Benefits of using a Professional Employer Organization (PEO) for your China business

As a new foreign business owner in China, you might be spending

more money than you intended on research to understand the

Chinese market better.  Investing in a corporate structure in China

may seem out of the question for the moment, therefore you need

to look for low-cost options to manage a small team of people while

focusing on developing your business.

Using a Professional Employer Organization (PEO) to enter the Chinese market, could be the ideal solution. PEOs specialize in providing assistance for small companies regarding benefits and human resources for their workers.

When a company offers benefits to its employees, it boosts their morale and creates a more solid relationship. Even if your employees are passionate and experienced, and have joined you because they believe in your vision and the future of your company, they deserve benefits such as health, social and housing insurance, paid vacation time, and retirement savings options.

If you don’t have an entity in China yet, one solution is to partner with a PEO. They hire the individual in China on your behalf so that you don't have to incorporate a company in China. All the employment requirements are fulfilled, including the payment of social benefits. This allows you to start your business immediately. 

According to experts’ research, employees would take a job with lower pay but better benefits. By offering a competitive package, you will be able to attract the talent that your company needs to grow.

In this case, you may want to consider partnering with a PEO. China, in particular, has a complicated legal system with its own set of rules, which can make hiring or firing an employee difficult.  Finding a PEO that understands local customs and regulations may smooth the way and be of great help for your new business.

There are a few aspects that you must understand and evaluate when deciding to partner with a PEO. When you sign an agreement, you are adopting a co-employment structure. This means that your employees are also the PEO’s employees.

Though it sounds daunting, it is important to realize that any PEO you choose will have authority over your tax and health care responsibilities. In most cases, the PEO itself is responsible if it makes a mistake when filing your taxes or other paperwork.

However, this co-employment framework offers you the chance to focus and run your business, while permitting the PEO to do what it does best: payroll and benefits administration.

When you outsource your heaviest HR burdens to a PEO, you will have specialized HR experts readily available to help you fine-tune and economize some of the most challenging aspects of your business, besides having a set of advisors to guide your company on employment issues, and how to improve your recruiting and retention efforts.

But before committing to a contract with a PEO, it is in your best interest to research and educate yourself as much as possible on the subject to avoid future complications.

As a small business owner, one of the main reasons to partner with a PEO is to be able to offer competitive benefits without the exorbitant cost that big corporations can afford to pay. PEOs give you the chance to save money on major expenses such as healthcare because they provide more options than a small business would normally have access to.

PEOs do more than just save time and headaches by handling many employer responsibilities. They can also save you money by helping you avoid costly pitfalls – like hiring the wrong candidate for a key role – and helping to steer you clear of HR-related compliance issues that could result in hefty fines.

The following are a few critical aspects regarding outsourcing your HR to a PEO and how it can help you save money:

1. Benefits

The main reason to partner with a PEO is to offer your employees access to cost-effective, comprehensive benefits without the administrative and regulatory burdens that can be complicated and costly.

As a co-employer, the PEO provides a series of benefits to your employees through PEO-sponsored benefit plans, that are mandatory by the Chinese government. The PEO will handle the related administrative tasks, such as enrolling employees, and providing legal notices, among others.

Your employees will be able to access information and understand better their benefits through the PEO , as well as a contact center that can answer their questions.

2. Payroll

Your payroll-processing and related accounting costs can be lower when you partner with a PEO, which will conveniently automate the payroll process and handle your withholdings, and other related aspects. Not only do PEOs handle your yearly, but they provide payroll services and deduct the correct taxes from each employee’s wages each pay period.

Working with a PEO that provides payroll services with a simple, clear fee, instead of a PEO that charges separately for each type of payroll service, such as providing quarterly and annual payroll reports, will make your life easier and it will allow you to focus better on your business. 

3. Retirement plans

A PEO can provide access to a retirement savings program, a benefit offering that may help your employee retention.

The legal environment in China is complex and ever-changing. Regardless, employers are developing multiple programs to provide retirement and savings assistance to their employees. Plans range from general purpose savings plans to trust models like the Enterprise Annuity system.

For small businesses, it is worth finding out if your PEO sponsors a plan that would allow your employees to defer compensation for retirement while taking advantage of employer matching or other contributions.

4. HR compliance

Keeping up with China’s HR regulations can be daunting. This can cost you a lot of time and money in fines if you do not comply. A PEO can provide guidance from seasoned HR professionals and help you avoid compliance mishaps.

Regardless of whether you have an in-house HR person, teaming up with a PEO can give your business a significant advantage. You will have access to trusted advisors who work together with you to keep you aware of regulatory updates and guide your business in making the appropriate adjustments.

5. Lawsuits

A single lawsuit can be devastating for your business, so keeping your employer liabilities in check is critical. A PEO shares liability associated with certain employment-related claims, including wrongful termination.

With a PEO as a resource, you can tap into the experience of multiple experts to mitigate a potentially costly settlement. This advice, however, does not a substitute for legal counsel. Instead, it serves as an added layer of defense.

6. Recruiting

Recruiting in China can be extremely difficult for foreign companies especially with the language barriers and cultural differences. Thus, as a foreigner in China, it is necessary to do your best to adapt to the recruiting habits of Chinese recruiters if you want to attract the best talent.

A thorough PEO should offer additional services, such as recruitment assistance, and be able to provide you with access to experienced recruiters who can size up your company’s employment needs.

In China, whether you are hiring a local employee or a foreign one, there are two main popular methods: recruiting through professional recruiting platforms or utilizing a PEO.

Currently, positions open up quickly and you almost always need an equally fast turnaround to find a qualified and capable candidate. A good recruiter is usually adept at reading people for particular jobs. They know how to analyze tone of voice during phone interviews, can assess a candidate’s attitude and evaluate emotional intelligence to determine a candidate’s capacity to perform well in a real-world job setting.

Most Chinese recruiting companies post job advertisements on social network sites hence naturally, Chinese job seekers look for jobs online as well.

The best PEOs are detail-oriented, which is an important quality to look for when selecting one. Try to get a sense of how dedicated they are to each client. The organization you end up choosing will be responsible for critically important, highly sensitive information, such as tax data and health insurance plans.

Put the same amount of effort into a PEO search as you would into employee recruitment. Co-employment means that your PEO will be part of your team, and as such an integral part of your company.

To learn more about our PEO and employer of record services, complete our online inquiry form here below.

DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.


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