China Releases Implementing Rules on Labor Dispatch Licensing

June 24, 2013 Posted by China Briefing Reading Time: 5 minutes

Jun. 24 – To better regulate the administrative licensing of labor dispatching service providers, China’s Ministry of Human Resources and Social Security (MHRSS) released the “Implementing Measures for Labor Dispatch Licensing (Order No.19 of the MHRSS, hereinafter referred to as the ‘Measures’)” on June 20, 2013, which are scheduled to take effect on July 1, 2013. Labor dispatching is a common method used by foreign-invested enterprises in China to employ workers through labor dispatch agencies, such as FESCO or CIIC.

The Measure is enacted in accordance with the new rules on labor dispatching stipulated in the “Decision on Revising the Labor Contract Law of the People’s Republic of China” issued by the Standing Committee of the National People’s Congress on December 28, 2012, which provides that no entities or individuals are allowed to engage in the labor dispatching business without an administrative license, and that applications for such licenses shall be filed with the relevant labor authorities.

Detailed information of the Measures can be found below.

Establishing Requirements

According to the Measures, entities or individuals that operate labor dispatching services shall file administrative license applications with the local human resources and social security department. Without such a license, no entity or individual may operate labor dispatching services. The standards for establishing a labor dispatching entity are as follows:

A labor dispatching entity shall have a registered capital of no less than RMB2 million
A labor dispatching entity shall have permanent business premises and facilities that are suitable to conduct its business
A labor dispatching entity shall have a management system for labor dispatch that is compliant with the relevant laws and administrative regulations
A labor dispatching entity shall satisfy other conditions as prescribed by the relevant laws and administrative regulations

Application Materials
Entities intending to engage in the labor dispatching business shall submit the following materials to the competent authorities:

Application form for the labor dispatching license
Business license or the “Notice of Preliminary Approval of Enterprise Names”
Articles of association
Capital verification report or financial audit report
Certificate for the use of business premises and information on office facilities and equipment
Identification paper of the enterprise’s legal representatives
Information on the enterprise’s labor dispatching management system

License Renewal
A labor dispatching license is valid for three years and can be renewed upon application 60 days prior to expiration. A labor dispatching entity will be disqualified from renewing its license if it:

Fails to submit its business operation report on time or submits the report with false information, and fails to rectify such mistakes after being warned; or
Violates labor laws and regulations, and has received administrative punishment more than twice.

Supervision and Administration
One of the distinct features of the Measures are that they have strengthened the supervision and administration over labor dispatching services. The Measures prescribe that the MHRSS shall be responsible for the supervision of the labor dispatch administrative licensing across the country, while the administrative departments of human resources and social security at the county level and above shall be responsible for the labor dispatching administrative licensing as well as the associated supervision and inspection within their respective administrative regions.

Moreover, the Measures reinforces the supervision on the labor dispatching entities by requiring them to submit the annual labor dispatching business operation report to the approving authorities before March 31 of the following year. Relevant report information includes the following:

Annual financial auditing report and information on business operations;
Information on the labor contracts, number of dispatched employees and employees’ participation in trade unions;
Information on labor remuneration paid to the dispatched employees;
Information on the participation and contribution of social insurance by dispatched employees;
Information on the dispatched number, dispatched period, dispatched posts, as well as information on the employers; and
Information on the labor dispatching agreements concluded with the employers and employers’ performance of their legal obligations.

Legal Liabilities
For entities and individuals providing labor dispatching services without a license, the relevant authorities may confiscate all illegal gains and impose a fine of no less than 100 percent, but not more than 500 percent, the illegal gains on such entities. Where there are no illegal gains, a fine of no more than RMB50,000 may be imposed.

For labor dispatching entities violating the Labor Contract Law, if they fail to correct the violations within the time period specified by the relevant labor bureau, they may be fined between RMB5,000 and RMB10,000 per dispatched employee, and labor dispatching entities may have their business licenses revoked.

Labor dispatching entities may face a fine of up to RMB30,000 under the following circumstances:

Altering, reselling, leasing or lending the labor dispatching license, or illegally transferring such license in other ways
Concealing relevant information or providing false materials to apply for or obtain the labor dispatching license
Obtaining the labor dispatching license through illegal ways, such as deception or bribery

Application of the Measures

The Measures are scheduled to take effect on July 1, 2013.

Labor contracts and labor dispatching agreements lawfully entered into between December 28, 2012 and June 30, 2013, shall be performed in accordance with the Measures.

Entities engaged in the labor dispatching business prior to July 1, 2013, are allowed to take up the new labor dispatching business only if they obtain the administrative license pursuant to the Measure before July 1, 2013.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across China by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

Related Reading

Human Resources and Payroll in China (Third Edition)
A firm understanding of China’s laws and regulations related to human resources and payroll management is essential for foreign investors who want to establish or are already running foreign-invested entities in China. This guide aims to satisfy that information demand, while also serving as a valuable tool for local managers and HR professionals who may need to explain complex points of China’s labor policies in English.

Social Insurance and Payroll
In this issue of China Briefing Magazine, we take a “back to basics” approach to China’s mandatory benefits. Where, exactly, is that extra 35-40 percent on top of an employee’s salary going? What are social insurance contribution rates, base amounts, and tax exemptions? How does all of this figure into the payroll process? We next look at mandatory benefits as a piece of the larger payroll puzzle, with highlights on two very China-specific pieces: FESCOs and hukou, China’s “domestic passport.”