New Social Insurance Law of People’s Republic of China:Impact on employers and employees Go back »

2011-03-01 | Nanjing

Introduction
During the past years it seems that the Chinese legislator was dedicated to improve the situation and the regulation of the labor matters in Mainland China, In fact on 2008 was promulgated the Employment Contract Law and after longtime waiting the top legislature of P.R. C. last October 2010 promulgated also the new Social Insurance Law of People’s Republic of China (hereinafter referred as Social Insurance Law) which will take effect on the date of July 1st 2011.

Generally speaking, the Social Insurance Law primarily aims to prevent the improper use of social security funds and give general rights for all citizens, including city residents, flexible employment, migrant workers and foreigners working in China to access and enjoy five categories of insurance.

Considering Social Insurance Law is the first law coving social security issues in China (in the past, only regulations were issued by Chinese government regarding social security issues), it shall be considered as a great signal that China is making his effort to strengthen the social insurance system on a national wide basis to improve welfare and working condition. .

Overview of the new law
There are five basic social security insurances stipulated in Social Insurance Law, which are basic pension, basic medical insurance, unemployment insurance, work-related injury insurance and maternity insurance. Both employees and employers shall make contributions for the first three kinds of insurances and only employers shall make contribution for the last two ones.

However, the current practice is that the contribution rate is decided at provincial levels and it is sill not clear if the rate will be readjusted after the implement of Social Insurance Law, which will weaken the enforceability of the new law. Taking Shanghai as an example, the contribution rates of basic pension, basic medical insurance, unemployment insurance for employee are 8%, 2% and 1% while that of employers are 22%, 12% and 2% and 0.5% of work-related injury insurance and maternity insurance, instead in Nanjing ( Jiangsu Province ) the corresponding contribution rates for employees are 8%,2% and 1% too while that for employers are 20%, 9%,2%, 0.8% and 0.5%~1.2% (depends on the job category).

Hence, employers will still need to follow the local regulations for contribution rates of the social insurance issues.

Significant modifications
• It is stipulated in Social Insurance Law that basic pension, basic medical and unemployment insurance are portable for individuals in case that an individual changes a job or moves to another province or city.

• The law stipulates that the basic pension insurance benefit is portable for individuals. When an individual reaches the statutory retirement age, the basic pension insurance is calculated on a segmented basis and is paid uniformly.

• According to Social Insurance Law, a unified national social insurance number for each citizen will be established, of which the identification card number will be the social insurance number.

Social Insurance Law reduces the costs paid by the employer for an employee suffering work-related injury. According to the new law, items including food allowance, reimbursement of accommodation and traffic fees for medical treatment outside the city where the employee works, as well as the one-off medical subsidy required to be paid to an employee suffering work-related injury when his/her contract of employment is terminated will be covered by the work injury insurance fund. It is the first time that foreigners employed in China can participate in the social insurance program and this will be discussed in detail in the coming chapter.

Eligibility of Foreigners to participate in P.R.C. Social Insurance System
At present, most foreign workers in China can enjoy work-related injury insurance and basic medical insurance in big cities such as Beijing，Shanghai, Suzhou and Tianjing under the local rules, or some one from Germany and Korean under bilateral agreements between countries.

After July 1st 2011, as mentioned above, foreigners working in China may participate in the social insurance system and be entitled social insurance benefits. However, it is still not clear that how an employer may make social insurance contributions in respect of foreign employees because no specific definition of “foreigners working in China” can be found, will a foreign individual hired by Chinese employers, or by foreign employers but assigned to China even self-employed foreigner be covered by Chinese social insurance system or not?

Further more, Social Insurance does not say any word on how many insurance types will be available to foreign workers, compulsorily or optionally. Therefore, it seems that further interpretation and implementation rule are needed.

If foreign employees are allowed to participate in pension insurance, it is not clearly explained in Social Insurance Law that whether the contributions for a foreigner will be refunded when he/she leaves China before the retirement age or not. If not, the contributions will be real additional costs to foreign employers and employees. Currently in Shanghai, Zhuhai and Shenzhen, foreign employees can get their contribution in an individual’s account back when leaving China before the retirement age.

Impact on employers
It is worth nothing that, under Social Insurance Law, employers will suffer a penalty ranging from 100 percent to 300 percent of the contribution due if they fail to make social insurance contributions in full amount and on time. Furthermore, a daily late payment interest of 0.05 percent of the underpaid amount will be fined too. It is considerer that the implementation of Social Insurance Law will push the human resource management become more legislated and standardized. On the other hand, the promulgation of the new law will raise the employees’ awareness of their rights regarding the social insurance, which will cause the increasing possibility of raising arbitrations or lawsuits against the violation of Social Insurance Law. Therefore, the employer shall pay more attention to human resource management than ever before.

What to do next?
Considering that the Social Insurance Law is more principle than practicable, it is strongly suggested that all companies shall keep an eye on the detailed implementation rules and regulations of Social Insurance Law which might be issued by Chinese government in future and assess the potential impact on the extra costs and expenses brought by the new law, as possible increase on the insurances could come.

For more information please send an email to: c.dandrea@picozzimorigi.it, or visit our website www.picozzimorigi.cn and www.picozzimorigi.com .

Disclaimer

This publication is distributed solely for information purposes and does not constitute legal advice. Although all the information in this document was obtained from reliable official sources, no guarantee is given with regard to their accuracy and completeness. This document may not be reproduced and copies of this document may not be distributed without our prior written permission.

© 2011 Picozzi & Morigi Law Firm