightly in other cities). Note that social insurances for foreigners are now mandatory in Beijing, but still “voluntary” in Shanghai, for the moment. Social Insurances are a bit complicated, so we have included a specific example of the real costs of hiring a Sales Manager, in Appendix III. (These costing templates are available.)

4. What other costs are there, in recruitment?

If choosing to advertise a role, the cost is free on sites like Lietou or Zhaopin. It is possible to buy CVs from these sites for about 50RMB / CV. The key cost of failing to recruit well is the replacement cost. Our recent work indicates that the replacement cost of important roles, is between 1.75 and 2.0 times the original salary of the role. This analysis takes into account the recruitment time and cost, and 6 months required on the job to bring a new person up to speed.

5. Should one use a recruitment company?

The labour market in Shanghai alone, (or Beijing, or Guangzhou, or Chengdu / Chongqing) is approximately the same size as the entire combined labour market of New Zealand and Australia. China is not only the biggest labour market in the world, but it is also one of the most complex. It is possible to find great staff, and it is also possible to make big mistakes by not being diligent with screening processes. For example, reference checks are critical. A good recruitment company should do all the jobs of a very good internal human resources system in a big company;

• Work with the client preparing the job description and the candidate profile

• Agree with the client on a search approach, and likely search targets

• Conduct the search, and put the better prospects through interviews and screening; assessment of hard skills, soft skills, potential, and cultural fit;

• Provide a detailed talent map of the industry / market of the client;

• Prepare and present a shortlist of 4-5 candidates, to the client

• Provide leadership and succession services which compare internal candidates with external candidates. (not standard)

• Design a potential career path for the candidate to attract them to the role.

• A cultural assessment of the candidate to test for candidate/company fit.

• Reference checking, degree verification, criminal background checks;

• Work with the client on offer preparation, negotiation, offer acceptance,

Most big multi-national companies use recruitment companies, because (a) they want to find the best people, (b) they leave specialist work to specialists, (c) they are prepared to pay for the right people, and (d) HR and senior management are only required to be involved at the “Key Moments” of the recruitment.

6. What do Recruitment Companies cost?

Top recruitment companies we work with (Russell Reynolds, Korn Ferry, Egon Zehnder), charge between 27% and 35% of total salary. They generally require 1/3 payment on contract commencement, 1/3 on presentation of shortlist of candidates, and 1/3 about 60 days after completion. For some large positions, some recruitment companies will use a fixed fee basis, and therefore not collect a percentage commission of the salary. This approach is used usually for very large positions in China / Asia. Mid-level companies charge 22% - 27% of salary, and may or may not charge retainers. Then there are cheaper options (and the concomitant reduction in service) with search firms whose charges are 17% - 20% of salary.

EMPLOYMENT CONTRACTS

7. What do I need to know about Employment Contracts on China?

The new Labour Contract Law of China came into effect on January 1st 2008, tightening up a lot the Employment Laws, particularly in the areas of protecting the rights of employees. The Labour Contract Act applies to all Companies who are registered locally in China, and applies to both local and foreign staff whose contracts are based in China.

Under the law, all Employees hired on a Chinese contract (including foreigners) require an Employment Contract, and there are thirteen (13) mandatory clauses in every contract, including such things as stipulation of tenure of the contract, probation periods, terms of engagement, and terms of disengagement. Further, we recommend that every Employment contract is bi-lingual, in the interests of clarity and dispute resolution, although this is not mandatory.

For a Foreigner who works in China, who has obtained a foreigner’s employment permit, work permit and residence certificate in accordance with the relevant Chinese laws, then their labour relationship with the employer in China is protected by theLabour Law and Labour Contract Law of China to the same extent as Chinese employees. In the absence of the foreigner’s employment permit, work permit and residence certificate, a foreigner working at a company in China will not be protected by the Labour Law and Labour Contract Law of China and could be deemed as working illegally, and thus be penalized. This does not apply to a foreigner working on an expatriate contract.

