Dalian Re-instates Cap on Social Insurance Contributions

On December 27 the Dalian Social Insurance Fund Management Centre released a document stating that the cap on contributions by employers to the various social insurance funds are to be re-instated (as they had been removed from September 2011) and that the previous method for the calculation of bases for contributions would also be re-adopted (this was also changed as of September 2011).

This is fantastic news for companies based in Dalian, who have been paying higher social insurance contributions on behalf of their high-earning employees compared to companies in other cities. From January 2012 the employer burden for each individual employee will again be limited to a maximum of RMB3,503 per month.

It can be assumed that heavy pressure on the government from large employers in Dalian ahead of the Chinese New Year has had an effect on the government’s decision. If the cap had not been reinstated, it would have been very difficult for companies to pay reasonable bonuses to their staff. This is because they would have had to pay 31.2 percent social insurance contribution on top of the entire salary (including bonus) paid to all employees in January. Now their burden will be considerably lightened.

Despite this sudden announcement, the Dalian social insurance system remains quite exceptional in a couple of respects.

• Foreigners are still included and required to make contributions. The definition of foreigners still includes people with Hong Kong, Macau or Taiwanese citizenship. This is in contrast with national regulations recently issued relating to contributions to social insurance funds
• The government is only collecting contributions for pension from foreigners, and is not requiring individuals or their employers to make contributions to any of the other funds. Although there is nothing in writing stating this, companies that have started to contribute are finding (to their pleasant surprise) that they are only having to contribute to this one fund for their foreign staff
• People with German nationality in the Development Zone area are finding that they are considered totally exempted from making such contributions, as are their employers. This presumably is because of the bilateral treaty in place between China and Germany which specifically mentions this matter. However the Dalian government is extending the exemption to all Germans, not just those that can prove they have made contributions already in Germany. The large German population in Dalian is quite pleased about this
• The document stresses that employers are still required to meet obligations for the period between September and December of 2011 when the cap was not in effect. Many companies did not register their foreign employees during this period due to the prohibitive extra cost involved in doing so. It remains to be seen how the government will react to the widespread non-compliance from many employers during this period

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