China Compensation Benchmark: A Survey of Salary, Taxes & Benefits

Last time we took a look at some of the best practices for hiring staff in China your factory should be following, and in my final blog today I want to share a a survey of salaries, taxes and benefits for Shenzhen, Guangdong and Hunan to give you a bit of an inside look at compensation benchmarks in China.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

China Compensation Structures

Let’s cut to the chase, at the end of the day, salary plays a big role in employee happiness. It’s not just the amount of salary, but also the perception that they are being paid a fair wage is important to staff in China.

So an employer needs to monitor the labor market to make sure the salaries offered to candidates are suitable to attract the level of talent desired. The costs of housing, annual inflation rates and even the nations GDP all impact staff salary expectations. While inflation and GDP figures are fairly easy to find and monitor in China, wages/housing/spending power varies greatly from area to area within China.

To help with your benchmarking, this blog post offers the following:

  • Typical Compensation Structure for the 6 Typical Employees in Shenzhen
  • Pros/Cons of various locations in S. China from corporate and employee perspectives

Typical Compensation Structure for the 6 Typical Employees in Shenzhen

chinas mandatory benefits

Pros/Cons of various locations in S. China from corporate and employee perspectives

For your reference, here is a study our team conducted to help make decision about where to locate our new assembly center when our long-term lease in the Buji district of Shenzhen was up for negotiation in 2015.

Other location in current district (Buji) of Shenzhen Other district in Shenzhen (LongGang District) Oher city in Guangdong Province (Dongguan City) Other city in Guangdong Province (Huizhou City) Other city in other Province (Hunan Province, Hengyang City) Remarks
1. Paper-work: Cost / time / workload to adjust our business licenses and other key documents if the WFOE is moved (low vs medium vs high) low medium high high high
2A. Rents (Estimated % change) 0% 0% -30% -30% -86%
2B. Rental Trends. What is the estimated annual increase for each location using the historic increases over past 5 years to estimate the next 5 years? 11% 11% 10% 12% below 7%
3A. Labor Rates (Estimated % change) 0% 0% -26% -33% -44%
3B. Labor Rate Trends. What is the estimated annual increase for each location using the historic increases over past 5 years to estimate the next 5 years? 11.40% 11.40% 8.59% 9.60% 11.77% Hard to predict the future as Gov’t can change the minimum wage levels on short notice. As the economy is slowing down, we are hoping the min wage increases will not be as drastic in the next few years. This is a national rather than regional issue.
4. Utility Costs (Estimate of % change for power and water) 0% 0% 0% 0% 0% Utilities are roughly the same across all industrialized parts of S. China.
5. Ease of recruiting factory workers about the same, perhaps a bit easier to recruit if we have easier transportation and living conditions. about the same, perhaps a bit easier to recruit if we have easier transportation and living conditions. a bit easier a bit easier easier For this line item we are referring to workers on a production line. Outside of SZ it gets harder to find technical skills, experienced managers and/or English skills.
6. Ease of recruiting skilled office workers and managers easy easy a bit harder a bit harder much harder For this line item we are referring to workers on a production line. Outside of SZ it gets harder to find technical skills, experienced managers and/or English skills.
7. Landlord Relations depends on location depends on location depends on location depends on location depends on location
8. Tax incentives from local government 0% 0% 0% 0% should be available, however need to further check with local government Tax incentives unlikely to play a major role in the decision making process for our industry and any tax incentives that are offered usually expire within a few years.
9. Estimated cost per square meter to buy (rather than rent) factory space: How has this # changed over past 5 years and what is the estimate for future based on past 5 years? 6000-8000 Yuan /sqm   Going up 20% each year 6000-8000 Yuan /sqm   Going up 20% each year 4000-5000 Yuan /sqm Going up 15% each year 3000-3500 Yuan /sqm Going up 15% each year 1000-2000 Yuan /sqm Going up 8-10% each year
10. Environment (quality of life, access to transport, food, shopping…) for employees it depends on which industrial park chosen, some are good, some are not good. it depends on which industrial park chosen, some are good, some are not good. it depends on which industrial park chosen, some are good, some are not good. it depends on which industrial park chosen, some are good, some are not good. it depends on which industrial park chosen, some are good, some are not good. There is large variation among options in any given area.
11. Cost of Living Very High High Medium Medium-Low Low

 

That concludes post no. 8 out of 8 in my ‘hiring in China’ series. I sincerely hope that you found this series of value and please feel free to share your thoughts if there is anything else that you’d like to add to this post, or if you have any questions please reach out to me by leaving me a comment below.

 

Forget These Best Practices for Hiring Staff in China at Your Peril

This series of 8 blog posts is designed to offer both a general framework for how to structure your dealings with the employees in China (both Chinese and Foreign) as well as provide practical tools, tips and best practices for your day-to-day interactions with staff…

Last time we took a look at China labor laws and how you should go about managing your expectations about labor disputes, and this time around I’m going to introduce some of the best practices for hiring staff in China your factory should be following!

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China”which can be downloaded in its entirety right here!

Labor Contracts in China

In addition to the usual items you would find in a labor contract back home, extra emphasis should be put on the following items in a China labor contract:

  1. Jurisdiction & Enforceability

Many companies make the mistake of having a labor contract between the Chinese employee and the parent company in HK or overseas rather than directly between the Chinese employee and the WFOE.

