The Dispatch Rules an Employer of Record Cannot Contract Around
Employer of record arrangements in China rest on labour dispatch, and dispatch carries a positions test and a proportional cap. A licence solves the first problem and not the second.
HainanInc Employment Advisory
· 4 min read
Employer of record is usually presented as a way to hire in a country without establishing there — the provider employs, you direct, the complexity is theirs. In mainland China the arrangement rests on labour dispatch, and dispatch is not simply a licensed activity. It is a restricted one, with published limits on what kinds of position it may cover and how many of a hirer's workforce it may account for. Those limits attach to the arrangement itself, and no amount of licensing on the provider's side removes them.
Three kinds of position, and only three
Under the Interim Provisions on Labour Dispatch (劳务派遣暂行规定), published by the Ministry of Human Resources and Social Security as Order No. 22 on 24 January 2014 and in force since 1 March 2014, a hiring entity may use dispatched workers only in temporary, auxiliary or substitutive positions. Each is defined. A temporary position is one lasting no more than six months. An auxiliary position is a non-core position providing services to the core business. A substitutive position is one covering for an employee unable to work for a defined period because of full-time study, leave or similar reasons.
Read against how employer of record is usually sold, this is the awkward part. A country manager, a lead engineer or a first sales hire is typically none of those three things. They are core, permanent and replacing nobody — which is precisely the profile the positions test is drafted to exclude.
The dispatch rules, as published
- Interim Provisions on Labour Dispatch (劳务派遣暂行规定) — Ministry of Human Resources and Social Security Order No. 22, published 24 January 2014, in force 1 March 2014 — dispatched workers may be used only in temporary, auxiliary or substitutive positions; a temporary position lasts no more than six months; an auxiliary position is a non-core position serving the core business; a substitutive position covers an employee temporarily unable to work.
- Same provisions — a hiring entity must strictly control the number of dispatched workers used, which may not exceed 10% of its total labour usage, where total labour usage is the sum of the number of persons with whom it has concluded labour contracts and the number of dispatched workers it uses.
- Labour dispatch is a licensed activity; the licence is the labour dispatch operating permit (劳务派遣经营许可证) issued by the local human resources and social security authority.
- Notice of five Hainan departments on employee social insurance contributions — the employer contribution rate for basic medical insurance for urban employees in Hainan was set at 6% from 1 July 2024 to 31 December 2026, with a 5% rate for flexibly employed persons.
- All positions above verified against the issuing bodies' published texts in September 2026.
The proportional cap, and why it is awkward without an entity
The same provisions cap dispatched workers at 10% of the hiring entity's total labour usage, with total labour usage defined as the number of people it employs under labour contracts plus the number of dispatched workers it uses. For an established company with a hundred direct employees the cap is generous. For a foreign group with no PRC entity at all, there is no domestic workforce to compute a proportion against, and the arithmetic that the cap assumes does not straightforwardly apply.
That is not a loophole. It is a sign that the arrangement sits at the edge of what the dispatch framework was designed for, and it is why the honest answer to "can you employ this person for us" depends on the specific role and on what the licensed provider is prepared to take on in writing. A provider who answers yes to every role without discussing the positions test is describing a commercial appetite rather than a legal analysis.
A licence answers who may employ. It does not answer whether this particular role may be filled that way.
Contributions are real, and they follow the real employer
Social insurance contributions have to arise from a genuine employment relationship with the entity making them. In a properly constructed arrangement the licensed provider is the employer, and the contributions are theirs because the relationship is theirs. Rates are set locally and move: Hainan's employer contribution rate for urban employees' basic medical insurance was set at 6% from 1 July 2024 through 31 December 2026, with 5% for flexibly employed persons — a window that closes soon enough to belong in any multi-year cost model.
Questions worth asking before signing
- Is this role temporary, auxiliary or substitutive on the published definitions — and if not, what is the provider's analysis.
- Will the provider confirm in writing which roles it can carry and on what basis.
- Does the provider hold a current labour dispatch operating permit, verified rather than asserted.
- How is the proportional cap addressed given the client's actual PRC workforce, or absence of one.
- Which entity makes social insurance and housing fund contributions, and does a genuine employment relationship support them.
- At what headcount does establishing an entity become cheaper and cleaner than continuing to dispatch.
How we deliver this
Acting as the legal employer of another company's staff is a licensed activity in mainland China and HainanInc does not hold that licence. A licensed dispatch provider is the employer of record and carries the employment, social insurance and housing fund obligations. We select and manage that provider, test the roles against the positions rules before they are onboarded, reconcile each payroll cycle, and remain the single point of contact. Where the analysis shows dispatch does not fit the roles the business actually needs, the conversation moves to entity formation — which is usually the right answer sooner than groups expect.
This is general commentary on published policy, not employment law advice on a specific arrangement. Rates and requirements change and vary locally; confirm the current position before relying on any figure. Positions were verified against published sources in September 2026.