In part one of this series, I explained what has changed in China to make employer compliance — especially for foreign companies doing business in China — so important. In this part two, I explain what our China employment lawyers do in our HR audits to ensure that our clients are in compliance with China’s increasingly complicated, increasingly localized, and increasingly important labor and employment laws.
An HR or employer audit will make sure you are complying with relevant employer laws (both national and local) and will reduce your regulatory, liability and lawsuit risks. Moreover, a comprehensive review and a full analysis can give you a clearer picture of what’s going on in your workforce and once you have the big picture, you can then determine (and we help our clients with this) the employer-employee problem(s) you need to remedy first.
We usually begin our HR audits by sending our clients a questionnaire to gain a basic understanding of their employer-employee situation in China. We first ask our clients to provide the registered entity name and address (in both English and Chinese), as well as the official company registration document (usually: business license) for their China office(s). If you don’t have a China entity, there is no way your direct employment of a China employee is deemed legal under Chinese laws and your problems extend way beyond anything an HR audit can fix. See Doing Business in China with Deportation or Worse Hanging Over Your Head. We also ask our clients for an organizational chart of their China office(s), including the employee count for each location and a brief (1-2 paragraph) narrative describing how their China offices are organized and managed, including how HR matters are handled.
In order to complete a document review, we usually request all written employment documents used in their China office(s), specifically including any of the following:
- Documents containing job descriptions, including any postings on internal or external websites
- Offer letters
- Labor contracts (aka employment agreements)
- Rules and regulations (sometimes called an employee handbook or manual)
- Travel expense policies
- Non-compete agreements
- Intellectual property protection and/or confidentiality agreements
- Education reimbursement agreements
- Bonus agreements
- Settlement and/or severance agreements
- Other employment-related agreements (including company policies) presented or signed by any company representative, or signed by any employee
- Any documents filed with the local labor authorities
We want to review the executed copy of any and every document signed by an employee, including each individual employment agreement, along with any employment-related templates or forms used in their China offices. We ask our clients to advise if any of the above documents do not exist.
We also ask our clients to tell us of any any imminent employment related issues or questions they may have, such as imminent employment contract renewals, employment contract revisions in process, employee departures, and new hires. For example, if their China office is in the process of bringing in any new hires, we want to know about any potentially unresolved issues between the new hire and his/her previous employer. See Hiring Employees in China. Ideally, we would also review the employment documents executed by this person and his/her previous employer, but this is not always realistic.
If applicable, we also want to know how past terminations at the company were handled, and to that end we usually ask for a list of any former employees, including:
- their hire date
- their last date of employment
- whether the termination was voluntary or involuntary
- whether any severance payment was made
- any documents issued to the employee evidencing how the employment relationship was terminated
- a description of how the employer handled the transfer of social insurance and employee files.
Finally, we will want to know any particular HR problems the China office has experienced and any HR concerns they may have.
We then review the materials provided to us and we then prepare a written memorandum identifying any employment issues and providing recommendations and estimated costings for remedying the problems found. The time required to complete the audit depends on when the client responds to our questions and on what we find in the files. We then work with our clients to resolve issues that are raised by the audit.
The above may seem daunting at first, however your HR auditor would essentially handle most of the “dirty work” and it certainly beats being fined, named and shamed or criminally charged!