Staffing Leasing in China: How It Works and What Employers Should Know

 For foreign businesses managing a workforce in China, the employment relationship is not always structured as a straightforward direct hire. Staffing leasing is one of the alternative arrangements that companies encounter, particularly when engaging workers through labour agencies or when exploring flexible workforce solutions. Understanding how it works, what regulations govern it, and where it differs from other employment models helps employers make better-informed decisions about how to structure their China workforce.

What Staffing Leasing Is

Staffing leasing in China, formally known as labour dispatch, is an arrangement in which a licensed staffing agency formally employs workers and then dispatches them to work at a client company. The staffing agency is the legal employer of record. The worker performs their duties at the client's premises under the client's day-to-day management, but the employment contract is between the worker and the agency, not between the worker and the client.

In a labour-dispatch arrangement, the staffing agency is the employer and bears the statutory employer duties applicable to it, but the client (the user entity) also has direct statutory obligations under PRC labour law, including providing required working conditions and labour protection, informing dispatched workers of work requirements and remuneration, paying overtime and performance bonuses, providing job-related benefits, and providing necessary job training. The parties must therefore allocate responsibilities in accordance with the statutory labour-dispatch framework.

 

The Regulatory Framework Governing Labour Dispatch

Staffing leasing in China operates under a tightly regulated framework that has become significantly more restrictive since amendments to China's Labour Contract Law took effect in 2013. These changes were introduced in response to widespread abuse of the labour dispatch model, where companies were using dispatch arrangements to avoid providing workers with the protections that direct employment entitles them to.

Under the current regulatory framework, labour dispatch may only be used for three specific types of positions: temporary positions lasting no more than six months, auxiliary positions that support the core business rather than being part of it, and substitute positions that cover employees on leave or secondment. The use of dispatched workers is also subject to a quota restriction: dispatched workers may not exceed 10% of a company's total workforce.

Workers engaged through staffing leasing arrangements must receive pay and benefits no less favourable than those of directly employed workers performing the same or comparable work. This equal pay principle means that labour dispatch cannot be used as a mechanism to reduce labour costs below the standard that direct employment would require.

 

What Employers Need to Be Aware Of

The practical implications of the current regulatory framework are significant for foreign businesses considering or currently using staffing leasing arrangements in China.

The 10% cap is calculated against the user entity's total workforce, which is statutorily defined as the number of workers with whom the user entity has entered into employment contracts plus the number of dispatched workers it uses. For a foreign company with a growing China operation, this means the number of workers who can be engaged through labour dispatch is capped relative to the total employed workforce. Exceeding this ratio is a regulatory violation that carries financial penalties.

The restriction of dispatch to temporary, auxiliary, and substitute roles means that using labour dispatch for core business functions is not permissible under the current law. A foreign company that has structured its China workforce primarily around dispatched workers for roles central to its operations is carrying regulatory exposure regardless of how long that arrangement has been in place.

The equal treatment obligation means the cost advantage that staffing leasing was historically used to provide has been substantially reduced. When dispatched workers must receive pay and benefits comparable to directly employed counterparts, the financial case for the arrangement rests more on flexibility and reduced administrative burden than on cost reduction.

 

The Employer of Record Alternative

For foreign businesses without their own eligible PRC employing entity, an appropriately structured third-party employment arrangement may be one option. However, 'Employer of Record' is a commercial service term rather than a standalone statutory employment category under PRC labour law. Whether an EOR-style arrangement is compliant depends on its underlying contractual and operational structure and on any licences or qualifications required for that structure. If the arrangement constitutes labour dispatch, the statutory restrictions on permitted positions and the 10% dispatch ratio may apply; an EOR label does not itself remove those restrictions.

 

Under an EOR-style arrangement, the Chinese employing provider may act as the formal employer under the applicable structure and perform the statutory employer duties assigned to it. The foreign company or receiving entity may also bear statutory duties depending on the underlying structure; in particular, if the arrangement constitutes labour dispatch, the user entity has direct obligations under PRC labour law. Operational management should therefore be structured consistently with the legal arrangement used.

 

China Payroll provides Employer of Record services and managed payroll solutions for international businesses in China, covering payroll, social insurance, IIT management, employment contracts, and HR compliance support across major business cities. Any EOR-style service should be structured in accordance with the legal requirements applicable to the underlying arrangement, including labour-dispatch requirements where relevant.

 

Visit china-payroll.com/china-payroll-outsourcing to find out how their services can support your China workforce.