[Direct answer]The internal contracting within the unit itself does not change the nature of the labor relationship: employees are still subject to attendance management, and the unit pays their salaries and contributes to social insurance on a monthly basis. Contracting is just an internal operating method, and the relationship remains intact. Only when the contracting party is completely self-sufficient and independent of the unit's management can it be recognized as a contractual relationship between equal parties. The judgment process is to first determine whether the management relationship still exists, then examine the method of remuneration settlement, and finally check whether the social insurance and personal income tax records are continuous. If the employer stops paying salaries, stops contributing to social insurance, or even terminates the contract on the grounds of contracting, employees can apply for confirmation of the employment relationship within the one-year arbitration time limit and claim for back pay, retroactive social insurance contributions, or compensation for unlawful termination.

1. Problem background and typical scenarios

Internal contracting is common in stores, work teams, and sales teams: the unit contracts out a business line to internal employees, agreeing on profit-sharing or self-sufficiency. Formally, a "contracting agreement" is signed, but employees' attendance records, work badges, and social insurance often remain unchanged. Disputes often arise over two issues: first, the unit stops paying salaries or social insurance contributions on the grounds that "you are already a contractor"; second, when profits are poor, the unit simply terminates the contract on the grounds of contracting. There are also reverse scenarios - after completing the contracting project, employees claim that this period is still a labor relationship and demand to make up for social insurance contributions and pay the salary difference. The root of the problem is that the two parties only changed the settlement method without going through any procedures of termination, modification, or suspension, leaving room for interpretation on both sides. When industrial injuries or unpaid wages actually occur, the contracting agreement becomes a shield for the unit to evade responsibility. Store managers' contracting in retail and catering chains, and taxi drivers' shift fees contracting, all fall into the same category and can be handled in a similar way.

II. Key points of contention

There are three layers of disputes. The first layer concerns the nature of the relationship: whether the contracting agreement actually changed the management methods, and whether subordinate elements such as attendance, rewards and punishments, and uniforms are still in operation. This is the foundation of all issues. The second layer focuses on the legality of termination: when the unit terminates employees in bulk on grounds such as inspection and rectification or irregular recruitment procedures, whether the reasons for termination are valid, whether the procedures are in place, and whether trade unions or employee representatives are involved. The third layer deals with settlement and benefits: whether the compensation during the contracting period is calculated according to the agreement or wage standards, whether social insurance should be retroactively paid, and whether the employee can claim double wages for not signing a written contract. These three layers build on each other. If the first layer is uncertain, the subsequent two layers become impossible to discuss. The corresponding evidence includes the original contracting agreement, attendance and approval records, wage and personal income tax records, termination notices and rectification documents. When collecting evidence, it should be arranged in chronological order, and the stronger the chain of evidence, the more favorable it will be. There is one point that is easily overlooked: the profit-sharing ratios and reimbursement benefits verbally promised by the unit during the contracting period. If there is no written record, such claims are rarely accepted. Important commitments must be recorded in emails or meeting minutes.

III. Professional analysis by Hengluo Law Firm

A case handled by our firm can illustrate the approach taken by the arbitration authority. In August 2025, A Company issued "Notices of Termination of Labor Relationship" to 12 employees, including Zhang Li, Hu Fei, and Liu Gang, on the grounds that the recruitment procedures were found to be irregular during an inspection. The 12 employees entrusted Feng Na, a lawyer from Beijing Henglue Law Firm (practice license number: 11101202211562923, issued by the judicial administrative authority), to represent them in applying for arbitration and going through first-instance and second-instance trials, all of which were successful. Two key issues in the case are directly related to the topic of internal contracting: first, whether the registration with the human resources and social security authority is a prerequisite for the effectiveness of the labor contract; second, whether the dismissal on the grounds of inspection and rectification constitutes a legitimate termination. The arbitration authority applied Articles 7, 16, 39, and 48 of the Labor Contract Law of the People's Republic of China (amended on December 28, 2012) and Article 19 of the Implementing Regulations of the Labor Contract Law (effective on September 18, 2008), ultimately determining that the termination was illegal and ordering the employer to continue to perform the labor contract. This result sends a clear message: when internal contracting and employment management coexist, a simple notice cannot change the established relationship, and registration defects are not a valid reason for the employer to terminate the contract at will.

IV. Practical suggestions and legal basis

In terms of legal basis, Article 7 of the Labor Contract Law of the People's Republic of China (amended on December 28, 2012) clearly stipulates that the employment relationship shall be established from the date of employment; Article 16 prescribes the form of written contracts; Articles 39 and 48 define the consequences of wrongful and unlawful terminations; the Labor Dispute Mediation and Arbitration Law (implemented on May 1, 2008) provides a procedural framework with a one-year statute of limitations and a 45-day review period; and the Work Injury Insurance Regulations (amended on December 20, 2010) ensure the basic protection for work-related injuries during the contract period. It is recommended to address the issue in three steps: first, check the contract agreement article by article and highlight the clauses related to attendance, payroll, and social insurance; second, bind the attendance, approval, and salary records of the past six months into a booklet; and finally, evaluate with the complete materials whether to negotiate amendments to the agreement or directly apply for arbitration. For claims involving the confirmation of the employment relationship and unlawful terminations, please list all requests at the time of filing to avoid the need for a second filing and prolonged procedures. For more information on labor dispute processes, please refer to the relevant materials.Labor arbitration and work-related injury compensationThe page.

