Employees vs Independent Contractors China

Updated as of 2026

Introduction

According to the Labour Law of the People’s Republic of China, “employees” could be generally defined as the individuals who have established employment relationships with the businesses or individual economic organizations (hereinafter referred to as “employers”) within the territory of the People’s Republic of China or who have contractual employment relationships with the government organs, institutions or social organisations. Therefore, whether an individual is an employee depends on whether there is an “employment relationship” between the individual and the employer.

On the other hand, there is no specific concept of “independent contractor” under the labour laws of China, but under the civil laws of China, an individual may enter into a contract for service with a company or business under certain conditions, and both parties of the contract are equal and independent civil subjects without subordinate relationships. Such individual is referred to as an “independent contractor” for the purpose of the discussion in this article. In practice, the question whether a person is an employee or an independent contractor usually comes up when the company engages an unretired person and enters into a contract for service instead of an employment contract with the person. In this case, the contract for service would be easily confused with the employment contract for an employee. If any dispute arises from or in connection with the contract for service, the person will likely initiate labour arbitration and litigation proceedings to request confirmation of the employment relationship. If the effective arbitration award or judgment finally confirms that the person has an employment relationship with the company, this person should be an “employee” and will be entitled to protection by labour laws. Otherwise, he/she would generally be deemed an “independent contractor.”

I. Legal Framework Differentiating Employees From Independent Contractors 

a. Factors that Determine Who is an Employee and Who is an Independent Contractor

In practice, labour arbitration commissions and courts mainly refer to the Circular of the Ministry of Labour and Social Security on the Establishment of Employment Relationship (hereinafter referred to the “Circular”) to determine whether an employment relationship exists. According to the Circular, the basic characteristics of an employment relationship are: (1) both the employer and the employee are qualified to enter into an employment relationship according to law; (2) the employer’s various rules and regulations formulated in accordance with the law are applicable to the employee, and the employee is subject to the employer’s labour management and is engaged in certain paid work arranged by the employer; and (3) the employee’s work is part of the employer’s business. If the three factors above are satisfied simultaneously, an employment relationship shall be deemed to have been established, and the person involved should be an employee instead of an independent contractor.

Also, the Circular further provides that the following vouchers could be used as reference for confirmation of the employment relationship between two parties when there is no written employment contract: (1) wage payment voucher or record (employee payroll) and the record of various social insurance contributions; (2) the certificates such as the “Work Certificate” and the “Service Certificate” that can prove the identities issued by the employer to the employee; (3) the recruitment and employment records of the employer such as the “Registration Form” and the “Enrolment Form” that have been filled in by the employee; (4) attendance records; and (5) testimony of other employees. The employer shall be responsible for providing the vouchers as stipulated in item (1), (3) and (4) above.

In addition, some local courts provide more specific criteria for determining whether there is an employment relationship between two parties. For example, the opinions issued by Beijing High People’s Court in 2024 emphasize that a person shall not be deemed as an employee if he/she provides services to an employer using his/her own skills, knowledge or facilities, bears his/her own business risks, has no subordinate relationships with the employer and is basically not subject to the management or control by the employer. Such kind of person could be deemed as an independent contractor.

b. General Differences in Tax Treatment

Pursuant to the 2018 amendment to the PRC Individual Income Tax Law, the general difference in tax treatment under employment relationship and civil relationship is no longer the tax exemption amount or the applicable rate, but the mechanism by which the income tax is collected. Both types of income are now merged into a single “comprehensive income” category and are subject to the same rate (i.e., the progressive tax rate varying from 3% to 45%) after January 1, 2019. The tax exemption amount of comprehensive income is RMB 60,000 per fiscal year, with no distinction between Chinese and foreign employees. The difference that persists is procedural.

Under the employment relationship, wage and salaries received from employers are subject to monthly cumulative withholding. Employers should be responsible for withholding employees’ individual income tax from the wages and salaries, and then pay it to the tax authority for and on behalf of employees.