Even if you put the jurisdiction of that contract in China, it won’t be binding because the WFOE is not a signatory to the document. The WFOE can also get hit with penalties for illegally hiring staff who don’t have a contract.

  1. NNN

If the staff will have access to any sensitive information, you’ll want to make sure your contract has good terms for non-disclosure, non-complete & non-circumvention.

  1. Penalties

It’s fairly rare in the West to have pre-agreed penalties in a labor contract. But in the West there is a mature legal system and the law of the land provides employers with certain protection. In China, if you and the employee pre-agree on reasonable penalties for breaking certain aspects of the labor contract, you will be happy to learn that the courts will generally enforce those penalties. The key is “reasonable” penalty. If you say the employee needs to pay 1 million USD if they go an work for a competitor within 2 years of termination of employment, that wouldn’t be considered “reasonable”.

  1. Due Diligence

Fake job experience. Fake diplomas. Even fake identities!

Those items are much more common in China than in the West. So do your due diligence on new employees and make sure that the employee is signing the contract with their real name and real identification card.

When onboarding new staff or trying to retain current staff, here are some tips to help ensure a smooth relationship: 

Tips to Help Ensure a Smooth Relationship

  1. Grass is greener right here

If your company is paying wages, OT and/or bonuses above or equal to industry averages, share the data with your staff. Show staff they are better off staying with you!

  1. Don’t make staff beg

Salaries should be paid on time with clear documentation of hours worked and vacation days left.

  1. No side jobs

You are legal responsible for the actions of your staff during work hours. For example, there is a case where an employee of a company was running an online taobao store during office hours. That Taobao store sold fake medicine. The police penalized both the employee and the employer even though the employer was not aware, let along supporting these activities. So monitor the actions of your staff and make it clear from day 1 in the labor contract that moonlighting is not allowed. You also want to confirm the employee has officially left his/her old job.

  1. Pay close attention during probation

Once the probation period is up, it’s difficult and expensive to let staff go. So make sure you found a winner before you end the probation period.

That concludes post no. 7 out of 8 in my ‘hiring in China’ series. Stay tuned for the final post which shares a survey of salaries, taxes and benefits for Shenzhen, Guangdong and Hunan to give you a bit of an inside look at compensation benchmarks in China.

China Labor Laws & Enforcement: What Happens During a Labor Dispute

China Labor Laws How to Handle Labor Disputes and Stay Out of Court

Last time we took a look at everything employers need to know about work visas for their foreign staff in China, and this time around I’m going to share some insights into China labor laws and how you should go about managing your expectations about labor disputes.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China”which can be downloaded in its entirety right here!

Manage your expectations about the labor bureau and labor disputes in China

China is very business friendly in many ways. There are tax incentives to welcome foreign investment, the Intellectual Property system has come a long way and the rule of law is finally taking hold.

But don’t forget for one second that China is still a communist country. The employer-employee norms and laws from back home don’t apply in China.

Example 1: China IS communist

On the surface it may come as a surprise that China doesn’t allow unions- in the Western sense of the word. Until that day comes when you have a strike at your factory and you suddenly realize the labor bureau is in effect a kind of union boss for every worker in all industries in all parts of China. That can be a good or bad thing, depending on your position.

Example 2: The law is clear- Interpretation isn’t

China Labor Laws Enforcement What Happens During a Labor Dispute_

As foreign investors, factory owners and business people, we tend to rely on the written law to guide our decision making. If you initiate a layoff and the law says the amount of severance owed is X, you probably think you are doing your staff a favor by giving X + 10% as goodwill. But then your staff reports you to the labor bureau and the bureau holds a “consultation” with the involved parties and recommends X + 20%. So you seek clarification in the local court where the judge awards X + 25%!

The two scenarios above don’t happen to everybody but they do happen. Consider yourself warned.

And don’t forget to manage your expectations about these 2 labor issues in China:

  1. The employee turnover rate is much higher in China than in the West. As a foreign employer in China, you need to strive to find ways to not only reduce turnover but efficiently train new staff when turnover eventually takes place.
  1. Managing a multi-cultural team is a challenge. Language, distance, culture…you name it. Challenges but not roadblocks when handled properly.

That concludes post no. 6 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series where we’ll take a look at the HR best practices your factory would do well to remember!

Attn. Manufacturers! Work Visas for Foreign Staff in China Explained

 

Last time we took a look at how to handle compensation claims in China  so that it’s a win-win for both parties involved, and this time around I’m going to explain the essentials behind work visas for foreign staff in China!

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

Employer-Employee Relationships: Foreign staff in China

Work visa

If you are a legitimate company (with a licensed operation in China) and have a legitimate need for foreign staff to be based on your China facilities, you should have no problem securing work visas for you international staff.

But you will run into problems if you do the following:

  • “sell” work visas to foreigners who aren’t actually working in your business
  • Under declare the China salaries of your foreign staff to avoid tax.
  • Have staff working under a tourist or business visa rather than work visa.

The first two items are obvious “no-no’s” and should be avoided, but what if you have international staff in your office for short term project work? Here are some guidelines:

  • Unless they are friends and family visiting China on non-business related activities, there is no reason to have foreigners with tourist visas in your office for more than a few hours.
  • Some foreign employers think that the China visa is the responsibility of the foreign staff and they don’t ask their staff for proof of work visa. Trust me, if you have foreign staff working in your office without visas, you both will have a lot of trouble once discovered. Your company may be put on a blacklist and you will be unable to hire any legit foreign staff for years to come.
  • You are crazy to give anybody on a tourist visa any trappings of employment, such as but not limited to:
  • Business cards with your China address
  • A work station in your office
  • Employment contract
  • Local currency compensation

And don’t think you can hide the visa status of your foreign staff from co-workers and authorities. I know plenty of cases of disgruntled local staff running to the labor bureau to turn the foreign employer in.

