November 30, 2011 by Renata Inokomis
Expats working in China will be included in the country’s social security system as a new regulation took effect on October 15, 2011.
The Chinese government in June 2011 approved the law, but there was uncertainty as to whether participation would be mandatory or optional. Measures published in September 2011 confirmed taking part would be compulsory (although residents of Hong Kong, Taiwan and Macau working in China are not classified as “foreigners” for this law).
1) Scope of application
All non-Chinese nationals working in China by holding work permit for foreigners, a foreign expert certificate, foreign journalist card or a permanent residence permit must participate in the social insurance system. This means that the measures apply not only to expatriates employees who are directly employed by entities established in China, but also to those who have concluded employment contracts with overseas affiliates and are seconded to work at subsidiaries or representative offices in China. Further, the obligation also includes the foreign experts invited by Chinese government organizations, and foreign journalists working at foreign media organization in China.
2) Social Insurance Funds
Within 30 days of obtaining a work permit, the unit in China, which employs the expatriates, shall apply for social insurance registration. Expatriates working in China must participate in the same benefits/funds as Chinese employees, i.e. pension, medical, work-related injury, unemployment and maternity insurance. All foreign participants will receive their own social insurance cards.
The calculation of the social insurance premiums are also the same as for Chinese nationals.
The rate is determined by the local government and will, therefore vary from city to city.
In Shanghai for example, the employer shall contribute social insurance premium at the total rate of 37% of its total payroll, while the employee’s rate is 11% of the monthly salary. The calculation basis is capped. The cap is determined jointly by the local Labor Bureau and the Statistic Bureau
Every year. The current cap for Shanghai is RMB 11,688.It means that for expatriate in Shanghai with salaries above the RMB 11,688 cap, the annual costs to the employer will be RMB 51,895 and for the employee RMB 15,428.
In Beijing, employer must pay 32.8% of the total payroll and employee 10.2%.
3) Entitlement to Pension Benefits
Expatriate employee are entitled to pension benefits at the statutory retirement age at 60 for men and 55 for women, provided that contributions have been accumulatively paid for 15 years. The benefit payment does not require that the employee is still in China. If an employee leaves China prior to reaching the retirement age, his personal insurance account will be reserved and can be retrieved when he works in China again. Alternatively, expatriate may apply for immediate payment of the balance in his personal insurance account when he leaves the country.
4) Exemption Based in Treaties
If the treaty to avoid double payment of social insurance premiums exists between China and the home country of the expatriate employee, the employee will be exempted from part of Chinese social security’s under certain conditions. Currently, China concluded social security treaties with Germany and South Korea only. US citizens may well end up making double payments (1 set of payments in the US and the other in China).
5) Transfer of Social Insurance Relationship
According to the PRC Social Insurance Law, after the expatriate participates in the social insurance system, he or she will be allowed to transfer pension, medical and unemployment insurance when he or she moves to another city for employment.
The social insurance contribution years in different cities will be calculated accumulatively.
6) Conclusion
With the new regulation, the costs of employing foreigners in China will raise. It is expected that in the near future, local governments will stipulate their own implementation policies.
While implementation of the new system at the local and provincial levels may take some time, companies with existing and new assignees in China should immediately review with their Global Mobility Providers their potential compliance requirements with the new regulations.
Companies are also advised to review with their international compensation and benefits administrators the issues regarding allowances under Chinese social insurance, the impact on including social insurance payments in an expatriate’s compensation package, and overall potential cost to the company’s expatriate programs in China.
Failure to register an employee can result in a fine of up to three times the amount of an overdue contribution, and the individual could be fined between RMB 500-3000.
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