In the case of a dispute, the party providing the contract shall authorize an appropriately qualified translation agency to translate the contract into Chinese before the labour arbitration tribunal. The general legal procedure for solving a labour dispute is: (a) for a local employee in China, or a foreign employee with lawful employment permits, any dispute shall be first submitted to a labour arbitration tribunal and if the parties still disagree with the arbitration decision, they may then submit the dispute to the court for lawsuit; (b) for a foreigner who has not obtained lawful employment permit or certificate, the dispute shall be directly submitted to the court for lawsuit.

8. Is Employment Law different in China?

Foreign companies have been notoriously poor at paying attention to Employment law, and Employment Contracts is China. Chinese Employment law is more detailed than in New Zealand, but it is not difficult to understand, and there are logical reasons for some of the differences. Further, the Labour Bureau is easily available for questions, is bi-lingual, and can give clear interpretations of the Law over the phone in English.

9. Do I need a Chinese Employment Contract for an Expatriate employee?

If an employee has signed an expatriate contract, subject to the laws of New Zealand, and if the employee will work for less than three months in China, then they do not need a Chinese Employment contract. However, if an employee (excluding some specific foreign engineering or technical roles) is to be working for over three months in China, they should sign a labour contract as prescribed by Chinese law and obtain a foreigner’s residence permit and a work permit. Many companies are localizing roles, paying their expatriates in RMB, and having them pay Individual Income Tax in China. If the employee is paid a local package (in RMB), then they need a local Employment contract.

WHO TO HIRE:

10. Should I hire a Local Employee or send an Expatriate to China?

This is probably the question most often asked by companies looking to set up in China. The simple answer is probably, “Do both.” Here is one formula that works;

A. In the first instance of a company set-up, it is important to have an experienced (New Zealand) staff member come to China and spend considerable time on the ground, understanding the business requirements in China. This person knows the company’s products, China strategy, and culture, intimately.

B. A proven success path is to then add a bright, hard-working local Chinese employee to the staff, and form a partnership with the experienced Ex-pat.

C. A third proven step is to find a “half-pat” who is a local Chinese, with relevant industry experience, returning to China, preferably from New Zealand. When hiring any of the ‘B’ or ‘C’ profiles above however, our counsel is;

• Hire people who have the requisite business skills, product knowledge and capability for the role. If opening a fruit company, then find an experienced BDM/sales person who knows China’s fruit distribution channels, and who has a proven track record of developing business in those channels.

• Hire a person who demonstrates high integrity, commitment, and understanding of the company values, and who can demonstrate behaviours which model the Company’s values. Ask ‘what-if’ questions; prepare and test scenarios, when interviewing.

• Be thorough; be more thorough than one would be in New Zealand. Do assessments, seek references, check university degrees, get granular.

• Do it quickly. Good people get job offers regularly. If you are too slow, your “Gold Nugget” candidate may be snapped up by someone else.

• Do Not; be fooled by language, promises of “local contacts”, “government contacts”, or a referral from a friend. Check everything.

11. Can our Business Hire a Chinese Employee, without setting up a China Company?

The short answer is; NO. This practice has been undertaken over the years, whether by having a local partner Chinese company, or a friendly NZ company employing the person, or by having a person set up their own company, and then contracting services to this company. The local law is looking carefully at these instances, resulting in an increasing number of Companies being forbidden to trade in China.

12. Can I hire staff, using a Local Staffing Company?

Yes, provided that the foreign company is legally registered in China, either as a Representative Office, as a Joint Venture, or as a WOFE. It is important to note here, that a Rep Office may NOT employ staff directly, and but may use a local staffing company. Only those companies enjoying JV or WOFE status may directly contract staff.

