China: Labour dispatch implementing rules issued in Shanghai

Shanghai-based companies needing to reduce their reliance on dispatched workers have until 31 October 2014 to formulate and submit reduction plans. Guiding principles have also been issued to distinguish between human resourcing outsourcing and labour dispatch. These new provisions were recently issued by the Shanghai government.

The New Implementing Rules

The Shanghai Municipal Human Resources and Social Security Bureau ("Shanghai HRSSB") has issued local implementing rules regarding various labour dispatch issues. These new rules provide guidance on the Provisional Regulations on Labour Dispatch issued by the Ministry of Human Resources and Social Security on 24 January 2014 (the "Regulations") (see our e-bulletin dated 19 February 2014).

Shanghai's new local implementing rules include:

1. the Opinions on Regulating Certain Issues regarding Labour Dispatch in Shanghai issued by Shanghai HRSSB on 30 June 2014 (the "Opinions"); and
2. the Shanghai Municipality Provisions regarding the Filing of the Plan on the Use of Labour by Entities Using Dispatched Workers issued by Shanghai HRSSB on 7 July 2014 (the "Provisions").

Both the Opinions and the Provisions were effective upon issuance.

Highlights

Reducing Dispatched Workers – Procedures and Deadlines

Under the Regulations, dispatched workers may comprise no more than 10 per cent of a company’s total workforce, with a grace period of two years before that requirement applies to companies that have previously used dispatched workers.

The Provisions state that any Shanghai company that, prior to 1 March 2014 (i.e., before the effective date of the Regulations), had more than 10% of its total workforce as dispatched workers must file with the competent district branch of the Shanghai HRSSB its plan for the reduction of dispatched workers. The plan must be submitted by 31 October 2014.

The plan for reducing the number of dispatched workers must include:

1. information regarding the current number and percentage of dispatched workers in its total workforce; and
2. detailed measures and timelines for reducing the percentage of dispatched workers to 10% or less.

The competent district branch of Shanghai HRSSB will issue a filing receipt upon acceptance of such filing by the companies.

Take away point

• By 31 October 2014, Shanghai-based companies that need to reduce dispatched workers to 10% or less must formulate and file a reduction plan with the Shanghai HRSSB.

Labour Dispatch and HR Outsourcing Distinguished

Since the Regulations, some companies reportedly have transferred non-key dispatched workers to a human resource outsourcing agency, and then contracted to engage the outsourced workers through the human resource outsourcing agency (an "Outsourcing Model"). The Regulations, however, state that the Regulations apply to arrangements that are in substance labour dispatch, irrespective of what the arrangement is called.

The Opinions now helpfully distinguish between the Outsourcing Model and labour dispatch. The key distinguishing feature of the Outsourcing Model is that companies may only indirectly manage the relevant outsourced workers.

In practice, it is understood that the indirect management permitted by the Opinions for the Outsourcing Model requires that:

1. A company should not exercise direct management over the outsourced workers but should instead give instructions to the relevant human resource outsourcing agency which employs the outsourced workers; and
2. The human resource outsourcing agency will directly manage the outsourced workers on employment-related matters and give the outsourced workers daily work instructions based on the instructions given by the company.

The labour dispatch model, on the other hand, allows the dispatched workers to be directly managed by the company that engages the dispatched workers.

Take away points

• The Shanghai HRSSB will examine how workers are managed in order to distinguish between the legitimate use of the Outsourcing Model and fake outsourcing arrangements that are in fact labour dispatch arrangements.
• Companies should review the management of workers under any outsourcing arrangement to ensure compliance with the Opinions and the 10% limit on dispatched workers under the Regulations.