Labor Dispatch in China

Labor dispatch in China refers to the employment method enterprises use under which employees are dispatched by a human resources agency specifically engaged in the labor dispatch business. This is an alternative option for foreign-invested enterprises (FIEs) looking to hire Chinese staff. In China, labor dispatch is generally regulated by Section 2 of the PRC Labor Contract Law. On January 24, 2014, China’s Ministry of Human Resources and Social Security (MOHRSS) promulgated the “Interim Regulations on Labor Dispatch” to limit companies from taking advantage of labor dispatch.

Advantages of Labor Dispatch in China
Due to its flexibility and lower cost, labor dispatch has traditionally been one of the most popular ways hire employees in China. Dispatch agencies offer companies temporary workers for particular projects or a certain period of time. This is especially beneficial for businesses in seasonal industries or with project-based work, where the amount of labor needed is not consistent year-round.

Besides, labor dispatch is also attractive for employers because they face fewer risks in the event of a labor dispute. Dispatched laborers are technically employed by their agencies rather than the companies they do work for, so any workplace grievances must be dealt with by the dispatch agency. This is advantageous for companies using labor dispatch, as the risk of a labor dispute is transferred to the agency that provides them with workers.

In addition, a representative office (RO) cannot hire staff directly, and their employees must be seconded from dispatch agencies.

Requirements on Use of Dispatched Employees
The Amended Labor Contract Law emphasizes that direct hiring of employees under an employment contract should be the primary means of employment in China. The method of labor dispatch can only be supplementary. Further, as required by the Interim Regulations, the number of dispatched employees used by a company cannot exceed 10% of the total number of employees.

In addition to the limitation on numbers, under the Amended Labor Contract Law, an employer can only use dispatched employees for work positions that are temporary, auxiliary or substitute in nature.

These requirements make labor dispatch unsuitable as the principal employment method for most enterprises. These restrictions, however, do not apply to the representative offices of foreign companies and shipping companies using international seamen.

Applicable Scope of Labor Dispatch
According to the Interim Regulations, labor dispatching arrangements are only applicable for the following three types of positions:

1. Temporary position
A position with a duration of no more than six months.

2. Auxiliary position
A position that provides auxiliary services to the main or core business of the employer.

3. Substitute position
A position that can be performed by a dispatched employee in place of a permanent employee during the period when such an employee is away from work for study, vacation, or other reasons.

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