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Freshfields Risk & Compliance

| 4 minutes read

Workforce sharing – is it a win-win for all?

The COVID-19 outbreak is affecting some industries more than others and many employers are under pressure to manage employment costs and looking at alternatives to redundancies.

The employment administration in Shanghai’s Minhang district has come up with an innovative way of tackling the issue by launching an online workforce sharing platform on its official WeChat account. 

Employers in this district are encouraged to post about their need for additional temporary resources or if they have excess capacity due to suspended or reduced operations. The administration will then match demand and supply and assist the companies to agree on the terms of co-operation. 

So far, more than 200 workers have been placed in temporary work through this platform.

A win-win solution

Fear of the virus means that customers are staying home to minimise the risk of infection. Unsurprisingly, this has had a disastrous impact on the likes of restaurants, shopping malls, cinemas and hotels. 

China’s labour laws don’t provide much flexibility to employers – redundancy is only permitted in limited circumstances involving severance, while retaining employees carries the obligation to continue paying their wages, employee benefits and social insurance even when there isn’t sufficient work to keep them busy. 

For many businesses, this does not sit easily with current business conditions in China. On the other hand, consumers' wish to avoid leaving their homes has caused demand to spike in certain sectors, such as online shopping and food/grocery delivery, leaving companies in these spaces with insufficient manpower to meet demand. 

Hema, an Alibaba-affiliated grocery store with a strong online shopping and delivery platform, announced in early February that it plans to team up with a number of restaurants and shopping malls to temporarily engage out-of-work employees to assist in its food processing, packaging and home delivery.

This is a win-win-win solution on all fronts: Hema gains additional manpower, at lower cost than taking on new permanent staff, to help it meet demand, while the restaurants and shopping malls have a way to retain staff, while paying them less at a time of weak demand. The workers, meanwhile, are able to maintain their incomes through the work they do for Hema. 

Minhang district’s innovative way of helping businesses deal with overcapacity and under-staffing with the roll-out of the workforce sharing platform represents a very positive response from government. This pilot project, if successful, is expected to be rolled out on a wider scale. 

Legal challenges

However, workforce sharing is not without challenges.  

In the solution advocated by the Minhang authorities, shared workers will enter into short-term service agreements with the temporary employer, but their employment remains with their permanent employer, which remains responsible for making social insurance contributions for the workers. 

Workers may receive the wages directly from the temporary employer or from their permanent employer, which is then reimbursed by the temporary employer. 

One issue that arises from this sort of arrangement is the division of management responsibilities and liabilities. 

The temporary employer is responsible for supervising and overseeing performance of the shared workers, but it does not have the right to take action if things go wrong.

In the event that the shared worker suffers an injury in the course of their work for the temporary employer, the applicable law requires the permanent employer to assume the relevant liabilities for the injury even if the incident did not take place on the company's premises or under its watch. 

For this reason, it is important for the temporary employer and the permanent employer to contractually agree on the division of management responsibilities and liabilities.

Different payment methods may have an impact on social insurance calculation and individual income tax payment (IIT). 

If the temporary employer pays wages directly to the shared worker, it will be responsible for withholding and deducting the IIT, affecting the sums due and the calculation of the social insurance contributions. 

Moreover, the temporary employer of the shared workers should be cautious when charging back the labour cost to the workers’ permanent employer – if any profit is made from this workforce sharing arrangement, there is a risk that the arrangement might be viewed as unlicensed dispatch labour and may be subject to administrative penalties and fines.

From the workers’ perspective, they are more vulnerable under this service relationship because they are not covered by employment law protections. 

The temporary employer is not subject to restrictions on termination of employment, so it is possible for them to dismiss the shared workers at will with no notice or compensation, and the workers may lose their temporary jobs and income at the whims of the temporary employer. 

In addition, working time regulations do not apply, meaning that the shared workers may be asked to work additional hours without overtime payments. 

Moreover, it may be difficult for them to argue for the same pay as other regular employees of the temporary employer doing the same type of work, given the lack of legal grounds to do so. 

What’s next? 

There is no doubt that the phenomenon of workforce sharing is an exciting development for the Chinese labour market, facilitating the flow of human resources to where they are needed and helping employers to sustain their businesses when times are tough. Its popularity in the current climate is hardly surprising. 

Expect to see more workforce sharing in China in the short-term – but bear in mind the potential for risks and disputes, at least until clearer guidance on the workings of workforce sharing has been implemented in law.

Expect to see more workforce sharing in China in the short-term – but bear in mind the potential for risks and disputes.


employment, covid-19, workforce, coronavirus