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China’s Social Security System

Updated:2018-9-20 17:56:04    Source:www.tannet-group.comViews:1145

China’s social security law was promulgated by the central government but its administration and specific details are governed by local authorities. For example, employer and employee contribution rates and caps for each benefit vary according to local jurisdiction and are subject to annual changes and reforms. The contribution to China’s social security system is mandatory for Chinese employees and their employers as well as foreigners employed in China. Below is a brief introduction to social security system in China.

Overview of China’s Social Security System
China’s current individual employment contract-based social security system gradually emerged in the late 1990s and the 2000s. Prior to that, the government provided a welfare system (pension, healthcare, and housing) for urban workers.

The new system emerged through a series of specific regulations and provisions in the 1994 Labor Law and 2008 Labor Contract Law. It was not until 2011 that these separate parts were codified into a comprehensive national framework under the Social Insurance Law, in which the basic principles of China’s social security system are outlined.

Responsibility and Obligation of Employer
To maintain compliance, the first and most important thing for foreign investors to know is what the employer’s obligations are in the social security scheme.

Under China’s system, it is not enough that employers are simply willing to pay. Whenever hiring new staff, employers need to register him or her with local Social Insurance Bureau and the Housing Fund Bureau to initiate or reactivate the corresponding accounts. Further, although both employer and employee are obligated to make contributions, it is generally the employer’s responsibility to correctly calculate and withhold the payments for both parties.

Meanwhile, employers are obliged to make timely payments for themselves and their employees. A late contribution can result in a fine, while failure to contribute may lead to onerous labor disputes. In case of severe and multiple violations, the company might be put on an HR “name and shame” list, which is not only embarrassing but also could bring barriers to future recruitment.

How to Calculate the Monthly Contribution?
To correctly calculate the monthly social security contribution amount, it is important for employers to understand the basic rules on deciding the contribution base figure.

Firstly, rather than the actual payment that employees get for each month, the social security contribution base is a figure that determined by the employee’s average income in the previous year (i.e. January to December).

Secondly, the base figures for social security contributions has floors and ceilings. Generally, the contribution base is capped at 300 percent (or 500 percent in some cities) of the average local salary. And the minimum contribution base is usually decided either by the local minimum wage or certain percentage of the average local wage.

Social security is a complicated but unavoidable issue in employer-employee relationship management for businesses operating in China. Local governments generally update the average local salary benchmark and minimum wage once per year, which update the social security floor and ceiling in kind. Considering that the timing for the release of these figures varies per city and per year, it is challenging but critical for investors to obtain accurate and up-to-date information for their operations in each region.

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