Employee recruitment in China is challenging

    Many multinational companies assume that a country with a population as large as China’s would not have a labor shortage. Under the booming economy, the rising demand for Chinese labor has exceeded its supply, and hiring talented employees is even more difficult.

    According to a report by Hewitt and Associates, China has one of the highest employee turnover rates in Asia.  So how does one attract and retain the “right” Chinese employee – one who is both qualified and loyal – while remaining compliant with all applicable laws? 

    Although each multinational company has its own unique recruiting challenges, there are some basic principles employers should consider when recruiting and retaining employees in China:

    Recognize the current labor climate and labor law enforcement activities. On June 29, after two years in the making, China’s legislature adopted the Law of the People’s Republic of China on Employment Contracts (referred to as China’s Labor Contract Law). Although the Labor Contract Law technically goes into effect Jan. 1, 2008, employers have already started to feel its impact. For example, unions have begun to aggressively exercise their rights by engaging in organizational efforts with large multinational companies such as McDonald’s, KFC and Pizza Hut, after informal discussions have failed. Employers should be aware of the new Labor Contract Law and monitor trends in enforcement after the law becomes effective in 2008.

    Verify employment history. For high-level positions, background checks should be conducted to ensure that intellectual property is protected and to uncover any fraud prior to employment.  Unlike some states in the United States., there is currently no particular law or regulation in China that imposes guidelines on background checks or prohibits discrimination based on criminal conviction or arrests.

    Assess training and development programs. The Hewitt and Associates study attributes China’s high turnover rate to the Chinese employees’ lofty expectations as they relate to most companies’ training and development programs. Companies seeking to retain employees should establish training programs that are directly linked to compensation. Companies must clearly communicate to all levels of employees how the training and development programs operate.  This will avoid legal problems and manage employee expectations.

    Clearly identify competitive market compensation. It is not surprising that compensation is likely the key to recruiting and retaining qualified Chinese labor. During the last five years, salaries in China have risen well above the rate of inflation. Compensation plans should be outlined in employment policies or, in the case of employee-specific benefits, provided for in employment agreements. For example, any employee’s performance bonus, annual wage or salary escalation term should be clearly articulated in the employee’s employment agreement.

    Define fringe benefits for employees. With the rising costs of medical care and housing in China, fringe benefits offered by the employer can play an important role in attracting and retaining Chinese labor. Employers should educate their Chinese employees about various aspects of their fringe benefits and how they work within the overall compensation system. Benefit plans should be outlined in employment policies or, in the case of employee-specific benefits, provided for in employment agreements.

    Evaluate the company’s current infrastructure. An employer doing business in China will also want to ensure that it has the infrastructure necessary to support various training programs and compensation plans. In doing so this will avoid over-committing the company’s resources or incurring breach of contract claims when the employer cannot deliver on promises made to employees.

    Apply recruiting and retention strategies with fairness. While Chinese discrimination laws are not as developed as U.S. discrimination laws, multinational employers must endeavor to recruit, hire, promote and generally administer all employee benefits fairly without regard to sex or other protected characteristics. In addition, such practices support all of the practices listed above and will assist in the hiring and retention of good, qualified candidates in China.

    While attracting and retaining qualified Chinese labor is challenging from both a legal and human resources standpoint, it is not impossible.  Employers that are willing to take the time to understand the Chinese labor market, and the impact of labor laws on the market, will likely be successful.


    Christine Liu McLaughlin is a member of the Employment Law Practice Group in the Milwaukee office of Godfrey & Kahn. For additional information, contact (414) 287-9232 or cmclaughlin@gklaw.com.  For more details about the practices described within this column, visit the U.S.-China Business Council’s Web site at http://www.uschina.org/info/chops/2006/hr-best-practices.html.

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