What is Labor Dispatch in China and How Does it Work

According to the International Labor Organization (ILO), the term “labor dispatch” refers to the practice of hiring employees through an ... 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HowDoesitWork? TheEmploymentAgencies BenefitsofLaborDispatchinChina ChangesinChineseLegislationRegardingLaborDispatch EqualPayforEqualWork TheHeadcountLimit ALimitonEmploymentAgencies WhatisLaborDispatchinChinaandHowDoesitWork Home»Insights»China Author AntoineBoquen Jun27,2022 InthisGuide WhatisLaborDispatch? HowDoesitWork? TheEmploymentAgencies BenefitsofLaborDispatchinChina ChangesinChineseLegislationRegardingLaborDispatch EqualPayforEqualWork TheHeadcountLimit ALimitonEmploymentAgencies Horizonshire,onboard&payyourglobalteamsin+150countries. 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WhatisLaborDispatch?AccordingtotheInternationalLaborOrganization(ILO),theterm“labordispatch”referstothepracticeofhiringemployeesthroughanemploymentserviceagencyasopposedtothetraditionallegallaborrelationshipreferredtoasdirectemployment.ThisformofatypicalemploymentisextremelypopularinChinaandisusedbybothforeignandnationalentitiestomanageandsupplytheirworkforcedemands.HowDoesitWork?Labordispatchinginvolvesthreeparties,commonlyknownas;DispatchedworkagenciesEndUsersoruserenterprisesDispatchedlaborersTheworkerssignemploymentcontractswiththeDispatchedworkagency,rathertheirultimateemployer(thatis,theenterprisetheywillbeworkingfor–defacto-).Consequently,thesedispatchedlaborersworkforandaresupervisedbytheenduser/client/userenterprise.Eventhoughthedispatchedworkersareworkingfortheuserenterprise,duetothefactthatthereisnodirectcontractbetweenthemandtheformer,theuserenterpriseisprotectedfromaseriesofliabilities.Source:SectorWorkingPaperNo.293,ILO,2014Thefigureaboveshowswhatiscommonlyreferredtoasthetriangularrelationshipbetweentheagencies,workersandtheuserEnterprisesthatexistsinlabordispatchstructures.ThefigurealsodescribesaloopholethatlacksbothlaborinspectionandsocialprotectionwhichiscommonlyusedinChina.EmployersareconstantlytryingtogetaroundtheregulationsofthecomprehensivelaborprotectionmeasuresthataccompanytheimplementationoftheLabourContractLawanditsamendmentsregardinglabordispatch.Thenewmodusoperandiisforprivateemploymentagenciestorecruitworkersandsendthemastemporaryemployeestofactoriesaccordingtothefactoriesrequirements.Becauseofthis,Dispatchedworkersareusuallypaidlessthancontractworkerseventhoughtheyaredoingthesametasks.Whensaidworkersarenolongerneededbytheendusers,theycanswiftlyreturntotheirrecruitmentagencies.SincetheimplementationoftheLabourContractLawin2008,theincreasinguseofdispatchedlabourhasbecomeacontroversialissueinChina.TheEmploymentAgenciesAccordingtotheILO’sConditionsofWorkandEmployment64thissue,inChina,employmentagencies(initiallyknownaslabourservicecompanies)firstemergedinthelate1970sfollowingtheapertureoftheChineseeconomy.ThiswasdoneatfirsttomakeiteasyforforeignfirmstohirestaffinChinaandtohelpunemployedyouthtofindjobs.Inthe80sand90s,thenumberofemploymentagenciesgrewexponentiallyandstartedtochangedependingontheindustryandregion.Thelocalgovernmentsstartedtosuspecttheagencieswereviolatedlaborrightstoprovideservicesatthelowerendoflabourmarketcosts.Asof2001,70%oftheemploymentagencieswerefundedbythelocalgovernmentsatvariouslevelsaspartofthemulti-levelemploymentservicesnetwork.TheILOreportsthattherapidincreaseofthenumberofemploymentagencieswasinresponsetothelarge-scaledownsizinginthestatesector,thecontinuousinflowofruralmigrantworkerstourbanareastoseekemploymentandthegrowingnumberofunemployedschoolleaversandcollegegraduates.BenefitsofLaborDispatchinChinaLabordispatchhaslongbeenapopularoptioninChinatohiredomesticemployees.Someoftheimpressivebenefitsthatareavailablethroughlabordispatchinclude:CompliantwaytohireseasonalworkersLabordispatchisidealfortemporaryworkerswhowillbeworkingonaprojectforalimitedamountoftime.Thisisparticularlybeneficialforseasonalbusinessesorwhohaveprimarilyproject-basedwork. GreaterflexibilityLabordispatchallowscompaniestoscaleupordowntheirproductionforceasthedemandsoftheirbusinesschange.Thisoptionallowsthemtoavoidconcernsregardingseverancepayandtheearlyterminationofemployees.LimitedliabilityTheemploymentagencyistheofficialemployerinthisscenario,soifadisputearises,thebusinessisgenerallyinsulatedfromliabilitystemmingfromthedispute. ChangesinChineseLegislationRegardingLaborDispatchWiththeconstantpressureinChinatomaintainhighemploymentandmassivelabourmigrationincertainregions,mostlyruralareastourbancities/townships,deregulationandflexibilizationhavebecomethedrivingforceofChina’slabourmarkets.Inthiscontext,agencyworkhasbecomeverycommonforenterprisesseekingtohavelabourflexibilityandrecruitjobseekers,especiallyruralmigrants.However,aswehaveoftencommentedinourarticles,China’slaborlawisbecomingstrictereveryyear,andthisofcoursealsoappliestostructuressuchaslabordispatch.Thestricterregulationsareaconsequenceofsomeobviousviolations,suchasdispatchedworkersworkinginthesameworkpositionsformorethan2years(whichclearlycannotbeclassifiedas“temporary”workers)orwhenmorethan80percentofemployeesofanenterprisearedispatchedworkers(aclearviolationofthe“auxiliary”or“substitutional”naturethatdispatchedworkersshouldhaveinanenterprise).AccordingtotheILO’sSectorWorkingPaperNo.293,theorganizationreportedthatin2012,theStandingCommitteeoftheNationalPeople’sCongressissuedamendmentstotheLabourContractLawof2008,whichcameintoeffecton1July2013.TheAmendmentswereestablishedduetotheneedforlimitingtheoveruseofagencyworkers.Thelegislationreiteratesthattheprimaryformofemploymentisthehiringofstaffthroughdirectemploymentcontractswiththeultimateemployerratherthanthroughlabourdispatchstructures.TheamendmentsdrasticallychangedthescopeandapplicationoflabordispatchinChinaandfocusedonthreefronts:Slowlyreducingtheuseoflabourdispatchto“temporary,auxiliaryandsubstitute”positionsintheuserenterprises;Achievingtheeffectiveapplicationofthe“equalpayforequalwork”principlefordispatchedemployeesincomparisontoemployeeswhohaveadirectlaborcontract;andEstablishingastricteradministrationoftheprivateemploymentagenciesthroughlicensingandannualreports,aswellasinspectionparametersregardinglabourconditions.LabordispatchisregulatedbytheLaborContractLawandtheamendmentswementionedbeforeandbythe“InterimRegulationsonLaborDispatch”.InJanuaryof2014,China’sMinistryofHumanResourcesandSocialSecurityapprovedthesespecificrulesregardinglabordispatchinthecountry(OrderNo.22)topreventcompaniesfromtakingadvantageoftheliabilityloopholesthatthetriangularrelationshipprovides.Bothsetsofregulationslimitthetypesofpositionsdispatchedworkerscanbein,thepercentageofworkersinacompanythatcanbedispatchedemployees,andhowsaidworkersaretransferredbacktotheirrespectiveagencies.ThenewInterimRegulationslimitlabordispatchingframeworkstothefollowingthreetypesofpositions:TemporarypositionsThisreferstoapositionwithadurationofnomorethansixmonths.AuxiliarypositionsThisreferstoapositionthatprovidesauxiliaryservicestothecorebusinessoftheemployer/userenterprise.ReplaceablepositionsThisreferstoapositionthatcanbeperformedbyadispatchedworkerwhichtakestheplaceofapermanentemployeeduringaspecificperiodoftimeduringwhichsaidpermanentemployeeisawayfromworkforanyreasonandneedstobesubstituted.EqualPayforEqualWorkTheregulationsalsoestablishaprincipleof“equalpayforequalwork”whichmustbeappliedtoalllabordispatchingcontractsoragreements.Thismeansthatemployersshouldhavethesamepaymentstandardsfordispatchedemployeesastheydoforemployeeshireddirectlyandwhoholdsimilarpositions.This,ofcourse,includesovertimesalariesandbonuses.Inthespecialcaseofanemployerwhohasnothiredanyemployeeholdingasimilarposition,paymentmustbedeterminedviaacomparisonofsimilarpositionsandtasksintheemployer’ssamelocation.TheHeadcountLimitAsignificantturnindispatchlaborpracticewaswhatisnowknownasthe“headcountlimit”.TheInterimRegulationsestablishthatthenumberoftotaldispatchedworkersusedbyauserenterprisemustnotexceed10percentofitstotalnumberofemployees.Thiscalculationincludesregular,permanentanddirectemployeesaswellasdispatchedemployees.Somethingimportanttomention,however,isthatregionaloperationsofforeignenterprisesarenotsubjecttothisrestrictionondispatchedemployees’positions.ALimitonEmploymentAgenciesTheAmendedLaborContractLawalsoestablishedasetofnewrequirementsonhumanresourcesagenciesinthelabordispatchbusiness.AsofJuly2013,anycompanywantingtoprovidelabordispatchservicesmusthave:aminimumregisteredcapitalof2millionyuanfixedofficepremisesandfacilitiesrelevantmanagementrulesregardingdispatchedemployees.ThebottomlineisthatlabordispatchinginChinahasdrasticallychangedinthelastdecade,fromafreeforallflexibleandderegulatedenvironment,toastricterandmorestructuredbusiness.TheChineseauthoritiesareseriousaboutcontinuingtoreducetheloopholesthatcompaniesfindarounddispatchregulationsandarecrackingdownonagenciesthatarenotcomplyingwiththenewrules.HorizonsiscommittedtokeepingconstantlyuptodatewithnewregulationsandtomakesurethatourclientsuselabordispatchinChinaincompliancewithlocallaws.YoumaywanttocontactustoreceivedetailedinformationonhowyourcompanycanbenefitfromlabourdispatchinChina. AntoineBoquen Antoineco-foundedHorizonsin2018.HehasaproventrackrecordforhelpinginternationalbusinessesexpandtoChinaandonboardlocaltalentsoverseas.Antoine’spassionforglobalworkforceefficiencyhasledhimtoacceleratethegrowthofoverahundredforeigncompaniesinrecordtime.HeisawidelyexperiencedFrenchprofessionalspecializedinscalinginternationalactivitieswithoutinvestingheavilyintimeorinfrastructure.AntoinespentnearlyadecadeinChinaprovidingHRsolutionsandexecutingglobalexpansionstrategies,successfullygrowingawarenessforPEOandCompanyIncorporationsolutionsinAsia. LinkedIn AuthorBio InthisGuide WhatisLaborDispatch? HowDoesitWork? TheEmploymentAgencies BenefitsofLaborDispatchinChina ChangesinChineseLegislationRegardingLaborDispatch EqualPayforEqualWork TheHeadcountLimit ALimitonEmploymentAgencies Horizonshire,onboard&payyourglobalteamsin+150countries. 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