New measures have come into force clarifying the social security insurance requirements on foreign employees working in China. The “Interim Measures for Participation in the Social Insurance System by Foreigners Employed in China” took effect on 15 October 2011 and has potentially costly implications for employers and foreign employees alike.
It was introduced after China’s latest Social Security Law included a requirement that foreign employees must participate in the country’s social security system, but failed to explain how.
While the current measures provide guidance, the local social security offices will determine much of how the programme is implemented and enforced. To minimise both costs and surprises, employers of foreign workers should engage in discussions with their local social security offices at the earliest possible opportunity.
Mandatory for foreigners
Participation is mandatory for all foreigners who sign employment contracts with employers outside of China and are sent to work in subsidiaries and representative offices registered or incorporated in China. Foreign workers employed directly by Chinese businesses must also comply.
Article 2 of the Interim Measures defines a “foreigner working within the territory of China” as a non-Chinese national who has been granted the Permanent Residence Permit of Foreigners and possesses an employment permit such as:
- Employment Permit for Foreigners
- Foreign Expert Certificate
- Resident Foreign Correspondent’s Press Card
Both employers and foreign employees will contribute towards the cost of the insurance, which covers the following:
- basic old-age insurance
- basic medical insurance
- work injury insurance
- unemployment insurance
- maternity insurance
The local social security offices will determine the exact contribution rates. We believe that they are likely to be up to a maximum of 12% of salary for employees and 38% for employers. At present, the combined contribution total is capped at around RMB5,600 per month per foreign employee.
The new social security measures are expected to provide benefits to foreign employees similar to those enjoyed by local Chinese employees. However, with the exception of the pensions programme, information has yet to be released on how foreigners can apply for these benefits.
Requirements for employers
Employers are required to register foreign employees for the social security insurance programme within 30 days of applying for their workers’ employment permits. In the case of employees from foreign companies, it is the responsibility of the subsidiary or representative office to ensure this is done and that contributions are made.
Failure to comply will result in penalties in line with Social Insurance Law and other relevant regulations.
Employees from foreign countries that have signed bilateral Totalisation Agreements with China may be exempt from some aspects of participation. So far, only Germany (pensions and unemployment) and South Korea (pensions) have signed such agreements, although more countries are expected to follow suit.
About the Author
Henry Tan is Asia-Pacific chairman of Nexia International, a global network of independent accounting, tax and consulting firms.