  • Overseas clients and business associates are welcome to come to China. Every year it gets easier and easier to arrange a business visa. If you are from the USA, you can get a 10 year multi-entry visa and come and go as you please, staying for fairly long trips if needed. But if you stay longer than 90 days in China, that’s considered working here and you should get a work visa.
  • About once per year, at a random time, professional and friendly (unless they were informed of a violation in advance) representatives from the local police unit or industrial affairs office will stop by your office to take a look around. They are looking for two things:
  1. Are the foreigners with registered work visas actually working at this location?
  2. Are there any foreigners without work visa working at this location?

Additional concerns about Work Visas for Foreign Staff in China

The last thing you want is to be in compliance with the laws, but staff get nervous during the audit and say the wrong things causing unnecessary confusion. To avoid this, I recommend not only staying in compliance, but also having a plan to explain how you are in compliance if audited.

For example, there should be a representative (and a backup) in the office who represents the company when there is a visa audit. This representative, it may be the front desk receptionist or even a senior manager, who the representative is isn’t as important as what they do. They should keep a list of all foreign staff based in the facility, along with copies of the passports/visas. If staff with work visas are out of the office, the representative should be able to explain why. Telling the truth is fine. For example, Mike is on a business trip to Beijing, he’ll be back in 2 days.

If you have foreigners in the office who are not on work visas, the representative should be able to explain why. Once again, the truth is the best option. Explain that the person is from HQ doing training, or explain how it’s a customer. But if this person is sitting at “their desk” with Chinese business cards and a coffee mug with a year’s stains on it…you may have some explaining to do!

Arranging a work visa for foreign staff in China

Work Visas for Foreign Staff in China

The last thing you want is to be in compliance with the laws, but staff get nervous during the audit and say the wrong things causing unnecessary confusion. To avoid this, I recommend not only staying in compliance, but also having a plan to explain how you are in compliance if audited.

For example, there should be a representative (and a backup) in the office who represents the company when there is a visa audit. This representative, it may be the front desk receptionist or even a senior manager, who the representative is isn’t as important as what they do. They should keep a list of all foreign staff based in the facility, along with copies of the passports/visas. If staff with work visas are out of the office, the representative should be able to explain why. Telling the truth is fine. For example, Mike is on a business trip to Beijing, he’ll be back in 2 days.

If you have foreigners in the office who are not on work visas, the representative should be able to explain why. Once again, the truth is the best option. Explain that the person is from HQ doing training, or explain how it’s a customer. But if this person is sitting at “their desk” with Chinese business cards and a coffee mug with a year’s stains on it…you may have some explaining to do!

Arranging a work visa for foreign staff in China

Lack of transparency regarding work visas for foreign staff in China

There is no written rule made public that states how many foreign staff can be employed by one company at one time. But I am certain each local government has some kind of unwritten rule. For example, a business with X million RMB in revenue should have no more than Y foreigners. For every foreign staff there should be X times as many Chinese. If you cross this unwritten line, you will find it hard to get working visas for staff and unless you are friends with the officials, you will never know for sure why.

But as long as you follow these written regulations, you should have no problem arranging work visas for foreign staff in China:

  • Obviously you need to be a registered business in good standing to hire staff, foreign or local for that matter.
  • The staff you wish to hire from overseas must have at least 2 years of highly relevant work experience. You can’t easily hire a young person to be your marketing manager if he graduated with a teaching degree in the USA and has since then been based in China tutoring children!
  • The job can’t easily be filled by a local Chinese person. For example, I had some difficulties hiring American sales staff because the local authorities felt there were plenty of English speaking Chinese. But my Spanish speaking candidates for the S. American marketing manager job were warmly welcome!

Security of business secrets when hiring foreign staff

Foreign owners sometimes put too much trust into their foreign hires. Don’t foster an “us vs them” attitude around the office. Apply the same level of control over sensitive information with foreign staff as you would with local staff. That means signing NNN agreements and monitoring staff closely.

Culture Clash when hiring foreign staff

Culture Clashes when Hiring in China

In the past 5 years the number of foreigners in China has grown exponentially. I no longer recruit from overseas because I can find goods staff right here in China. But I rarely hire anybody who has less than 2 years living experience in China because the risk of culture class is just too great. It’s a real drain on my business to train up a foreigner only to have them leave China because they don’t like the pollution or have trouble with the food. By year number 2, most people will know if they are making a China career or just passing through.

Speaking of culture, when selecting a point person to lead your team in China, don’t assume that Chinese language or even ethnicity equates to Chinese business understanding. I know of more than one major N. American company that has pulled junior staff out of departments like accounting and marketing and tapped them to be the point person on major sourcing projects simply because they were Chinese-American.

I know of countless exchange students from Asia who went to the US and EU to study English, history, and even music only to be plucked out of the universities to join a Western company as their sourcing team leader. I don’t know of one success story from all of those examples. Every time the project failed because the Chinese person assigned was hired because his or her only qualification was being Chinese or at least looking Chinese. In reality, an understanding of negotiation, logistics, and engineering and, especially, sourcing experience would be far more important criteria when selecting a sourcing project leader. Language and ethnicity should be far down the list of priority skill sets.

