- Update on Enforcement of Social Insurance Contributions Requirements for Foreign Employees in China
- January 31, 2012 | Authors: Duncan A. W. Abate; Rachel Zhang
- Law Firms: Mayer Brown JSM - Hong Kong Office ; Mayer Brown JSM - Shanghai Office
In December 2011, the PRC Ministry of Human Resources and Social Security ("MOHRSS") issued a circular ("Circular") urging local HRSS bureaux to enforce the Interim Measures on Participation in PRC Social Insurance of Foreigners Employed in China (the "Interim Measures"). The Interim Measures were enacted on 15 October 2011 and require contributions of pension, medical care, unemployment, work-related injury and maternity insurance to be paid for all foreign employees who have obtained their PRC work permits.
The Circular aims to clarify the following two issues:
a. Whether arrears of contribution are payable and if so, to which date such arrears should be backdated?
If a foreigner, who meets the conditions for contribution, has been legally employed in China before 15 October 2011, contributions for such foreign employee should be made from 15 October 2011. If such foreigner is employed after 15 October 2011, contributions shall be made from the month he/she is actually employed in China.
b. Whether any fine will be imposed for the above arrears?
No fine will be imposed for the arrears in respect of contributions from October to December 2011, if the social insurance registration formalities for the relevant foreign employees have been completed by 31 December 2011.
However, this Circular may not effectively serve its purpose without relevant local supplementary rules issued in most localities of China. To date, local practice in respect of the social insurance contributions for foreign employees actually still varies.
Beijing was the first city in China responding to the enacting of the Interim Measures. It has issued its own local rules clarifying details like procedures required for the social insurance contributions for foreign employees. [Note: Soon after that, the HRSS Bureaux of Chengdu (a city of Sichuan Province) and Qingdao (a coastal city of Shandong Province) issued similar local implementation rules.]
Following the new Circular by MOHRSS, Beijing HRSS Bureau promptly issued further supplementary policies, which somewhat revise the requirements by the MOHRSS Circular.
Pursuant to the above Beijing policies, contributions for a foreigner shall be made from October 2011 (Note: inclusive of contribution for a full month of October), if the relevant foreigner has been legally employed in Beijing on or before 31 October 2011; and if the foreigner is employed on 1 November 2011 or later, contributions shall be made from the month he/she is actually employed in Beijing. This circular also requires employers to complete the social insurance registration formalities for all existing foreign employees by the end of 2011, failing which the employer will be required to pay a fine of 0.05% of the unpaid amount per day from the day when such amount is due.
The contribution for foreign employees in Shanghai remains optional in accordance with the existing Shanghai local rules. Regardless of the enacting of the Interim Measures, the above existing Shanghai rules are anticipated to continue to be effective until explicitly changed by future local implementation rules of the Interim Measures issued by Shanghai HRSS bureau.
In addition, even with the MOHRSS Circular issued, whether and when arrears should be backdated and whether any fine will be imposed are still likely subject to the relevant Shanghai local rules. Considering that Shanghai local government is generally sensitive to investors concerns and its tradition in legislation which is less pro-employee compared with some other Chinese cities, employers in Shanghai have a reason to be optimistic about the above issues.
In Guangzhou, the Interim Measures seem to have been actually implemented (or at least so claimed by the local tax bureau, which is responsible for collecting contributions), although no explicit local implementation rules has been issued to regulate the details of such implementation. Instead, such details (e.g. to when arrears should be backdated) are subject to the oral interpretation by each responsible staff of local tax bureau, which is unfortunately variable! . This leads to common concerns among employers as to whether they should start to make contributions for foreign employees now, and if they choose not to do so, whether any penalty would be imposed, etc.
Many other cities, e.g. Hangzhou (a city of Zhejiang Province), and Tianjin, etc., are in a similar situation as Guangzhou.
Another special example is Shenzhen, where contributions are required for foreign employees in accordance with its 2005 local rules, rather than the Interim Measures. Under the above Shenzhen local rules, only contributions for pension, medical care and work-related injury insurance can be made for foreign employees. This conflicts with the Interim Measures which require contributions to be to made to all five categories of social insurance scheme. It is unclear whether employers will be required to back date any contributions to the other two categories of insurance (i.e. unemployment and maternity insurance) in the future.
3. The future
To date, except in very few cities, e.g. Beijing, there is still confusion as to whether and how contributions should be made for foreign employees in China. Actually, until the explicit supplementary local rules in respect of the Interim Measures are issued, employers may have no choice but to keep in close contact with the local HRSS/tax bureaux to ensure they are up to date.