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Hewitt Quarterly
Asia Pacific
is made possible through the combined skills and experience
of Hewitt consultants from across the Asia-Pacific region.
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For further information please
contact:
Hewitt Associates
2601-05 Shell Tower
Times Square
Causeway Bay
Hong Kong
Tel: (852) 2877-8600
Fax: (852) 2877-2701
editor-hqap@hewitt.com
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| When foreign companies acquire locally-owned companies in China, they are often surprised to find that Chinese social
security and labor laws have not previously been followed to the letter. Although not fully complying with all labor
regulations is not unusual among local Chinese companies, HR compliance is a necessity for any foreign-owned
business operating in China today. This was precisely the challenge faced by BP Solar China when it started
a joint venture (JV) with an existing local company in Xi'an, Shaanxi Province. In 2005, Hewitt and BP Solar China joined
forces to update the JV's HR compliance policies. The results were impressive. |
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Operating in over 100 countries worldwide, BP is one of the world's largest energy companies. Focused on performance and
geared for growth, the company prides itself on finding, producing and marketing natural energy resources to provide its
customers with fuel for transportation, energy for heat and light, retail services and petrochemical products for everyday
items.
Since establishing operations in China in 1973, BP has experienced over three decades of fast and successful development.
Despite this success, BP Solar China (a subsidiary of the global energy giant BP Group) faced several HR compliance issues
that needed to be resolved in the new joint venture (JV). Not only did the organization need to make fundamental changes to a
number of Mandatory Social Security Programs, the company's Labor Relations policies also needed an overhaul.
As Christian Doeringer, Head of Hewitt's Guangzhou Operation and Corporate Restructuring and Change Practice, explains,
"Because BP is a compliance-driven company, many of their Chinese partner's policies needed updating and restructuring. They
turned to Hewitt to help."
Starting with Mandatory Social Security Programs, Hewitt helped the JV create a new pension program because the old
contribution base was not legally compliant. We suggested they follow legal requirements immediately, updating the JV's
contribution rate to a 20 percent portion.
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Similarly, we assessed their social security Unemployment Program and drew the same conclusion—the old contribution base was
not compliant with legal requirements. To remedy this, Hewitt updated the JV's contribution rate to a 2.5 percent portion, as
required by law.
As David Qin, Head of BP Solar China at the time of the JV setup, says, "We were aware of gaps in the HR system and were
eager to begin a smooth transition in accordance with the law and BP procedure as soon as possible."
The next system that needed updating was the JV's Medical and Work Injury Policy, because no medical insurance and injury
contributions had been made. However, a certificate issued by the Social Security Administration Centre of the Economic and
Technology Development Zone in Xi'an instructed the company to buy medical and work injury insurance for employees starting
from December 2005. In accordance with legal regulations, Hewitt put a contribution policy in place and the JV started
contributing to the new scheme as required.
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A high priority was the Housing Fund Program, as the company had not made any housing contributions prior to its JV status.
According to government policy, companies without a housing fund account are required to establish one and retroactively
contribute to all due housing fund liabilities back to January 1999 or the company's start date. Since the local government
has been paying more attention to social security matters in recent years, it was in BP's best interests to comply with the
law. A special government permit exists to limit a company's past liabilities to a maximum of one year, and Hewitt
recommended BP apply for this as well as create a housing fund immediately for the newly established JV.
Although Maternity Insurance was not an immediate compliance concern, the Social Security Bureau of Xi'an verbally confirmed
that a relevant maternity policy would start from January 2006. No maternity insurance had been provided to the JV's
employees, so with Hewitt's help they created a program in advance.
Along with the Mandatory Social Security Programs, Hewitt helped BP Solar put their Labor Relations in order, beginning with
BP's Labor Contracts and Employment Relations. None of the current employees had signed any kind of written employment or
service agreement, and this "de-facto" relationship was not in compliance with China's Labor Law. Subsequently, Hewitt
suggested the immediate drawing up and signing of employee contracts.
The Overtime Policy was another pressing issue as there was no payment program in place for overtime work. Additionally, paid
leave was being offered to supplement overtime work hours. These practices were not compliant with the labor law, so Hewitt
suggested adjusting the overtime work policy to follow legal requirements. Qin recalls, "Implementing an overtime system was
a top priority for us. We negotiated payouts straight away then put a new system in place. Furthermore,we encouraged
employees to complete their work duties within working hours."
Hukou Status was another concern. "Hukou Status is a residence permit in China," explains Doeringer. "Basically, each person
has a Hukou registration in their home town. The Chinese government has restricted the transfer of registrations between
districts, which is why some of the employees didn't have valid status." Although this issue was not an immediate concern, a
total of 39 employees didn't have Hukou status and this was remedied through registration.
Severance payments were the final issue to be resolved, as the existing severance system did not comply with the law.
Although no employees had been made redundant, the JV was eager to recalculate severance pay according to legal standards,
which, according to Chinese labor law, is calculated by taking into account monthly average pay and number of years of
service.
Spread over a number of locations including Australia, Beijing, Xi'an, Guangzhou and Hong Kong, the team consisted of people
from both sides of the JV from HR, legal and business departments. Hewitt Senior Consultant Tianyan Zhang reflects on some of
the challenges of the overhaul, "Hewitt's biggest challenge was working with so many different team members. We overcame this
by holding weekly project team conference calls to ensure everyone was on the same page. A BP "single point of
accountability" (SPA) was also allocated to be responsible for coordinating the different parties." He adds, "A healthy
working relationship also helped greatly." Qin agrees, "The lines of communication were always open and the professionalism,
knowledge, efficiency and quality of advice from the Hewitt staff made the transition an easy one."
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Satisfied that the overhaul had a positive impact on the business, Qin, who acted as BP's SPA, believes the JV's compliance
changes helped with staff morale. "We've had some great feedback from employees who were very impressed to witness BP's
commitment to improve the Social Security and Labor Relations models." Happy with Hewitt's approach to the practices revamp,
he considers the partnership a successful one: "The Hewitt team did an outstanding job, and I would certainly like to work
with them in the future." |
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