In addition, don’t assume that all ethnic Chinese, even those with business backgrounds, are automatically able to do business successfully in mainland China. I have seen numerous overseas Chinese (Asian Americans, Taiwanese, Singaporean, and especially Cantonese (Hong Kong) complicate the employee-employer relationship because their cultural baggage alienated members of the team.

I’m sure what I am about to say is not politely correct, but it seems that a lot of overseas Chinese have a superiority complex and look down on their cousins in the Mainland as being a bit backward and unsophisticated. On the other hand, a certain amount of up and coming mainland Chinese have an inferiority complex and may take issue with being “bossed around” by an overseas Chinese (especially those from HK and Taiwan) while they would look at the same directives coming from a European or American as just part of the job.

I would be crazy to say that the language and cultural understanding that an overseas Chinese brings to the table as a project manager is not of value. But I firmly believe that ethnicity alone is not the best criterion for selecting a project manager. Focus on the whole package when picking a team leader.

That concludes post no. 5 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series where we’ll take a look at what really happens during a labor dispute!

How to Handle Compensation Claims in China

 

Last time we took a look at what foreign manufacturers need to know about China’s mandatory benefits, and this time around I’m going to walk you through how to handle compensation claims in China  so that it’s a win-win for both parties involved.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

How to handle compensation claims in China

Early on in my career when I set up my WFOE I realized that HR issues would be a challenge so I allocated a big chunk of payroll to hiring a top notch HR manager. You would think that having a professional HR manager would be enough to ensure that your HR policies and contracts would be kept up to date and that the company would stay out of trouble. I went so far as to explain to the HR manager that I know there will be gray areas, but error on the side of caution even if it costs more than operating in the gray.

I realized the HR manager was engaged in activities in violation of her contract, such as moonlighting on side projects and perhaps taking bribes. I terminated her employment. Despite a gracious severance package which was well beyond my legal obligations to her, the employee took things personal and wanted to create as much drama as possible. She reported me to the labor bureau and tax authorities for so-called contract violations and tax avoidance. Here claim was that our company didn’t pay our full contributions to local government for mandatory benefits and that salaries were under declared in order to avoid tax. The craziest aspect of the case was that during her time with our company, she was the very person responsible for ensuring our company was compliant with those very issues!

Long story short, I learned that our company, under the guidance of that very HR manager, had indeed been slightly under declaring tax and not paying full benefits in accordance with current regulations. As these regulations were recently changed and as the vast majority of businesses in China were way worse in their non-compliance, the local authorities were reasonable toward my company. After a diplomatic negotiation we settled on a one-time penalty of less than 10,000 USD and our company to this day retains our “top class local tax payer” status and “model employer” recognition with the labor bureau.

How to use an HR lawyer to protect yourself in China

Compensation claims in China Time to lawyer up

Here are the 4 valuable lessons I learned:

  1. The company will be held responsible for the mistakes of its employees.
  1. If you do face an audit, having a written HR policy is so much better than having no written HR manual. Without a written manual, the auditors will assume you are not compliant in all areas!
  1. HR managers are expensive. HR Lawyers are not.   These days I actual save money and have a better compliance by NOT hiring an expensive HR manager. I hire a HR manager with reasonable experience at a reasonable salary package, then I spend a few 1000 USD once every year to have an HR lawyer do a full audit of my contracts, rules, SOP’s, templates…everything.

Here is some quick math for your reference:

20,000 RMB : “Top notch” HR manager monthly salary

10,000 RMB: “Solid” HR manager monthly salary

24,000 RMB: Full HR audit by a Top Notch lawyer. Once per year.

10K savings X 12 months = 120,000 minus 24,000 for the lawyer = 96,000 RMB in savings per year. That’s 480,000 RMB (about 75,000 USD!) in savings over the past 5 years.

  1. China’s HR rules and regulations are constantly being changed or updated. The annual review by a reliable 3rd party is essential.

That concludes post no. 4 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series where I’ll explain the situation behind work visas for foreign staff in China!

What Manufacturers Need to Know About China’s Mandatory Benefits

 

Last time I walked you through how to legally fire staff in China and prevent costly lawsuits, and this time around we are going to take a look at what foreign manufacturers need to know about China’s mandatory benefits.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

What Foreign Manufacturers Need to Know About China’s Mandatory Benefits:

  1. They are substantial.
  2. Mandatory benefits and the interpretation/enforcement of the rules by local authorities varies from province to province , city to city and even district to district!
  3. In general, the interpretation/enforcement is getting stricter each year and so are the fines for non-compliance.

Compensation Structures in China

For your reference, let’s take two typical employees in China and offer a breakdown of the expected benefits based on their salary. One column is for a mid-level office worker and the other column is for a typical factory worker making minimum wage.

Compensation structures in China

That concludes post no. 3 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series to find out how foreign employers can protect themselves in China.

Hiring in China? Pro Tips to Save You Time, Money and Legal Issues!

 

 

First off, I’d like to extend a warm welcome to everyone joining me for my ‘Hiring in China’ series.

