HR in China – Navigating the Country’s Social Security Scheme

We sit down with HR specialist David Niu, senior manager of our Human Resources Administration and Payroll Services team. He discusses how China’s social insurance scheme impacts both employees and employers within the country.

Are there any mandatory benefits employers must provide their employees in China?  

Yes, employers must provide their employees with timely and adequate social security payments.  China’s social security system consists of five different types of insurance, plus one mandatory housing fund.

• Pension insurance: provides necessary financial support after retirement
• Unemployment insurance: provides financial support to those who faultlessly lost their job within a certain period
• Medical insurance: covers part of treatments costs in the event of illness or non-occupational injury
• Work-related injury insurance: covers the cost of treatment in the event of occupational injury or illness
• Maternity insurance: covers part of a female employee’s medical expense of childbirth and salary during maternity leave
• Housing fund: ensures that workers save some money towards buying a house

Are foreign employees working in China required to participate in the social insurance scheme?

Starting from 2011, foreign employees have been required to participate in China’s social insurance scheme.  However, since social insurance is managed at a regional level, there has been inconsistencies among cities.

Foreign employees can also be eligible for social insurance exemptions if their countries have social insurance agreements with China.  The scope of the exemptions and qualifications may vary from country to country.  In addition, foreign employees are generally not required to contribute to the housing fund scheme, however, they can make voluntary contributions in certain cities.

Are there any other obligations for employers regarding the social insurance scheme?

Under China’s system, when hiring new staff members, employers must register them with the local social security and housing fund bureaus to initiate or reactivate their accounts.  It also falls upon the employer to correctly calculate and make payments for contributions - for both themselves and their employees. 

Payments must be timely and late contributions may result in fines.

Can an employer’s social security obligations be waived if an employee opts out of the social insurance scheme?

No, an employer’s obligation cannot be waived even if a mutual agreement has been reached with an employee. In practice, employers and employees may mutually agree not to contribute especially in the case where gross salaries are not high.  However, in the case of a labor dispute the court will consider such agreements invalid and employers may be required to repay the social security or pay extra severance pay in the case of termination.

Whose responsibility is it to collect social security payments?

Starting from January 1, 2019 the Scheme for Deepening the Reform of the State Tax & Local Tax Collection Administration System states that all social insurance premiums will be collected by the tax authorities. Other policies relating to social security payment base and rates will remain the same. Though this new rule isn’t officially implemented in most cities, we foresee that the tax authorities will be able to obtain more and more information on enterprises through big data, thus putting forward higher requirements for enterprise compliance.