The number of foreign businesses
seeking to set up operations in China is still fairly large. This is despite
the fact that many such businesses do not possess the resources or the funds to
set up a big operational base in the country. This lack of resources leads many
such organizations to hire the services of the so called “independent
contractors” in China. Hiring such contractors seems to be the best way to cut
down the operational costs of the business set up in China. Sadly, most
organizations opting for this solution are ignorant of the fact that it makes
their China operations completely illegal and exposes them to the risk of
losing their assets.
Key
Facts About Independent Contractors In China
The first and the most important thing
that foreign business organizations need to understand is that hiring
independent contractors in China is illegal. Sadly, rather than opting to
believe the professionals from the best executive search firms in China,
most overseas business organizations take the advice of their Chinese lawyers
on the issue. Hence, it is not surprising that such companies often end up
unwittingly breaking the law as Chinese labour law does not support any form of
employment where the employer can avoid paying minimum benefits. In fact over
the past several years, China has adapted an increasingly aggressive approach
towards establishments that are following such practices.
What
Drives Foreign Businesses To Hiring Independent Contractors
One of the reasons that drive foreign
businesses to consider hiring independent contractors is that it cuts down
their operational costs considerably. For a small organization with 12-15
employees, this can prove to be a major boost. Such organizations do not
register themselves and they do not have to pay the usual employment benefits
to the local people working for them. They also get to save a considerable
amount of money in taxes as well as the rent for setting up a formal office for
the business. Most importantly they do not have to go through the formalities
of forming a WFOE in China, which is mandatory for every legal business set up.
Risks
Associated With Hiring Independent Contractors
As any professional executive
search firm in China informs its clients, the risks of hiring independent
contractors are far greater than any benefits that may be obtained. The most
obvious risk of hiring independent contractors is that it makes the business
operation totally illegal. Opting for this method of recruitment also puts the
China IP assets of the business at a huge risk. This is because contrary to
what their belief, the business organizations do not actually own these assets
and they can be seized by the government in case of a crackdown. They face the
constant threat and stress of being shut down any time and losing all their
investment and credibility. The businesses might also have to pay a huge
penalty in lieu of the taxes that were evaded by the business during its
operation. In addition, the businesses operating in this manner are not able to
carry out their day to day operations in a free and fearless manner, which can
affect their profitability and growth in a significant manner.
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