This series of 8 blog posts is designed to offer both a general framework for how to structure your dealings with the employees in China (both Chinese and Foreign) as well as provide practical tools, tips and best practices for your day-to-day interactions with staff…

What the reader can expect to gain from the series

We will cover how to build a stable relationship, how to structuring effective labor contracts and even how to create mechanisms for monitoring the relationship and monitoring compliance with the labor contracts.

My goal in writing this material is to offer an affordable and effective way to protect the foreign employer while being fair to the employees. This is not a guide on how to outsmart your employees. 

How the series is organized

Blog #1: Hiring in China? Pro Tips to Save You Time, Money and Legal Issues!

Blog #2: How to Legally Fire Staff in China and Prevent Costly Lawsuits

Blog #3: What Foreign Manufacturers Need to Know About China’s Mandatory Benefits

Blog #4: How to Handle Compensation Claims in China

Blog #5: Attn. Manufacturers! Work Visas for Foreign Staff in China Explained

Blog #6: China Labor Laws & Enforcement: What Really Happens During a Labor Dispute

Blog #7: Forget These HR Best Practices at Your Factory’s Peril

Blog #8: China Compensation Benchmark: A Survey of Salary, Taxes & Benefits (Shenzhen/GuangDong/Hunan)

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

Recruitment (Blue Collar)

Finding Staff in China

Hiring in China Recruitment issues

Most of the points in this section are applicable to the recruitment of both factory and office workers, but there are some special considerations when recruiting factory staff.

Gone are the days that I remember so fondly, when we just hung a hand-written “We’re interviewing” sign on the factory front gate and there would be a long line of highly qualified candidates willing to start work on the factory floor for minimum wage.

At the risk of oversimplifying the situation, the reasons it’s harder to find factory labor on short notice now than 10 years ago is two-fold:

  • Thanks to the one child policy, there just aren’t as many 20 year olds looking for a job.
  • The rural interior of China is developing rapidly. Workers finally have job opportunities back home. So there is less of a need to travel 1000 miles to a factory on the coast and only come home to see the kids at Chinese New Year.

Finding “good” (meaning affordable, stable & loyal) office staff has always been a constant challenge in China. But these days, finding “good” factory staff is a real challenge too.

If your labor force is blue collar, you may want to apply the same tips and strategies found in the whitepaper for hiring/retaining white collar labor to the blue collar workers in your shop. Additionally, you may also want to consider the following special tactics for recruiting blue collar labor:

  • Give a bonus for existing staff who introduce new staff. But have clear rules about hiring family members and beware of cliques on the factory floor.
  • Send a recruitment team to the interior and offer special support with the transportation to the new job site.
  • Find ways to make it easy for staff to get back home for Chinese new year. For example, staggering production so staff can leave early/late and come back early/late.
  • Keep an eye out for factories closing near your factory. This is a great place to find new staff!
  • Build an internship/work-study program with local trade associations and colleges to train and recruit new staff.
  • Pay above minimum wage and offer meaningful benefits.

Recruitment (White Collar)

Tips for finding & interviewing good candidates

Hiring in China Pro Tips to Save You Time Money and Legal Issues

I love the saying “if you don’t know what you are looking for, every road will take you there”. In this case it means that if you don’t have a well-defined description of the candidate you are looking for, you will most likely end up hiring somebody that isn’t the perfect fit for the job.

The challenge isn’t finding a candidate, the challenge is finding the right candidate from the tsunami of resumes you will receive. So the first step is to build a description of the ideal candidate covering the core details like:

Job Title:

Pick titles that are accurate based on local standards

In the West, because the typical office has a lot less people than in China, it is common for staff to have multiple titles and perform multiple roles. We don’t put a lot of stress on the job titles. For example, the CEO of a small company may be doing the same jobs as maintenance staff at a large company!   We tend to throw around the terms “manager, director, supervisor” indiscriminately.

It’s very much the opposite in China. Staff take their job titles very seriously. Because even small companies in China can have 1000 employee, the term “manager” really means something. When recruiting in China, be sure you are using the right job title. When in doubt, use a title a rank or 2 lower than you would back home.

Job Description:

The job description is very important, especially when you consider that foreign employers and local staff may have different perceptions of what a given job title entails.   Be specific. Is this a desk job or do you expect them on the factory floor managing things? Is there a lot of travel involved?

Reporting Structure:

It’s in your best interest to let candidates know upfront how many people they will manage and to whom do they report? This is especially important if there are international teams on the project.

In the West we would assume that if somebody makes it to the top rungs of the corporate ladder, they would know how to lead a team. Not always the case in China. I have come across some great candidates (on paper) for top positions in my company who were actually terrible at managing teams. The reason is that they always had an assistant or a Vice GM to handle communications and they focused on strategy from behind a desk.

Age Targets:

In some countries is may be considered age discrimination to state a target age for the candidates. But in China it is quite common. So go ahead and state it in your job advert and use it as a tool for narrowing down the pool.

Experience:

When asking about experience, set targets for both the # of years and type of experience.

Be very specific. For example, “Engineer” is not good enough. A garbage man could be considered a “Sanitation Engineer”. So it would be better to say “Looking for a Mechanical Engineer who has at least 5 years’ experience in a toy factory working with CNC machines.”

Salary Targets:

I’m usually in a rush to hire new staff, so for me, time is of the essence and stating the target salary helps cut to the chase. But many recruiters are hesitant to state their salary targets on the job description, instead preferring that the candidates list their expected salary when they apply. Unless you are a professional recruiter in China and really understand the labor market it may be hard for you to judge if the expected salary as listed by the applicant is on par with their experience.

This can lead to a lot of headaches because some candidates will lowball their expected salaries in order to get the job and get through the trial period. Then they ask for big raise. If the raise is not given, then become deadweight around the office. But because they passed the trial period it’s hard to fire them due to the severance pay issues in China. I go so far as the put the salary caps for years 1, 2 & 3 in the job advert and state them during the interview, so the candidate can’t say later “oh, I didn’t know there wouldn’t be a 15% raise after 18 months.”

Stating the target salary in the job advert avoids those issues. And you can always adjust the target salary if you aren’t getting the type of candidates you desire.

Job Location:

Unless you are looking for a very unique skill set, most likely your search can remain location. And if you make it a nation-wide search you will be overwhelmed with too many resumes and waste a lot of money/time setting up face to face interviews. China has 300 cities with populations of over 1 million people. So pretty much anywhere you go in developed China, there is a large pool of local candidates in that same province, same city and perhaps even same neighborhood!

So be clear about the location of the job on your advert. Don’t state “City/Province”. State “Address, District, City, Province.” The added advantage for your recruitment process is that candidates will often be willing to work for a slightly lower wage target if they can stay close to their family. So try to fill the job locally when possible.

That concludes post no. 1 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series to find out how to legally fire staff in China and prevent costly lawsuits!

Foreign Manufacturer’s Ultimate Guide to Hiring in China (whitepaper)

A breakdown of what you need to know when hiring in China

During my 20 years living in Asia, I’ve owned a number of different business entities in greater China, ranging from China WFOE’s to HK holding companies to service companies. I’ve represented fortune 500 companies as well as startups in their dealings with China.

I’m on the board of advisors at AsiaBridgeLaw, but I’m not a lawyer and I don’t claim to be a China “guru.” China is too big and changing too fast, and anybody that claims to be an expert on all aspects of China business should not be taken seriously…

I’ve hired hundreds of employees over the years and dismissed dozens. I’ve been dragged into labor disputes with unpleasant outcomes and I’ve also sent staff to jail for contract violations and unauthorized activities. I’ve recruited, hired and trained local Chinese staff as well as China-based N. Americans, Europeans and Asians.

I’ve had my share of success as well as failure, and in this whitepaper I’d like to share some of the key lessons, pitfalls and best practices that I learned the hard way when answering the deceptively simple question of “what do foreigners need to know when hiring and managing local staff in China?”

Who will benefit from reading this whitepaper?

Who will benefit from reading this hiring in China whitepaper

Foreigners who own a WFOE or are thinking about setting up a WFOE will benefit the most from this whitepaper, but the concepts discussed in the whitepaper are applicable to any foreign business person who is wants to recruit, hire and manage a team in China.

What can reader’s can expect to gain from this whitepaper?

This whitepaper is designed to offer both a general framework for how to structure your dealings with the employees in China (both Chinese and Foreign) as well as provide practical tools, tips and best practices for your day-to-day interactions with staff.

We will cover:

  • Introduction to the “Three Circle Framework” – Relationship, documentation, monitoring

  • Relationship – Finding & interviewing good candidates, employee training and how to expertly navigate cross-cultural communications

  • Documentation – How to structure effective labor contracts, drafting an employee handbook, reference templates and building a KPI system that works in China
  • Monitoring – Employee compensation benchmarks and a few tips for maintaining a good relationship with your Chinese staff

My goal in writing this whitepaper is to offer an affordable and effective way to protect the foreign employer while being fair to the employees. This is not a guide on how to outsmart your employees or find loop holes in the China labor laws.

 


“How can I download my own copy?”

This complimentary whitepaper is available for download by simply clicking the button below! I sincerely hope that all the foreign manufacturers out there will find this whitepaper of great value when it comes down to hiring, training, managing and firing staff in China…

 

How to Legally Fire Staff in China and Prevent Costly Lawsuits

Last time I shared some pro tips to help you save time, money and legal issues when hiring in China, and this time around I’m going to walk you through how to legally fire staff in China and prevent costly lawsuits.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

How to avoid legal problems in China: Training & Probation Period

Here are some important things to remember when setting up a training program in China.

  1. Compensation Claims in China relating to probation period

There is a trial period during which you can release staff with relative easy. But once that period is used up, strict severance laws will apply. So it is in your best interest to structure a training program that quickly gets the new staff up to speed on the job so you can evaluate them in a meaningful way.

  1. How to prevent lawsuits when firing staff in China during probation period?

Obviously, have a written methodology for this training and evaluation and make sure you know the labor laws concerning trial period length before you sign contracts and onboard new staff. The laws in China are constantly in flux and interpretation varies from location to location, but at the risk of oversimplification, here is the important stuff to remember:

  • The trial period can normally be from 1 to 3 months in length.
  • The trail period can be adjusted from 1 month to up to 3 months if the results of month 1 are not conclusive in the eyes of the employer.
  • Important: This may be unique to China, but every month of trial period equates to 1 year of contracted labor. So if you end up hiring a person after a 3 month trial, you have in effect created a 3 year long contract period. If during those 3 years you wish to terminate the employment (at no fault of the employee, and sadly “poor performance” isn’t a legit reason to fire somebody in China!), the severance due will be as if the contract was for 3 years. There are different rules for project based employment vs open-ended contracts, but the rule of thumb I want to convey is that the longer the trial period, the greater your severance payout if you release the employee post-probation period.

Don’t make these big mistakes when setting up your labor contract!

Hiring in China Dont make these big mistakes when setting up your Laborcontract

You may be saying to yourself, “I paid a ton of money to a great lawyer back home to make my US labor contracts water tight. I’ll just translate them and use them in China.” BAD IDEA

The labor laws are quite different. It’s a communist country after all. So your contract will almost certainly run afoul of local labor laws in China.

Also, the PRC labor laws supersede any terms you may have in place with your staff in your “custom contract”. For example, you may wish to have some kind of “modern office” where Chinese staff can work from home or telecommute to the China office. So you set up a contract that states no overtime is due because employees are monitoring themselves and should limit work to 40 hours per week. Sound fairs, right? But if you end up terminating that employee, I guarantee the employee will ask for payment for OT performed on weekends, holidays and evenings. They will show the labor bureau emails from you asking about work. And the date stamps on those emails will show evenings, weekends and holidays. OT is 2X after hours and 3X on holidays by law. The law trumps your “custom contract”.

To help give you an idea of the items that should be included in a Chinese labor contract, here is English part of the bilingual template with important notes/terms in highlight.

Labor Contract

  1. Term of Contract
  2. Job Arrangement
  3. Working Hours & Rest Hours

Be very clear about OT and office hours.

  1. Remuneration
  2. Social Welfare & Benefits

Make sure this section is in exact compliance with national, provincial and local laws.

  1. Labor Protection, Working Condition and Prevention against Occupational Hazard
  2. Party B’s Responsibility
  3. Labor Disciplines
  4. Execution and Alternation of Contract
  5. Rescinding and Termination of Contract
  6. Invalidity and Nullification of Contract
  7. Compensation for Breach of Contract
  8. Confidentiality, Non-competition and Non-solicitation
  9. Intellectual Property
  10. Settlement of Labor Disputes
  11. Other Stipulations

Before we end this blog post, I’d like to answer this frequently asked question.

Do my contracts need to be in Chinese?

Hiring in China Do my contracts need to be in Chinese

Having a bilingual contract is the only way you can hope to ‘win’ in a court of law

If the English only contract is signed by both parties, it is legally binding. But it’s a terrible idea to have English only contracts! Here is why:

Having a well-worded bilingual contract says to the Chinese employee that you “care” and it also shows them you are a professional not easily taken advantage of, even in China.

Don’t give your new Chinese employee some massive English-only contract template as it probably won’t even get translated, let alone read. The employee knows that signature is a prerequisite for getting the job, so many of them sign without even understanding the contract terms. To solve this situation, make it bilingual and easy to understand.

2 Technical reasons why it’s best to have a bilingual contract in China

  • You have to list the Chinese name of the employee for the contract to be valid. The name should be the same as what you see in their official ID.  Many Chinese people go by different names, yet their legal name is the one that needs to be on the contract.
  • If your key documents are in English, it complicates things a lot should you need to go to court or arbitration. For example, before the courts can make a decision, the English documents/ supporting evidence will need to be translated into Chinese by a court approved translator for the court’s review. This can be expensive and very time consuming. Plus the defense can employ a stall tactic of fighting over the wording of the translation itself. It’s much better to have your attorney structure the wording in advance in Chinese rather than hope the court’s translation will be accurate. Be safe. Use bilingual contracts.

That concludes post no. 2 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series to find out what foreign manufacturers need to know about China’s mandatory benefits!

My 4 year old daughters’ introduction to outsourced manufacturing and project management in China

A few months ago I was doing a video blog about the service my company offers our clients. Nobody really watches that stuff, but I had to get it on the website for marketing purposes. As I  was getting the camera set up, my daughter burst into my recording study and told me she wanted to do the introduction.  Glad I accepted, as it has been our most popular video to date.

She does a short 5 second intro then hands the mic back over to me.  Here are highlights from the transcript of the video.

 

How can PassageMaker help clients who wish to do business with China?

Simply put, PassageMaker is US owned & operated, China-based. We set up virtual workshops & virtual purchasing offices for clients who don’t want the headaches and financial obligations of setting up their own factories and offices in China. So PassageMaker recruits, hires, trains AND most importantly, manages local manpower to work on the client’s project.  We literally build “your factory inside our factory” and “your office inside our office

 

What are the options for managing a team in China?

Doing business in China requires a presence there.  It doesn’t matter if you are buying, selling or manufacturing, at some point you will need boots on the ground, people you can trust, to look after your interests. Traditionally, there were three options:

  1. Fly your team in from back home

But this is a temporary fix and expensive when you consider costs of travel, time away from office, not to mention the wage differences between staff in your home country and China.

  1. Hire an agent

But agents, both Chinese and Foreign agents, are not known for their loyalty or professionalism. For example, you may be paying an agent a commission but behind the scenes they are getting a kick back from the China side too. Agents may not always have your best interests in mind.

  1. Set up your own office or factory in China

But this requires a large investment in time and capital. Plus it comes with a whole new set of headaches-  hire/fire issues, labor laws,  licensing, government relations, local taxation and even  exposure to social compliance and corruption issues.

PassageMaker has created a 4th option, that costs less than the other options, and delivers better results.

Our catch phrase is “outsource your infrastructure, manpower & management to PassageMaker”, but what does this really mean?

PassageMaker recruits, hires, trains AND manages local manpower to work in our offices and factories on behalf of the client.

 

Let’s talk office and factory infrastructure in China

You are probably familiar with virtual offices and virtual assistants.  But PassageMaker’s infrastructure is more than just physical space, a desk and access to internet.

When we talk “infrastructure” we mean PassageMaker’s operation manual, templates and S.O.Ps for getting things done in China.

So much more than just space- infrastructure means import/export licensing, VAT rebate facilitation, and 20 years of China experience put to work managing your China project.

 

Want white collar workers to find and manage suppliers or even sell your goods in China?

We got you covered.  At today’s exchange rate, professional staff can be hired in PassageMaker’s Shenzhen office with a base salary starting at just over 430 USD per month.

 

Need a blue collar team to physically manufacture, assemble, inspect or package your product? 

We got you covered. The minimum wage or base salary at PassageMaker’s workshop is around 2 USD per hour at today’s exchange rate.

 

What’s does it cost to engage PassageMaker and how would this cooperation work?

You cover the direct project expenses of the goods purchased, shipping and the payroll of your dedicated team.

We simply add a small commission on the value of the items bought and sold on your behalf in China. The bigger the project, the smaller the commission.

 

How to get started?

Download the rate sheet from our website, then fill out a simple questionnaire about your project and our website will generate a formal quotation and service proposal.   We’ll give you some time to review, then we can set up a call to answer any questions you may have.

 

 

She does a short 5 second intro then hands the mic back over to me.  Here are highlights from the transcript of the video.

 

How can PassageMaker help clients who wish to do business with China?

Simply put, PassageMaker is US owned & operated, China-based. We set up virtual workshops & virtual purchasing offices for clients who don’t want the headaches and financial obligations of setting up their own factories and offices in China. So PassageMaker recruits, hires, trains AND most importantly, manages local manpower to work on the client’s project.  We literally build “your factory inside our factory” and “your office inside our office

 

What are the options for managing a team in China?

Doing business in China requires a presence there.  It doesn’t matter if you are buying, selling or manufacturing, at some point you will need boots on the ground, people you can trust, to look after your interests. Traditionally, there were three options:

  1. Fly your team in from back home

But this is a temporary fix and expensive when you consider costs of travel, time away from office, not to mention the wage differences between staff in your home country and China.

  1. Hire an agent

But agents, both Chinese and Foreign agents, are not known for their loyalty or professionalism. For example, you may be paying an agent a commission but behind the scenes they are getting a kick back from the China side too. Agents may not always have your best interests in mind.

  1. Set up your own office or factory in China

But this requires a large investment in time and capital. Plus it comes with a whole new set of headaches-  hire/fire issues, labor laws,  licensing, government relations, local taxation and even  exposure to social compliance and corruption issues.

PassageMaker has created a 4th option, that costs less than the other options, and delivers better results.

Our catch phrase is “outsource your infrastructure, manpower & management to PassageMaker”, but what does this really mean?

PassageMaker recruits, hires, trains AND manages local manpower to work in our offices and factories on behalf of the client.

 

Let’s talk office and factory infrastructure in China

You are probably familiar with virtual offices and virtual assistants.  But PassageMaker’s infrastructure is more than just physical space, a desk and access to internet.

When we talk “infrastructure” we mean PassageMaker’s operation manual, templates and S.O.Ps for getting things done in China.

So much more than just space- infrastructure means import/export licensing, VAT rebate facilitation, and 20 years of China experience put to work managing your China project.

 

Want white collar workers to find and manage suppliers or even sell your goods in China?

We got you covered.  At today’s exchange rate, professional staff can be hired in PassageMaker’s Shenzhen office with a base salary starting at just over 430 USD per month.

 

Need a blue collar team to physically manufacture, assemble, inspect or package your product? 

We got you covered. The minimum wage or base salary at PassageMaker’s workshop is around 2 USD per hour at today’s exchange rate.

 

What’s does it cost to engage PassageMaker and how would this cooperation work?

You cover the direct project expenses of the goods purchased, shipping and the payroll of your dedicated team.

We simply add a small commission on the value of the items bought and sold on your behalf in China. The bigger the project, the smaller the commission.

 

How to get started?

Download the rate sheet from our website, then fill out a simple questionnaire about your project and our website will generate a formal quotation and service proposal.   We’ll give you some time to review, then we can set up a call to answer any questions you may have.

 

Notes on account management, MOQ and scalability

Once the service agreement is in place and initial payment received, the project official starts and an Account Manager will be assigned to your project.  Our Account management team includes bi-lingual Europeans and Americans based in China. They will serve as your primary point of contact and they take responsibility for ensuring the China-based team is meeting the project goals set by the client.

Rather than wait for the recruitment of new staff to be completed, in many cases, existing PassageMaker staff can be assigned to the new project on a temporary basis to help quickly launch and ramp up these new projects.

It’s also important to note that our service is very scalable. If at some point in the future, your wish to actually own your own office or factory in China, know that the virtual office/factory team can be transferred over to this new entity.

Our largest project to date had 56 dedicated staffers and our smallest has 1.  Some of our largest projects today, were small a few years ago. So, we have no minimum order sizes and as long as your project is stable enough to engage at least 1 full time person in our office or workshop, we are very open to cooperation.

Thanks again for your interest in PassageMaker, we look forward to being of service!