As for remuneration for independent services, it is still subject to interim withholding and varies depending on the specific situations. For example, if an independent contractor provides services to a company and receives remuneration for such personal services, the individual income tax on the remuneration would be provisionally withheld at the rate of 20% of the balance after deduction of RMB 800 from each income not more than RMB 4,000 or the balance after deduction of 20% of the expenses of each income of more than RMB 4,000. However, any excess or shortfall is reconciled in the year-end comprehensive settlement, ensuring that, at year-end, both types of income are taxed on the same basis.

c. Differences in Benefit Entitlement

Under an employment relationship, employers shall contribute to employees’ social insurances (including pension insurance, medical insurance, work-related insurance, maternity insurance and unemployment insurance) and housing reserve fund in accordance with national laws and local regulations. Employees are also entitled to various statutory leaves including but not limited to paid annual leave, marriage leave, maternity leave, paternity leave, work-related injury leave and sick leave. Employers may grant more, but never less than the mandatory minimum level as provided by law. However, independent contractors are, in general, not granted the mandatory social insurances and housing reserve fund, or mandatory paid leaves described above.

d. Differences in Protection from Termination

PRC labour laws generally favour employees and therefore contain many statutory provisions on termination of employees. An employer is only permitted to immediately and unilaterally terminate an employee without severance pay in one of the following circumstances:

• the employee fails to satisfy the employment conditions during the probationary period;
• the employee seriously violates the labour disciplines or the employer’s rules and regulations;
• the employee causes material damage to the employer due to dereliction or malpractice for personal interest;
• the employee has established an additional employment relationship with another employer, which materially affects the completion of his/her tasks with the employer, or the employee refuses to rectify the matter per the employer’s request;
• the employment contract is invalid because the employee used means such as deception or coercion, or took advantage of the employer’s difficulties to cause the employer to conclude the contract or to make an amendment thereto, which is contrary to the employer’s true intent; or
• the employee is criminally prosecuted under the law.

Furthermore, the employer may terminate an employment contract under any of the following circumstances, but it must give the employee 30 days’ prior written notice or one month’s salary in lieu of notice, and also must pay severance in accordance with law:

• the employee, after undergoing a legally prescribed period of medical treatment and recuperation for an illness or non-work-related injury, remains unable to perform his/her original job duties, and is also unfit for another job assigned by the employer;
• the employee is incompetent in fulfilling his/her duties, and remains so after undergoing further training or an adjustment of his/her position;
• the employment contract cannot be performed due to any major changes of the objective circumstances under which the contract was originally concluded, and the employer and the employee fail to reach agreement on modification of the contract after mutual consultation.

If the employer satisfies certain conditions and intends to initiate a collective redundancy with at least 20 employees or 10% of the total staff being affected, it must complete the required procedures such as communicating with the trade union or all staff, seeking opinions from the trade union or employee representatives, and filing the redundancy report with the local labour administrative department before unilaterally terminating the employment contracts with the affected employees.

Practitioners and courts in China interpret these statutory termination provisions as exhaustive.  In other words, employers cannot add any additional conditions for early termination in employment contracts and use such additional conditions to unilaterally terminate their employees. The only way in which the termination provisions of an employment contract may differ from statutory termination conditions is by optional reference to an employee handbook (also known as a staff handbook) or other internal policies.

Employees may initiate labour arbitrations in response to any unilateral termination by their employers. Either employee or employer may appeal a labour arbitration’s decision to the court when feeling dissatisfied with its decision. During the labour arbitration or litigation, the employer must provide solid evidence to support the termination and assume the burden of proof. If the unilateral termination by the employer is finally judged as illegal, the employer must either reinstate the employment with the employee and provide back pay, or pay double statutory severance as compensation for the wrongful termination.

However, termination of an independent contractor is much easier and more flexible. The company may terminate an independent contractor by serving a notification according to the conditions stipulated in the contract for service, or the PRC Civil Code, but does not need to pay severance unless otherwise agreed by the parties. The company and the independent contractor may also agree on a termination at will without cause. Independent contractors are not protected by the provisions of the PRC Employment Contract Law, but if they suffer losses from the company’s termination which breaches the contract or law, they may claim compensation for damages.

e. Local Limitations on Use of Independent Contractors

There are no specific limitations on the use of independent contractors in China. However, employers are not allowed to use nominal independent contractors to avoid their employer liabilities under PRC labour laws. Such relationship with the “nominal independent contractors who are de facto employees” will be penetrated by labour arbitration commissions and courts, and identified as an employment relationship according to the factors as stated above.

f. Other Ramifications of Classification

There are also other ramifications of difference between employees and independent contractors. For instance, employees shall work under one of the three working hours systems (i.e. standard working hours system, flexible working hours system and comprehensive working hours system) based on the nature of their work and positions. However, there are no specific working hour requirements for independent contractors.

In addition, the employer shall bear liability if any third party suffers loss or injury due to the employee’s performance of duties. However, based on different types of contractual relations, independent contractors’ liabilities for tort may be different. For example, according to Article 1193 of the Civil Code, where a contractor causes an injury to a third person when completing certain work, the contractor itself shall bear the liability unless the hirer has any negligence in respect of its order, or instruction or selection of contractors.

g. Leased or Seconded Employees

Under PRC labour laws, it is possible to lease employees to another employer, which could be called “labour dispatch.” Labour dispatch means the labour dispatch agency enters into a labour service contract with an accepting company and then dispatches its employees to the accepting company in exchange of service fees. The dispatched employees work under the instruction and management of the accepting company, but the labour dispatch agency is the legal employer of these employees and shall bear employer liabilities. The main advantage of labour dispatch is flexibility: dispatched employees are not considered regular employees of the accepting company. As a result, many companies used labour dispatch as their main or only method for hiring employees based on the belief that hiring through dispatch agencies could mitigate or avoid employer liability. Against this backdrop, the Employment Contract Law, which came into effect on January 1, 2008, attempted to address this practice by mandating equal rights for employees hired through labour dispatch agencies and “generally” restricting the use of labour dispatch only for “temporary, auxiliary and substitute” jobs. However, labour dispatch agencies have seized on the term “generally” in the law and the vagueness of the terms “temporary, auxiliary and substitute” to argue that there is no real restriction on the use of labour dispatch; as a result, the use of labour dispatch by companies increased rather than decreased. This is contrary to the legislative intent of the law.

In this situation, the Standing Committee promulgated the Decision on Revising the “Employment Contract Law of the People’s Republic of China”(the “Amendment”) on December 28, 2012, which came into effect on July 1, 2013.  The Amendment focuses on labour dispatch issues by addressing the standards for labour dispatch agencies, discussing the general rule of equal pay for equal work, defining the scope of labour dispatch and setting forth the consequences for violating these regulations. To implement this Amendment, the Ministry of Human Resources and Social Security promulgated the Interim Provisions on Labour Dispatch (the “Interim Provisions”) on January 24, 2014, which became effective on March 1, 2014. The Interim Provisions describe the criteria for temporary, substitute and auxiliary positions, state the maximum proportion of dispatched employees an accepting company may have, establish the conditions for returning dispatched employees, and contain provisions on social insurance and work-related injury obligations. The Amendment and the Interim Provisions set strict limitations on labour dispatch, which has caused many companies to transfer dispatched employees to direct hire of employees or use labour outsourcing services as a substitute for labour dispatch to ensure full compliance with law.

On the other hand, there are no specific regulations on secondment of employees. In practice, secondment is used mainly by government agencies and public institutions to complete certain temporary work. Now some private companies may also second employees to other companies, mainly to their affiliated companies or business partners, with their employment relationships with the seconded persons remaining unchanged. Secondment and labour dispatch are very similar. The major difference is that secondment is not for the purpose of profit, and the seconding company shall not receive any remuneration from the accepting company except the reimbursement for the cost in relation to the employees’ salaries, social security contributions and other fees payable to the employees during the secondment period.

h. Regulations of the Different Categories of Contracts

In China, employment relationships are bound by various labour and social security laws, including but not limited to, Labour Law, Employment Contract Law, Social Insurance Law and Trade Union Law. The rights and obligations of employees and employers under these laws are quite different from those under general civil relationships. The contract for service with an independent contractor is subject to the Civil Code and other civil laws and regulations, observing the principle of autonomy of will, and is more flexible in the conclusion and termination of contracts.

