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backGLOBALtalk April, 2012

China: Social Insurance – Impact on Employers Depends Upon Location

As of October 15, 2011, all foreign nationals working in China under a work permit must participate in China’s social insurance system.

As China’s social insurance schemes are implemented locally, actual enforcement of the new measures may vary by city. It appears to date that amongst the large cities, only Beijing has issued its local implementing rules. We summarize the current policies in some large cities below:

Beijing: The Beijing municipal labor bureau has formulated implementing rules which imply that all foreigners working in Beijing, whether directly hired or on secondment, “shall” (yingdang) participate in the social insurance scheme. There appear to be different views at the district level as to whether participation is optional or a mandatory requirement.

Shanghai: Foreign national employees under local contracts can, but are not required to, participate in pension, medical insurance and work-related injury insurance schemes.

Suzhou: It is optional but not compulsory for foreign national employees under local contracts in Suzhou (including the Suzhou Industry Park, which has the right to implement its own social insurance policies within the park), to join the local social insurance system.

Tianjin: Pursuant to a Tianjin 2008 notice, foreign national employees under local contracts may, but are not required to, participate in the social insurance scheme. However, some government officials believe that all foreigners, whether under local contracts or employed offshore and seconded to work in Tianjin, must participate in all five types of social insurance.

Shenzhen: The policies in Shenzhen are unclear. The majority opinion appears to be that foreign national employees must participate in the pension, medical insurance and work-related injury insurance fund schemes.

Guangzhou: According to the municipal tax bureau (in charge of social insurance contributions), foreigners, whether under local contracts or employed offshore and seconded to work in Guangzhou, must participate in all five types of social insurance. However, whether or not the local social insurance scheme has already been open to foreigners may depend on the practice of the district authorities.

Dalian: Employers in Dalian may face significant payroll increases. With the exception of Dalian, the contribution levels are capped in all other cities. In Shanghai for example, currently an employer would never pay more than approximately USD680 per month (exclusive of housing fund payment). However, the Dalian authorities have removed the cap for employer contributions effective from September 1, 2011. Therefore, an employer potentially would have to contribute approximately 32% of the total payroll for its employees. Local officials were divided on whether foreign nationals must be enrolled in the social security scheme for pension only or for five types of social insurance.

It is clear that local practice varies considerably between different cities as evidenced above. Since it is likely that local jurisdictions will eventually issue local implementing rules, it is important to regularly review local rules and policies to ensure compliance with the latest position.

Source: Baker & McKenzie - GAI

For more information or to contact Baker & McKenzie, please click here.

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