Published by ChinaMNC · Lianchi

Hiring Staff and Social Insurance for a Lianchi Company

A practical guide for foreign founders on employing staff through a Lianchi (business service) company in China, covering employment contracts, mandatory social insurance, the housing fund, payroll compliance, and common pitfalls.

Introduction

For many foreign founders, the first real presence in China is not a wholly foreign-owned enterprise (WFOE) but a Lianchi company — a domestic Chinese entity that provides business services, including hosting foreign teams, invoicing, and employing local staff on the foreign founder's behalf. This structure lowers the entry barrier and speeds up market testing, but it shifts a set of employment and social insurance obligations onto the relationship between your team and the Lianchi provider. Understanding how hiring works in this model is essential before you sign.

This article explains, in general terms, how staffing and mandatory social insurance typically operate for a Lianchi-hosted company. It is general information only, not legal, tax, or HR advice, and rules vary by city and change over time. Always confirm details with a qualified local professional before acting.

What a Lianchi Company Actually Does

A Lianchi company is a Chinese legal entity — usually a domestic limited liability company — that offers a range of administrative and business services. In a staffing context, it may:

• Employ staff directly under Chinese employment contracts and assign them to work on your project or team.
• Handle payroll, including withholding individual income tax (IIT) and paying social insurance.
• Provide invoicing (fapiao) for services rendered, which matters for your cost accounting and payments.
• Offer a registered address and administrative support for a representative office or small team.

The key point for foreign founders is that in this arrangement the Lianchi entity is usually the formal employer of record. Your relationship with individual staff is often contractual and commercial rather than a direct statutory employment relationship. That distinction shapes who bears legal responsibility — and who carries the risk if something goes wrong.

Employment Contracts and Employer of Record

Chinese labour law requires a written employment contract for employees. If the Lianchi company hires staff on your behalf, those contracts are typically between the Lianchi entity and the employee, governed by the PRC Labour Contract Law. As a foreign founder, you should clarify in your service agreement:

• Who signs the employment contracts and under what terms (fixed-term, open-ended, probation periods).
• Who controls day-to-day management — working hours, performance reviews, discipline — and how decisions flow between you and the Lianchi provider.
• Who bears termination costs, including statutory severance and notice periods, if a role ends or the arrangement is unwound.
• Confidentiality and IP clauses that protect your business assets when staff are formally employed elsewhere.
• Data and non-compete provisions where relevant, bearing in mind that Chinese law limits how non-competes can be used.

Because the Lianchi entity is the legal employer, it is generally the party exposed to labour disputes and arbitration. A well-drafted service agreement should make clear how such costs are shared and how the provider handles claims.

Mandatory Social Insurance: The Core Obligation

In China, employers and employees jointly contribute to a set of statutory social insurance schemes. For a Lianchi company employing your staff, these contributions are a routine and mandatory part of payroll. The main components typically include:

• Pension insurance (basic old-age insurance).
• Medical insurance, including basic medical coverage.
• Unemployment insurance.
• Work injury insurance, paid by the employer.
• Maternity insurance (in many cities now merged with medical insurance).
• Housing provident fund (a separate but commonly mandatory scheme for housing savings).

Contribution rates and the salary base are set at the city level and are adjusted periodically. Rates differ between cities, and some schemes apply only above certain thresholds. This is why a Lianchi provider's payroll quote should always specify the city, the applicable rates, and the salary base used for calculation.

Who Pays What

Typically, both the employer and the employee contribute, though the split varies by scheme and city. The employer withholds the employee's share from gross salary and remits both portions to the relevant authorities. For foreign founders, the practical takeaway is that the headline salary is not the full cost — employer contributions add a meaningful percentage on top. Budget for this from the start.

Foreign Employees and Social Insurance

Rules on social insurance for foreign nationals have evolved and can be applied differently across cities. Some localities require foreign employees to participate in certain schemes; others offer flexibility or have bilateral social security agreements with certain countries. Because practice is inconsistent, confirm the position in the specific city where your staff will be registered before you commit to a cost model.

Payroll, Tax, and Invoicing Mechanics

In a Lianchi arrangement, the provider usually runs payroll and withholds individual income tax on salaries. You should expect:

• Monthly payroll cycles with payslips and contribution records you can review.
• IIT withholding based on the employee's tax status and income, including any special deductions the employee claims.
• Service invoices (fapiao) from the Lianchi company covering staff costs plus its service fee, which you need for accounting and, where relevant, tax deduction.
• Clear separation of pass-through costs (salaries, social insurance, housing fund) from the provider's management fee, so you can audit the numbers.

Ask for a written cost breakdown and sample invoice before signing. Vague “all-in” pricing is a common source of later disputes.

Practical Steps Before You Hire

• Confirm the city and registration details of the Lianchi entity, since social insurance rates and rules are location-specific.
• Get a written cost model showing gross salary, employer contributions, employee deductions, and the service fee.
• Review the service agreement for termination, severance, dispute handling, IP, and confidentiality terms.
• Clarify who manages performance and discipline, and how instructions reach staff.
• Check how payroll records and contribution receipts will be shared with you each month.
• Plan for exit: understand what happens to staff, costs, and contracts if you later set up your own entity.

Common Pitfalls

Foreign founders frequently underestimate the following:

• Underestimating total employment cost by ignoring employer social insurance and housing fund contributions.
• Assuming they are the legal employer when the Lianchi entity actually is, leading to confusion over liability.
• Weak termination clauses, leaving severance and notice costs unclear.
• No IP or confidentiality protection in the service agreement, exposing trade secrets to staff formally employed elsewhere.
• Assuming rates are uniform nationally, when city-level rules and bases differ and change over time.

Conclusion

A Lianchi company can be a pragmatic way for foreign founders to hire in China without immediately establishing a local entity. But the convenience comes with a structured legal and payroll reality: the Lianchi provider is usually the formal employer, social insurance and housing fund contributions are mandatory and city-specific, and the true cost of staff is significantly higher than gross salary. Treat the service agreement as a serious commercial contract, insist on transparent cost breakdowns, and verify local rules before you hire.

Disclaimer: This article provides general information only and does not constitute legal, tax, accounting, or HR advice. Employment law, social insurance rates, and administrative practice in China vary by city and change over time. Readers should consult qualified local professionals and official sources before making decisions.