 

II. Re-Characterisation of Independent Contractors as Employees 

a. Laws and Guiding Principles

As described above, there are no specific regulations distinguishing “independent contractors” from “employees.” Instead, re-characterization of independent contractors as employees depends on several criteria which have been formulated in the national regulations and developed by local courts for confirmation of employment relationships. The principle is, if a person is deemed to have established an employment relationship with the employer, he/she would be protected by labour laws as an employee; otherwise, if he/she is deemed to only have a service relationship with the company, he/she will not be under the protection of labour laws.

b. The Legal Consequences of a Re-Characterisation

If an independent contractor is re-characterized as an employee, he/she would be under the protection of labour laws, and the hirer shall bear employer liabilities and obligations including but not limited to the following:

• entering into a written employment contract with the employee;
• providing the employee with salary no less than the minimum wage standard, granting the employee’s right to have breaks and holidays, and observing the regulations on working hours;
• providing the employee with labour conditions and protections as required by labour laws;
• making social insurance and housing reserve fund contributions for the employee;
• providing the employee with benefits no less than the minimum mandatory level, such as paid annual leave, marriage leave, maternity leave, paternity leave, work-related injury leave and sick leave;
• observing the statutory conditions for termination of the employment contract with the employee; and
• providing the employee with severance payment no less than the mandatory level in accordance with law for the termination of the employee.

In particular, if an independent contractor is re-characterized as an employee, and suffers from work-related injury and is identified as having disability while the employer does not contribute to his/her work-related injury insurance, the employer shall be liable for the work-related injury, and bear the cost in accordance with the items and standards of work-related injury insurance benefits, such as the medical cost, life care fees, a lump-sum disability assistance allowance, and a lump-sum medical treatment allowance that should have been covered by the work-related injury insurance.

c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status

In practice, “nominal independent contractors” usually seek the legal status of employees in order to get special protection for employees, such as for the identification of work-related injuries and obtaining relevant compensation, contribution for social insurances and housing reserve fund, and protection from termination. They may file labour arbitration for confirmation of an employment relationship with the employer. When there are sufficient factors align with the employment relationship, the contract for service will be re-characterized as an employment contract and the individual concerned will be deemed as an employee. If the labour arbitration fails, the person may bring a lawsuit to the court and then may appeal when dissatisfying with the first-instance judgment.

d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation

In the event of re-characterization, upon the employee’s report to the labour administrative department, the employer would be possibly ordered to pay the employee salary no less than the minimum wage standard, and also pay overtime payment when applicable. The employer would also possibly need to pay double wage to the employee for not entering into a written employment contract with the employee.

In addition, the employer would be liable for the unpaid social insurance funds as well as late payment interests. If the employer fails to make a payment of the employee’s social insurance within the period specified by the local labour administrative department, it would be subject to a fine of 1 to 3 times the amount in arrears. Especially, if the employee suffers from a work-related injury, the employer would be liable for the benefits and expenses under a work-related injury insurance.

 

III. How to Structure an Independent Contractor Relationship 

a. How to Properly Document the Relationship

It is recommended to draft a written agreement to specify the rights and obligations of the independent contractor and the business. The relationship between the two parties should be structured in a way to avoid elements specific to a subordinate relationship.

The business should keep the following in mind when drafting such an agreement:

• do not stipulate the factors that are typically contained in an employment contract, such as the independent contractor’s department, job title, report line, working hour, working place, monthly salary, paid annual leave, social securities;
• specify the exact service or work product required by the business and the period by which the independent contractor shall deliver it;
• do not stipulate that the independent contractor should work per the superior’s instructions or observe the labour disciplines and internal policies of the business;
• stipulate what specific service or work product is required by the business, and when the service or work products should be delivered to the business;
• stipulate that the independent contractor is free to organize his/her work, working time working manner, etc. as long as he/she could provide the service or work product by the period as required;
• stipulate that the independent contractor’s service fees depend on the quantity and quality of the service or work product completed, and that the business has the right to appraise the service or work product and require the independent contractor to make correction or improvement if it does not satisfy its requirements.

b. Day-to-Day Management of the Relationship

The general principle is, if the business wishes to avoid re-characterization of an independent contractor as an employee, the business should give the contractor as much independence as reasonably possible, almost as though that contractor were a separate business entity.

Specifically, both the business and the independent contractor must act in consistence with the relationship described in their written agreement. For example, the service fees should be paid in a way different from the salary paid to employees. This means, the fees should not be fixed, but depend on the quantity and quality of each service or work product provided by the independent contractor. Also, the business shall not have any action or statement in connection with the overtime payment, attendance, application for leaves, performance review, disciplines, and etc. for the independent contractor in its daily management.

 

IV. Trends and Specific Cases 

With the deep integration of the digital economy and platform technologies, the sharing economy and live-streaming economy have penetrated into all aspects of life. In this process, the live-streaming industry has evolved from a peripheral activity into a central mode of consumption.  According to the 2025 Research Report on China Online Audio-Visual Development, by December 2024, the state counted 38.8 million professional streamers, a year-on-year jump of 150%. This new business model has greatly changed the traditional market and promotes the development of economy. However, many difficult problems arise.  One is the employment issue between the streamers and Multi-Channel Network (“MCN”) organisations. As the MCN organisations often do not have employment contracts with the streamers, or make social insurance contributions for them, labour disputes have happened frequently and whether an employment relationship exists is a primary issue in most cases.

In practice, labour arbitrators and judges consistently apply the three elements outlined by the Circular as stated in Paragraph II to determine whether a streamer is an employee or an independent contractor. Furthermore, the Supreme People’s Court points out that the essence and core characteristic of an employment relationship is the employer’s dominant labour management.  Under this principle, courts should make identifications based on the actual working relationship, taking into comprehensive consideration factors such as:

• the degree of autonomy that workers have over their working hours and workload;
• the degree of management control over the labour process;
• whether workers must comply with relevant work rules, algorithm rules, labour discipline, and reward and penalty systems;
• the continuity of the work performed by the workers, and
• whether the workers can decide or change the transaction price and other factors.

For example, Mr. Wang, a well-known online streamer with nearly one million followers, was primarily engaged in short-form video creation. In 2020, he entered into an Exclusive Agency Agreement with an MCN company, under which the company was to provide brokerage services and manage his commercial activities. Later, Mr. Wang sought to have employment relationship recognized.  The court, however, dismissed his claim for three main reasons. Firstly, Mr. Wang was not subject to the company’s internal rules and policies. Secondly, Mr. Wang retained significant bargaining autonomy over key terms such as revenue sharing. Thirdly, the agreement aimed to enhance Mr. Wang’s influence through the company’s support, enabling him to earn more advertising income, with proceeds distributed according to the agreement. Therefore, the relationship between Mr. Wang and the company was based on equal negotiation rather than an employment contract.

 

V. Conclusion 

In China, businesses may, based on its autonomy in management and to the extent permitted by law, decide at its own discretion to engage outsiders to do certain work or provide certain services by entering into a civil contract for service with the individuals. However, the relationship between the businesses and the individuals would be easily confused with the employment relationship under the labour laws of China. It is often that such individuals seek the status of employees by filing labour arbitration to request confirmation of the employment relationship.

If they are finally re-characterized as employees, they would be protected by labour laws and regulations, otherwise, they would be probably deemed as independent contractors and their relationships with the businesses would be bound by civil laws.

In practice, it is not easy to distinguish independent contractors from employees. If the business wants to avoid re-characterization of independent contractors as employees, it must structure its written agreement with independent contractors carefully and skilfully to make the items obviously different from the stipulations in a typical employment contract. What’s more, in its daily management, the business should not have dominant management or control of the independent contractors to avoid formation of a subordinate relationship.

Meanwhile, the business shall observe the principle of good faith and shall not wilfully evade employer liabilities by entering into false contracts for service with the individuals who are de facto employees. Otherwise, these individuals will likely be re-characterized as employees by labour arbitrators and judges in the event of labour dispute, and the business would be finally required to bear employer liabilities.