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My niche software developing startup needs specialist developers. I have located an individual in China with proven experience in my field. How can I best go about working with him?

I can't employ him locally (in UK) due to relocation and visa issues. I also don't want to require him to relocate with associated upheaval, risk and expense. Could I somehow make him an employee in China? Would I need to set up a Chinese subsidiary to do this? Alternatively, can I make use of his skills as an independent contractor? He seems quite business-savvy.

Whatever the legal setup, I'd like to remunerate him part cash and part company stock or stock options. I have personal experience of working in the UK for a US client in multiple ways but China seems more difficult.

I need everything to be above board in terms of Chinese law-I don't want to get him into trouble and I want to avoid any future intellectual property issues.

I can't find much information online except this rather discouraging piece: Hiring A Chinese Employee Without A Chinese Entity. Good Luck With That. Can someone tell me some good news?

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What about not doing the necessary paperwork? Just have a verbal agreement, and he will do work, and you will wire money. – Genadinik May 20 '11 at 23:39
@Genadinik - As a minimum I need NDA and intellectual property agreements. Verbal agreement is difficult since we communicate through mail and IM which both provide a "paper" trail. – paperjam May 23 '11 at 10:59
I think you don't need NDA - it won't hold up in a diff country, esp China where such a thing is laughable. I think NDA is a waste of time most of the time. – Genadinik May 23 '11 at 21:55
I mean....just realistically picture yourself dealing with Chinese courts...its just a no-go. – Genadinik May 23 '11 at 21:56
I agree with @Genadinik. It will be impossible to enforce an NDA. If your guy is as good as you think he is then he will be a big node in his network and your intellectual property will be dinner fodder for his friends. The questions is whether they will\can execute on the knowledge? Assuming they can, the chances of them doing it with you is only as strong as the relationships between you and him. – Cameron McGrane Jun 20 '11 at 4:28

3 Answers

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I am an entrepreneur from China, here is what I know on your question.

Technically, it is illegal to employee someone in China without setting up a branch company or local representative. However many small/big biz owners do that, I'll explain how.

The reason is that you can not legally pay insurance, benefit, tax for your China guy. And we have no "self-employed" category in China. If the guy in China is not an sole proprietor or employee, then he pays no tax.

But don't worry, here is a few "proven" approach to deal with the situation.

Solution 1: The guy sign an agreement with you, you pay salary wire into his bank account. And he does the job, that's it. You will have no power to pursuit your guy under the law in case of any dispute. (He can not pursuit you for anything either.) The tax beaurau would not bother to check this kind of stuff(for sure).

Many freelancers do this. I don't see any major risk apart from your money.

Solution 2: Use an HR staffing service. You could find an HR agency which manages everything for your employee, they charge a fee. The fee could range from 20% to 50% of your guy's salary. Everything legal, the HR agency take care of tax, benefit, insurance.

Many fortune 500 companies do this, even they have HR and branch company in China. From my experiences, 80% of China employees in a foreign company are in this kind of arrangement.

Solution 3: Use an online service such as Odesk/Vworker/whatever. But again, they don't deal with China tax beaurau and you face the same problem as solution 1.

Solution 4: Hire your guy through an IT outsourcing company. They are similar to an staffing agency but can offer you more services. They could monitor the employee's performance and replace him in the event of resignation/sick/none-performing/etc. But the cost is generally 2x of what you hiring a guy off street.

To the NDA sort of stuff... I don't know how useful are they in a country where windows7 ultimate is $1 per copy on street.

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Excellent answer - thank you. I do think a contract/NDA under English law would be enforceable in England. A NDA breach could result in an English court order which would eventually lead to a British criminal record. In theory at least this would mean that my guy would be arrested if he ever sets foot in London. But I don't really want to think about that. I have more faith in people being reasonable and fair. – paperjam Jun 20 '11 at 9:40
Stock options might help keep my guy loyal. I guess stock options would have to be arranged directly with him. This would work best with Solution 1 - or can I make options work with 2, 3 or 4? – paperjam Jun 20 '11 at 9:44
I don't know the detail of your stock option agreement. If your guy is not legally hired, how do you qualify him as a recipient of the option? The China guy bear most risk in any solution if the stock option has a clause require him maintain employment with you. Because none of the 4 solutions can prove that he is an employee of your company. But if you reward him options without employment binding, you bear the risk. – Reed Jun 21 '11 at 3:28
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Another option is using a service like Vworker as an intermediarary. He would sign up as a developer and then you would hire him through the site. Payments then get taken care of through the site. I would be skeptical of the stock piece early on unless he has interest just considering the legal complexities of the exchange internationally. If you need him to sign off on anything ever how are you going to acomplish this. If you use something like Vworker, Odesk or some other service like this you could then easliy bring on other developers or other workers as you need them and then downsize the same way through the natural lifecycle of the project. Good luck.

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Thanks for the idea, @John, I've come across similar services before. I don't need a marketplace like this but an intermediary that handles NDA, contract, etc. could definitely be interesting. – paperjam May 23 '11 at 11:08
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There is plenty of legal debate above from people who know the situation well. From a strategic perspective with a Chinese context you should look to build interdependency between you and him through other people with a vested interest (not necessarily monetary). The more people on the ground with deep rooted trust connected to your guy the more likely no one is going to get shafted or run into legal issues. What I'm saying is it's actually to your disadvantage to only have one degree of separation between you and your guy. An alternative scenario would be to know someone you would die for who knows someone they would die for who knows your guy and the local police chief in town. Hypothetical..not really...this is the serendipitous connections you need to work successfully with China..

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