China – Legal Update On The Social Insurance Requirements For Foreigners And Hong Kong, Macau And Taiwan Residents Working In Shanghai.

1. 

Time limit for enrolling the Relevant Employees in the social insurance scheme
 

A company should enrol the Relevant Employees in the social insurance scheme and make contributions accordingly, within 30 days after an foreign employee has obtained his/her employment certificate or after a Hong Kong, Macau or Taiwan employee has commenced his/her employment.

2. 

Calculation of the social insurance contributions
 

Social insurance contributions are calculated based on an employee’s average monthly salary. As of 2021, the minimum threshold of salary for contributing to the social insurance is RMB 5,975 per month, and the maximum is RMB 31,014 per month.
 

The contributions to be made by the company and the individual to each of the four types of the social insurance are calculated as follows:

For example, if an employer’s salary exceeds RMB 31,014 per month, the company would need to pay contributions of approximately RMB 8,000 per month and the employee himself would need to pay contributions of approximately RMB 3,000 per month.
 

For avoidance of doubt, the housing fund is still optional for the Relevant Employees. As distinguished from social insurance, housing fund is still up to the mutual agreement between the companies and the employees.
 

3.

Potential exemptions
 

Foreign nationals
 

China now has bilateral treaties with 11 countries or regions including Germany, Japan, Denmark, Netherlands, Switzerland, Spain and Canada, in relation to the exemption of certain types of social insurance. Employees of these countries which have bilateral exemption treaties with China can apply for exemption from certain social insurance. For example, an employee enrolled in an equivalent social insurance scheme overseas may be exempted from the contributions to the pension insurance and the unemployment insurance.
 

Residents of Hong Kong, Macau and Taiwan
 

Employees who have been enrolled in equivalent social insurance schemes in Hong Kong, Macau and Taiwan and remain in such equivalent schemes, may be exempted from the pension insurance and the unemployment insurance, by providing a certificate from the relevant authority.

1.

Company may be liable for the loss sustained by employee as a result of the failure to contribute to the social insurance scheme.
 

For instance, if an employee suffered from work injuries and could not be reimbursed due to the company’s failure to contribute to the medical insurance and work-related injury insurance, the company would be liable for the medical costs and compensation for the work injuries.
 

2. 

An employee will be entitled to terminate employment and claim for compensation on termination.
 

Under Article 38 of PRC Labour Contract Law, an employee is entitled to terminate the contract unilaterally if an employer fails to contribute to the employee’s social insurance. Upon termination, the employee would also be entitled to claim for severance pay and other compensation.
 

3. 

Enforcement actions and penalties 
 

Social insurance authorities may order a company to pay the contributions within a time limit, and impose a fine of 0.05% per day from the date of default. In case of continuing default, there may be a fine imposed on the company, ranging from one to three time(s) of the outstanding payment.

4.

Blacklisting
 

A company which does not comply with the social insurance laws may be backlisted by the authorities, and negative credits may be imposed on the company in the Enterprise Credit Information Publicity System. As a consequence, the company may be restricted in terms of government purchase, transportation, tender, licensing, lending, market access, preferential treatment in tax, awards and etc.

Our observation

1.

 Review of the social insurance arrangement for the relevant employees
 

In recent years, theChinese government has put increasing emphasis on social insurance policies and widely implemented the policy to authorise tax authorities to collect social insurance with tax. Hence, it is unlikely that the Shanghai government will extend the Shanghai Policy again. Under this circumstance, companies would need to take active measures to ensure compliance with the social insurance laws, including but not limited to, reviewing its current social insurance policies for the Relevant Employees. Otherwise, the risks are such employees could launch complaints with the authorities or the authorities may take enforcement actions against the companies in breach.

2.

Risks of demand for retroactive contributions
 

Foreign nationals
 

If a foreign employee complains to the authorities, requesting the company to comply with the social insurance laws and make contributions to his/her social insurance retrospectively, there is a risk that the company would be required by the authorities to do so. We would expect the authorities to fix the relevant period for such retroactive contributions from the date when the Interim Measures for Foreigners was implemented (i.e., 15 October 2011) to date.
 

Residents of Hong Kong, Macau, and Taiwan
 

Similarly, companies employing residents of Hong Kong, Macau and Taiwan may also be required to make the contributions retrospectively. We would expect the relevant period for such contributions to be from the date when the Interim Measures for Hong Kong, Macau and Taiwan Residents was implemented (i.e., 1 January 2020) to date.
 

3.

Optimisation of the compensation packages for the relevant employees
 

Companies may need to review and optimise the compensation packages for the Relevant Employees, considering comprehensively their salaries, social insurance contributions, salary tax, and any subsidies from overseas parent companies, etc., so as to reduce the costs for the company and increase the income for the employees to the extent possible provided full compliance with laws and regulations.