Labour dispatch; outsourcing workers from third-party agencies rather than directly employing them, faced many problems after the Labour Contract Law of 2008. Hence, “Interim Regulations on Labour Dispatch”, introduced on 1st March 2014. The new regulation significantly impacts companies’ HR structure due to the changes outlined herein.

(i) Proportion of Dispatched Staff
The regulation stipulates that the number of total dispatched staff utilised by an enterprise should not exceed 10 percent of its total number of employees. Representative offices (ROs) of foreign enterprises, however, are not subject to this restriction on dispatched staffs’ proportions. The previous draft of the regulation only limited the number of dispatched staff used in auxiliary positions.

(ii) Retroactive Power
An important question is whether dispatched staff can be returned without punishment, and if the enterprises return said employees after 1st March, how the regulation will be applied. As non-retroactivity is the basic principle of law for setting up new rights and obligations, and for the purpose of maintaining stable labour relations, any return and new dispatching prior to 1st March is not subject to the new rules.

(iii) Adjustment Period
A gradual adjustment of the number of dispatched staff to below 10 percent within two years is permitted. Companies should also go through registration procedures with the local Human Resource and Social Security Office. Pay close attention to the following:

(1) During the two-year transitional period, legal risks exist for enterprises that fire staff by excuse of exceeding the dispatching rate of 10 percent.
(2) Prior to 28th December 2012, enterprises are not bound by the provision of the transitional period; labour contracts already signed are effective until the end date of the contract.
(3) As long as the dispatch rate exceeds 10 percent, enterprises are not allowed to recruit new staff.
(4) Enterprises are supposed to go through registration procedures at the local Human Recourse and Social Security Office for a plan to reduce the dispatch rate.

(iv) Cross-Regional Dispatch
If a labour-dispatching entity provides staff to an employer in another region, the social insurance for the dispatchees is based on the rates of the enterprise location. If the dispatching agency has a branch in the same region as the employer, they pay the social insurance fee. Otherwise, the host entity pays social insurance on behalf of the dispatching entity.

(v) Termination of Labour Contract
Dispatched staff may terminate a labour contract by giving written notification to the labour-dispatching entity 30 days in advance. During the probation period, such notification may be given three days in advance.
Enterprises may return dispatched staff to the agency due to:

  • Major changes in objective circumstances
  • Mass layoffs due to financial difficulties
  • The host entity being dissolved or its operations discontinued
  • The term of the dispatching contract being completed

Should staff be returned due to any of the above, the dispatching agency is responsible for their redistribution. The agency may only terminate contracts should staff refuses a new dispatch offering equal or greater conditions.

As the first comprehensive labour dispatch regulation at Ministerial level effective for all enterprises in PRC, the regulation has introduced significant changes and certainly poses challenges to HR management. Despite a two-year tolerance period, reform of systems should begin immediately with the conversion of dispatched labour to directly hired employees.

 
Disclaimer
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness.