In a recent announcement by the Beijing Municipal Human Resource and Social Security Bureau (Beijing Social Security [2020] No.5, “Circular 5”), authorities issued new guidelines for the operation of Intermediary Human Resource Service Agencies, hereinafter referred to as HR agencies. Circular 5 prevents HR agencies from withholding and payment of employee social securities for non-Beijing resident enterprises.
Previously, when registering new employees with the Beijing Social Security Bureau for the administration of social securities, HR agencies were not required to state the true employer with whom the employee has entered into a labor contract. Under the new system, withholding agents must declare the true employer into the online service portal accompanied by the labor contract. If the legal name of the true employer does not match an entity in the Beijing company registry, the user will be prompted with an error.
In practice, this prevents non-Beijing resident enterprises from engaging an HR agency to administer the withholding and payment of social securities for their Beijing resident employees – a common practice in many cities across China.
According to China law, companies are required to establish a legal entity in the local jurisdiction in which they intend to hire employees to ensure full compliance. However, Beijing is the first city to provide guidance for operations of intermediary human resource service agencies and authenticate true employers with the Beijing company registry.
How to hire employees in Beijing
Opening a Branch Office (BO)
Non-Beijing resident enterprises with employees in Beijing can choose to establish a branch office in Beijing and directly hire their employees using the newly established legal entity.
Branch offices can generally be established in less time than the initial setup of an entirely new company. Furthermore, when setting up a branch office, non-Beijing resident enterprises can apply for a non-independent branch office to reduce the compliance burden of operating additional legal entities. Whether a non-Beijing resident enterprise can successfully open a non-independent branch office depends on various factors such as the number of employees and will be decided by the local commerce bureau in Beijing.
Engage a human resource agency
Alternatively, non-Beijing resident enterprises may engage a professional employment organization (PEO) or human resource agency to directly hire the employee. This PEO or HR agency will act as the employer of record on behalf of the company and administer the necessary individual income tax and social security payments according to local rules and regulations.
When engaging a human resource agency to act as the employer of record for employees residing in Beijing, it’s important to verify that the agent has obtained the necessary licenses to provide staff secondment and PEO services to ensure full compliance.
HR Compliance
The Beijing Human Resource and Social Security Bureau has clearly stated that under the new operating guidelines for HR agencies, the true employer must be a Beijing resident enterprise in order to administer the withholding and payment of social securities for Beijing resident employees.
Companies who currently engaged HR agencies to administer the withholding and payment of social securities are encouraged to review the current compliance status of their HR practices and identify any risks early on.
Integra Group provides a full range of accounting, tax, HR and Payroll, and corporate secretarial services to companies in China. Should you have any questions regarding the compliance status of your business or would simply like to improve on compliance procedures, contact Integra Group for further guidance.
