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Overview of the social security system in China 

Generally speaking, China’s social security system is made up of five different kinds of insurance, plus one mandatory housing fund, as follows:

China Social Security System

Category

Contribution*

Description

 

Employer rates

Employee rates

 

Pension insurance

Around 16%

Around 8%

Designed to provide necessary financial support to individuals after their retirement

Unemployment insurance

0.5%-1%

Around 0.5%

Designed to provide financial support to individuals who faultlessly lost their job within certain period

Medical insurance

5%-12%

Around 2%

In the event of illness/non-occupational injury, an employee can have part of the treatment cost covered by medical insurance

Work-related injury insurance**

0.5%-2%

-

Designed to cover the cost of treatment should an occupational injury or illness occur

Maternity insurance***

0.5%-1%

-

Designed to cover part of the female employee’s medical expense of childbirth and their salary during the maternity leave

Housing fund

5%-12%****

5%-12%

Designed to ensure that workers save to purchase housing

* The amount of contribution in each category is calculated by utilizing the employee’s payment base figure and multiplying it by different percentages required by each local government entity.

**Depending on what kind of work is being carried out by the employee.

***Maternity insurance has been merged into medical insurance in most cities. The contribution rate of the employer shall be the sum of their original contribution rates to the medical insurance and the maternity insurance. The contribution rate of the employee shall be their original contribution rate to the medical insurance, considering employees don’t need to contribute to the maternity insurance.

***In certain cities, employer and employee are allowed to contribute more than 12 percent.

Under China’s system, whenever hiring new staff, employers need to register him or her with the local social insurance bureau and the housing fund bureau to initiate or reactivate the corresponding accounts. Further, although both employer and employee are obligated to make contributions, it is generally the employer’s responsibility to correctly calculate and withhold the payments for both parties.

Employers' legal obligations 

Meanwhile, employers are obliged to make timely payments for themselves and their employees. A late contribution can result in a fine, while failure to contribute may lead to onerous labor disputes. In case of severe and multiple violations, the company might be put on an HR “name and shame” list, which is not only embarrassing but also could bring barriers to future recruitment.

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One thing to be noted is that employer’s obligation to make adequate and timely contributions cannot be alleviated or exempted by reaching a mutual agreement with employees. In practice, employers and employees (especially those whose gross salary is not high) may mutually agree not to contribute to the social security schemes or to make contributions on a smaller basis, to save labor costs and maximize employee’s take-home payments. However, the court would consider such an agreement invalid in the case of a labor dispute between the employer and employee. The employer might be required to repay the social security evasion or pay an extra severance payment to its employee in case of termination.

 

Social insurance foreign employees' contributions 

Foreign employees working in China have been required to participate in China’s social insurance scheme starting from 2011, when the Ministry of Human Resources and Social Security (MOHRSS) released the Interim Measures for the Participation in Social Insurance of Foreigners Employed in China.

However, since social security is managed at regional level, a range of inconsistencies exists among cities. For example, cities such as Beijing, Tianjin, Shenzhen, and Nanjing treat foreign employees the same way as domestic employees, meaning that social insurance payments are compulsory. On the other hand, Shanghai does not currently require foreign employees to contribute towards social insurance (subject to potential change).

[tips title="Important Tip"]Foreign employees are also eligible for social insurance exemptions if they come from countries that have social insurance exemption agreements with China.[/tips]

To date, 12 countries have reached such agreements with China and 10 such agreements have been implemented between China and the following countries:

  • Germany;
  • South Korea;
  • Denmark;
  • Canada;
  • Finland;
  • Switzerland;
  • the Netherlands;
  • Spain;
  • Luxembourg;
  • Japan; and
  • Serbia.

China has signed agreements with France, which is not yet in effect.

These social insurance payment exemptions that have been implemented are shown in the table below.

The exemption scope and qualifications may vary from one agreement to another, and the local social insurance bureaus may have different policies towards the implementation of the exemptions. Employers should consult and apply with the local bureau in charge before they decide not to contribute for their foreign employees.

Expatriates generally cannot participate in the housing fund scheme. Nevertheless, some regions, such as Shanghai, Shenzhen, and Tianjin, allow foreign employees to make contributions to the housing fund on a voluntary basis. This is designed as a preferential measure to attract talents rather than being a mandatory obligation.

Basic process for applying for premium exemptions

Exemption does not apply automatically, and companies with foreign employees are required to apply to related bureaus for exemption.

Though the process of applying for insurance premium exemptions varies across regions, and according to the specific agreement under which it is performed, it follows a standard formula.

The entity that employs the foreign employee in China must submit original certification of insurance issued by a relevant entity in the country of origin to the local Chinese social insurance bureau.

This will then be verified, and a copy will be held on record. Following verification of this documentation, and possible further verification and certification, the employee in question will be exempt from the relevant social insurance payments.

The time limit of the exemption period may vary.

[faq title="FAQ: HR in China – Navigating the Country’s Social Security Scheme" ui="accordion"]

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.

[/faq]

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