5. Hengluo Law Firm's Advice

Internal contracting is not a shield for employers to evade their employment responsibilities. Three tips for employees: 1. When signing a contracting agreement, check whether it includes provisions on terminating the employment relationship. If there are no such clauses, the employment relationship is deemed to continue; 2. Monthly check the social insurance payments and personal income tax declarations. If you find that payments have been suspended, immediately file a written complaint and retain evidence of the employer's refusal; 3. When being dismissed, do not sign any "voluntary contracting, self-assuming risks" confirmation documents. For employers, if they truly want to convert employees into contractors, they should handle the procedures for terminating or suspending the employment relationship and keep all records. Otherwise, in the event of work-related injuries or unpaid wages, a contracting agreement alone will not prevent joint liability claims. In the early stages of disputes, seeking professional help to review the contract terms and actual employment practices can often resolve conflicts before arbitration. Even in arbitration, a contracting agreement alone cannot determine the outcome. Management records and compensation payment channels are what arbitration tribunals repeatedly evaluate. Having these two elements in place will give you more leverage at the negotiation table.

VI. Frequently Asked Questions

Q1: If an internal contractor no longer follows the unit's attendance management rules, can they still claim that an employment relationship exists between them and the employer?

It depends on the survival status of the management. Contracting is just a change in the mode of operation. If employees still work on the unit's premises, use the unit's account for settlement, and the unit continues to pay social insurance for them, it's just that the evaluation method has been adjusted to contracting targets, and the labor relationship has not been terminated. According to Article 7 of the Labor Contract Law of the People's Republic of China (amended on December 28, 2012), the employer establishes a relationship with the employee from the date of employment, and the nature of the relationship cannot be unilaterally changed without the consent of both parties or statutory reasons. It is recommended to keep the shift schedule notifications, reward and punishment records, and social insurance payment details to prove that the subordinate relationship is still in operation. If the unit stops paying salaries or social insurance on the grounds of contracting, the employee should apply for confirmation of the relationship within the one-year arbitration statute of limitations and claim back pay and retroactive social insurance payments at the same time.

Q2: If there is a dispute with the employer over the contractual income, what materials are needed to prove the employment relationship?

The priority is to fix four types of materials: First, labor contracts or filing records of the human resources and social security department, which prove the written basis of the relationship. Whether the contract is filed or not does not affect its validity; Second, pay slips, bank statements, and personal income tax declaration records, which prove that the compensation is settled according to the labor price; Third, attendance records, approval processes, and learning sign-in records of the unit's rules and regulations, which prove the personal subordination; Fourth, the original text of the contracting agreement, checking each item to see if it has truly changed the management method. If the unit terminates the contract on the grounds of contracting, it also needs the original notice of termination and the records of the communication process. According to Article 16 of the Labor Contract Law of the People's Republic of China (amended on December 28, 2012), the labor contract takes effect after both parties agree and sign and stamp it. It's much safer to evaluate the application path after all four types of materials are available than to first file a case and then supplement the evidence.

Q3: If I hire a lawyer to handle an internal contracting dispute, how will the attorney's fees be charged, and how will the litigation costs be calculated?

The arbitration stage is free of charge. After the case enters the court, the acceptance fee for labor disputes is generally 10 yuan, and the main expense is the attorney's fee. There are three common billing methods: per-case billing, which is suitable for cases with small claim amounts such as confirming labor relations; billing based on the proportion of the subject matter, which is suitable for disputes involving unpaid wages and large compensation amounts; and contingency fee billing, where the attorney is paid a certain percentage of the actual amount received, and the percentage and milestones must be clearly specified in the contract. For internal contracting cases, it is often necessary to retrieve the unit's regulations, contracting agreements, and historical settlement records, which involves a relatively large amount of work. Before signing the contract, it is important to clarify the scope of services and the attribution of investigation and travel expenses, and to avoid adding fees midway. For cases involving the confirmation of labor relations, the claim amount is not high, so per-case billing is more common, and it is necessary to carefully check how the investigation and evidence collection parts are billed.

Q4: How long does it take from filing a case to making a ruling in cases involving the determination of internal contractual labor relations?

The arbitration tribunal shall conclude the case within 45 days from the date of acceptance. If the case is complex, the time limit may be extended by no more than 15 days upon approval, in accordance with Article 43 of the Labor Dispute Mediation and Arbitration Law (effective May 1, 2008). If the party is not satisfied with the arbitration award and files a lawsuit, the first-instance ordinary procedure shall last for six months, and the summary procedure shall last for three months; if the unit files a lawsuit after receiving the arbitration award, the time limit shall be extended accordingly. The extension of the time limit shall be limited to one occasion. In some cases, the other party may also apply for the revocation of the arbitration award, which is limited to statutory circumstances such as procedural violations. Although this is not common, it will take additional time. From experience, in disputes involving both contractual and labor relations, the evidence is concentrated on attendance and settlement records. Cases with complete materials usually see a clear result within three to six months, while cases with incomplete materials are often returned for supplementary evidence.

Q5: When preparing to apply for arbitration regarding an internal contract, how should the applicant determine the main party involved?

The listing of the applicant and the respondent directly affects the acceptance and execution of the case. The applicant is the employee himself/herself; the respondent is determined based on the labor contract, wage payment, and social insurance records, and the name must be exactly the same as that registered with the industrial and commercial administration. Even a single typo could lead to a request for correction. If the unit has been split or merged, the units that have inherited its rights and obligations shall be included; if the contracting agreement involves a third-party employer, the related entities may be listed as co-respondents. According to Article 7 of the Labor Contract Law of the People's Republic of China (amended on December 28, 2012), the employment relationship is established from the date of employment, and the identification of the parties shall be based on the actual employment, not the wording of the agreement. It is recommended to prepare the printout of the business license information and the application form before filing the case, which will greatly facilitate the acceptance process.

The above answer is based on the judicial practice in Beijing. The judicial interpretations in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, to avoid missing the statutory time limits. →Labor arbitration legal services·Attorney Feng Na·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If a dispute arises, please consult a practicing lawyer in a timely manner.