Guides - Human Resources & Payroll in China 2016 - 2017 (5th

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Human Resources and Payroll in China 2016-2017 (5th Edition) - 57
How does the hukou system influence social insurance participation today?
A hukou is a kind of domestic passport for all Chinese citizens. A hukou stipulates an employee’s
home city and is either rural or urban.
Previously, an employee working outside of their hukou area would generally not be able to
participate in the mandatory fund benefits of the region of employment. If an employer wished
to hire someone from outside the region of employment, they could pay mandatory benefit
contributions through a branch office or through an employment agency (such as FESCO) in
the employee’s hukou area.
When the social insurance system was expanded to include even foreign employees, hukou
became mostly irrelevant when determining which local Social Insurance Bureau should receive
payments made on behalf of an employee. The company should pay mandatory benefits in the
city in which it is based. This way, should an employee want to access medical insurance funds
at a local government-approved facility, they can do so conveniently. In addition, the company is
familiar with the local government bureaus and can more easily assist the employee in resolving
any difficulties in accessing benefits.
Hukou still has a small influence onmandatory benefit contribution rates, as employees are divided
into the categories of permanent local residents and other residents (which includes Chinese
with hukou from other cities and foreigners) and rates differ for certain insurance contributions.
Some hukou locations are viewed as being the most highly desirable (particularly Beijing and
Shanghai) for reasons related to children’s education, property purchases, international travel,
etc. For key staff that a company wants to retain for the long-term, an employee’s application for
a hukou change can be endorsed. The transfer of previously contributed social insurance funds
between cities can vary in difficulty, depending on city tiers.
The full hukou transfer process takes about six months and involves several bureaus other than
the Social Insurance Bureau. These bureaus include the Public Security Bureau, which must issue
a new ID card for the employee before the Social Insurance Bureau will accept that employee’s
application to make social insurance contributions as a local permanent resident.
No one can be sure what China’s hukou policy will be like in 20 years, but the law states that an
individual can apply for a refund or transfer of the individual portion of their social insurance
contribution back to their hometown. Note that only the funds contributed by the individual can
be transferred; company contributions must stay in the city in which they were made.