New Requirements on Labor Dispatch Will be Applied: What Course to Follow?

“Labor Contract Law (Amendment),” will go effective on 1st, July, 2013, and the new requirements on labor dispatch (“LD”) become a compelling topic, the widely focused topics include: the new requirements on 3items of the position in LD, the issues related to the transfer from LD to labor contract, whether LD can be replaced by service outsourcing, and etc..
The Amendment has clearly stipulated the 3 attributes of “temporary, auxiliary, replaceable” of the position in LD, however, the distinction between “main business positions” and “ancillary business positions” varies by enterprise. Meanwhile, the local authorities have set different criteria on the 3 attributes, which has provided some leeway for the enterprises to choose LD, but also leave hidden risks for individual cases which may be deemed as breaking the provisions on LD. In view of this, before the local authorities release the detailed provision as above, the enterprises shall confirm with the professional agents or authorities prior to choosing LD.
For those positions prevailing to the 3 attributes, when the enterprises sign labor contract with employees, the enterprises shall take many issues into consideration, e.g. working age and economic compensation, the application of enterprises’ rules and regulations, the reconstruction of management system, and etc.. Labor Contract Law has clearly stipulated the issues related to working age and economic compensation. In order to eliminate the risks related to labor contract relationship, the application of enterprises’ rules and regulations subjects to adjustment with Labor Contract Law and the actual situation of each enterprise.
Currently, some enterprises choose service outsourcing in practice. In order to meet its operation and management needs, an enterprise may sign a service outsourcing contract with a third party, and employees of the third party shall provide service to the enterprise. When service outsourcing is implemented, there is no labor contract relationship between the enterprise and the third party’s employees, thus the enterprise has no control over the management of the third party’s employees, so service outsourcing is only a market transaction.
Generally speaking, if an enterprise choose service outsourcing, it shall take many issues into consideration, which mainly include, (a) whether the business is proper to be outsourced, e.g. those complex, important and high technical tasks, which always contain important intellectual property rights, and have strict requirements on confidentiality and quality, are not suitable for service outsourcing.(b) whether the contactor has the relevant qualifications and advantages on human resources in the industry. (c) whether the total cost of service outsourcing is less than the cost of labor contract relationship. Under service outsourcing, the enterprise can avoid the labor cost of labor contract relationship, but for the third party, if it is a labor dispatching company, its business tax will be calculated based on the service fee, if it is a service outsourcing company, its business tax shall be calculated based on the whole service fee, and it will finally require the enterprise to undertake such cost. So for the enterprises, they shall compare the costs when they make the decision.
In the future, being identified as “False service outsourcing, real labor dispatching” is a key risk to the enterprises. Some local regulations have the tendency to strictly identify such behaviors, e.g. the newly revised ” Labor Contract Regulations of Jiangsu Province” Article 36 stipulates, where the enterprise requires other units to provide service, if the employees of the contractor are working in the premise of the enterprise, using the enterprise’s facilities and equipments, working for the enterprise required or working in name of the enterprise, and other dispatching behaviors, the workers shall be accounted into the proportion of LD in the preceding paragraph.”
To sum up, no matter an enterprise applies both labor relationship and LD, or transfers all employees under LD into labor relationship, or applies service outsourcing flexibly, it shall apply the suitable method based on specified business needs, and compare of the cost and risks on such methods. In order to protect the interests of enterprises, control the relevant risks and negotiate with the labor dispatching company or contractor on the fees and articles reasonably, it is highly recommended that the enterprises can seek assistance from law firms or other professional agents.