Foreign companies face both prospects and difficulties when they choose to enter the Chinese market. With an enormous market and a competent labor force, alongside an expanding economy, China presents profitable business potential for global companies. However, companies need to decide which path suits them best when employing a Chinese workforce, either through a China Employer of Record (EOR) program or establishing traditional local entities for recruitment.
In this article, we’ll compare these two hiring models, exploring compliance, ease of operations, cost, and overall efficiency. Towards the end of the article, you’ll be able to determine the best approach for your business expansion in China.
What is a China Employer of Record (EOR)?
The China Employer of Record (EOR) exists as a third-party provider that bears legal responsibility for worker employment on behalf of a foreign company. Businesses can hire employees in China directly using an EOR service, which eliminates the need for establishing a local entity, enabling compliance with Chinese labor laws, tax regulations, and payroll requirements. A China EOR is responsible for handling contracts and social insurance contributions, as well as China payroll operations and tax documentation.
Benefits of Using a China EOR
- Faster Market Entry: Businesses need not wait for months to start operations in China. Enabling business operations within weeks.
- Cost-Efficiency: Eliminates the need for company registration and the expenses of office leasing and administrative costs.
- Legal Compliance: Make sure the company maintains compliance with local employment laws, thus preventing payment of costly fines.
- Effortless Payroll Management: The EOR manages taxes, social security contributions, and China payroll.
- Flexibility in Hiring: Enables organizations to increase or decrease their labor force based on their current requirements.
What is traditional hiring?
The traditional hiring approach requires businesses to set up a wholly foreign-owned enterprise (WFOE) or a joint venture (JV). This requires registering a company, acquiring appropriate licenses, managing China payroll, and adhering to labor regulations independently.
Challenges of Traditional Hiring
- High Setup Costs: A significant investment is required to establish a legal entity in China.
- Complex Regulatory Requirements: The complexity of Chinese employment law makes business operations both time-consuming and risky.
- Longer Time to Hire: Businesses need to wait several months before obtaining legal capabilities to hire employees in China.
- Ongoing Administrative Burden: Dedicated resources are required to manage local HR, tax filing, and payroll.
Comparing China EOR vs. Traditional Hiring
| Factor | China EOR | Traditional Hiring (WFOE/JV) |
| Setup Time | 2-4 weeks | 3-6 months |
| Initial Costs | Low | High (legal fees, office setup, licensing) |
| Legal Compliance | Fully managed by EOR | Requires in-house legal expertise |
| Payroll & Tax Management | EOR handles payroll and taxes | Businesses must manage payroll independently |
| Scalability | Easy to scale workforce | Scaling requires additional legal procedures |
| Risk & Liability | EOR assumes legal risks | Business assumes full liability |
Cost Analysis: EOR vs. Traditional Hiring
According to a study by Acclime China, the minimum registered capital required for a WFOE varies by industry and location, ranging from CNY 100,000 to several million CNY. Whereas using an EOR incurs minimal start-up expenses, it relies on service fees and China payroll. Companies find EOR solutions appealing because they provide access to the Chinese market while requiring minimal upfront capital investment.
Real-World Example: Tech Startup Expansion
Expanding businesses into foreign markets requires substantial efforts due to the complexity of market entry, and China is no exception. Businesses must navigate a maze of administrative regulations, compliance requirements, and operational challenges.
Let’s have a look at the real-world examples that illustrate how EOR services differ from WFOE implementations when companies establish their Chinese market base.
Case Study 1: Fintech Startup’s Market Entry
The Challenge:
A U.S.-based financial technology startup intended to enter the digital payment market of China. Setting up a WFOE in the financial sector demanded the fulfillment of intricate regulatory approvals that stretched market entry delays to about twelve months.
The Solution:
Through the partnership with a Chinese employer of record, the company obtained legally hired software engineers in mere weeks to launch their payment platform without facing legal issues.
Results:
- Launched their products quickly into the competitive Chinese fintech market.
- Modified their strategic approach through real-time inputs from Chinese users.
- Avoided major delays and legal complexities associated with entity setup procedures.
Case Study 2: E-Commerce Giant’s Expansion
The Challenge:
An international e-commerce brand required both bilingual marketing professionals and customer support agents for its expansion, while it desired to bypass the time-consuming WFOE establishment process.
The Solution:
A China Employer of Record helped onboard local staff promptly to manage brand recognition and customer support duties while the EOR managed China Payroll and compliance measures.
Results:
- The company established a solid local presence within weeks.
- Increased brand engagement without any administrative burdens.
- The company obtained competitive superiority within China’s rapidly changing e-commerce market.
Which Option is Best for Your Business?
Your decision to hire employees hinges on the objectives of your business, together with your financial resources and future company aspirations. Here’s how you can decide:
Choose an EOR if:
- You need immediate access to Chinese markets with minimal legal requirements.
- You need to Hire Employees In China.
- Your organizational priority is cost-effective hiring with minimal setup expenses.
- You want to focus on operational management while choosing to outsource both payroll and compliance tasks.
- You need flexible hiring options, particularly for brief or project-driven assignments.
Choose traditional hiring if:
- You intend to maintain a permanent base in China.
- You need full control over local operations, supply chain management, or business partnerships.
- Your company possesses the necessary resources to manage legal aspects, payroll functions, and human resource requirements on its own.
- The establishment of a physical office or factory facility stands as a requirement for your business operations.
Conclusion
Both hiring models offer unique advantages, but for businesses seeking agility, cost efficiency, and compliance, a China EOR is the smartest choice. For more insights on hiring in China, check out JSC Groups or explore how to hire employees in China without a company here.
