12 May, 2016
Recently, in light of the economic slowdown, the national government has taken several measures to reduce social insurance and housing fund contribution costs for employers.
On April 4, 2016, the Ministry of Human Resources and Social Security and the Ministry of Finance jointly issued a notice on reducing the contribution rates for social insurance (which is inclusive of five types of insurance schemes, i.e., pension, medical insurance, unemployment insurance, work injury insurance and maternity insurance). According to the notice, within two years from May 1, 2016, the employer-portion of the pension contributions should be reduced to 19%-20%, while the total unemployment insurance rates for employer and employee (which have been reduced from 3% to 2% in 2015), will be further reduced to 1%-1.5% with the employee contribution rate being capped at 0.5%. In addition, local authorities will continue to implement a 2015 national notice on reducing work injury insurance by 0.25% and maternity insurance by 0.5%.
The State Council announced in April 2016 that the local housing fund contribution rate should not be higher than 12% (though it is unclear whether 12% represents the total contribution rates for both employer and employee portions, or just the employer portion), and that local housing fund centers should formulate rules to reduce the contribution rates in phases. In addition, companies facing economic difficulties may apply to reduce the housing fund contribution rate or delay the housing fund payment, and then increase the contribution rate or make back-payments when their financial conditions improve. The national authorities are working on drafting formal regulations which will provide further details on these initiatives.
Over 10 provinces and municipalities (including Shanghai Municipality, Guangdong Province, Tianjin Municipality, Yunnan Province, Gansu Province, Hangzhou Municipality, Xiamen Municipality) have reduced their local social insurance contribution rates recently. For example, Shanghai reduced the employer-portion of social insurance contribution rates by 2.5% in total (i.e., 1% for pension and medical insurance respectively, 0.5% for unemployment insurance), effective January 1, 2016; Guangdong Province reduced the total unemployment insurance rates by 1% effective March 1, 2016; and Hangzhou reduced the employer rate of work injury insurance and maternity insurance by 0.4% in total.
Key Take-Away Points:
Companies should be aware of the changes to local policies to ensure that timely contributions are made at the correct rate. In addition, companies that are experiencing financial difficulties may apply for the housing fund deductions or authorisation to make late payments in accordance with the applicable local rules. This change is another signal that the government seems to be concerned about labor costs for companies in light of the economic slowdown.
For further information, please contact:
Jonathan Isaacs, Baker & McKenzie
jonathan.isaacs@bakermckenzie.com
