Learning The Truth About Hiring Independent Contractors In China

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.