13. What are Some Good Options for Staffing Companies?

Some of the biggest and best Employment Companies include:

(a) Fesco Shanghai. 50% State owned, 50% invested by Adecco. Good government relationships, specializes in Staffing, provides a comprehensive service of Company set-up, hiring, payment and social insurances, and HR related advice. Note; it is a separate company from Fesco Beijing

(b) CIIC: State owned, good government relationships, comprehensive service, and specializes in Staff payment and social insurances, like Fesco.

(c) ADP: International Business, world-wide service. Specializes in compliance with the Labour law, IIT, and Employment contracts. Strict contracts.

(d) “51JOB”: Private Chinese company, specializes in recruitment, and also provides the full suite of HR services including payment, social insurances, and employment

(e) China Star: Local Company, Full HR service, better prices…

(Refer to Appendix 1 for all the contact details of these companies)

14. Is it Expensive to Hire Staff in China?

At the top and middle of the market, Yes, it is expensive. The best people may cost the same as the best people in New York, Tokyo, and London. Why? Given the relatively sluggish economic conditions in Europe and USA, many foreign companies have attached much of their global corporate growth expectation to China’s continued market growth. As such, demand for top people is growing, and the labour market is quite turbulent; some would say over-heated.
However, there are many good jobs available, and there are more good jobs than good candidates. It should be noted that candidates switching jobs are coming to expect a 10% to 30% salary raise, if asked to switch companies.

15. What are Employee Personnel Files? Do my staff need them?

Every employee in China has a personnel file which details the employee’s education and employment history. The responsibility of maintaining this file is the Employer’s, and is transferred from one employer to the next when the employee changes jobs. For the employees’ staff handbooks, the employer must maintain them during the employment period. Rep. Offices must engage a local labour agency (staffing company) to maintain these files.

17. Where should I set up my Company?

A quick response to this question is, “Fish where the fish are.” There are obvious and numerous instances of companies establishing their China beach-head, in an “easy” location (e.g. Hong Kong), when their sweet spot for doing business has been in Shanghai, or somewhere else on the mainland. Business licences, and staff locations should directly support the company’s business goals, and particularly support key customers.

The Author:David Boyle.

The Talent Centre Management Consulting Ltd:

david@ttcpeople.com

(86) 139 1665 2102

Appendix I: Staffing Company Contacts

Appendix II: Useful HR Resources

1. JLJ Group: a very useful resource for China Market Entry and set-up. See particularly their “China Market Entry Handbook.” www.jljgroup.com

2. Dezan Shira and Associates: publish a series of very good books and China entry resources. In particular, look for “Human Resources in China” underwww.chinabriefing.com

Recruitment Consultants to this paper:

1. Oliver Austin, of Future Step; (A Korn/Ferry Company)

2. Stephen Schoenberger, of Russell Reynolds Associates

3. Anthony Aucutt, at acaucutt@gmail.com.

4. Office Rentals; look at www.51office.com

5. Apartment rentals: www.joannarealestate.com.cn

Appendix III: Hiring Costs

Social Insurances and Individual Income Tax; (I.I.T.)

EXAMPLE 1: Sales Manager with Salary of CNY 20,000 (gross)

NOTE: If Salary is greater than Maximum base, (14,076 RMB) then all insurances above use the Maximum base times the percentage

Maximum Base ¥ 14,076.00

Minimum Base ¥ 2,815.00

Individual Income Tax (IIT) Rates

To calculate the IIT: Multiply nett Income before tax times IIT Tax rate minus Deduction

Example: CNY 17,466.32 x 25% minus 1005 = CNY 3,361.58

Source: https://www.nzte.govt.nz/en/export/export-markets/greater-china/china/setting-up-a-base-in-china/recruiting-in-china/

Comments:

1This is Edition version of the Article . For full version , please check aforesaid link.

2Please notice that this is only for reference , coz the social insurance percentage will be different by each city or each year. Please consult your local Social Insurance Bureau for the accurate percentage data of the social insurance tax of the company and the employee.

23The company or the website is recommented by the author only for reference.

4 This article is giving some tips to those who intend to set up or already had set up the company and want to know the know-how of the staffing issue.