Sovereign has previously highlighted the importance of Foreign-Invested Enterprises (FIEs) in China adhering strictly to all labour laws, whether at a national or local level. Time and again we hear stories of FIEs that have faced legal or financial troubles as a consequence of failing to treat their local employees in full accordance with the law.
By now, the importance of having a detailed Employment Contract and Employee Handbook in place for your China staff should be well-known to foreign investors. However, another area of employment in China that often causes confusion is that of Social Benefit payments. This brief article will examine what these benefits are and the importance of ensuring that all statutory contributions are handled correctly. We will also refer to some misconceptions often associated with China’s social benefit system.
The basic pension framework in China was first set up in 1997 and both the employer and the employee are responsible for making contributions. An individual can receive a pension based on the amount accumulated on his or her individual fund after retirement. Contribution rates may vary by location but, in Beijing, an employee currently contributes 8% of gross income, while the employer contributes 19%. In Shanghai, an employer’s contribution is 20%.
As with pension insurance, both the employer and the employee are responsible for making contributions. In the event of redundancy, the employee may claim unemployment benefits for a maximum of 24 months. In Beijing, an employee currently contributes 0.2% of gross income, while the employer contributes 0.8%. In Shanghai, current contribution levels are 0.5% from both parties.
This system was first established in 1998 under the State Council Decision on the Establishment of a Basic Medical Insurance System for Urban Staff and Workers (国务院关于建立城镇职工基本医疗保险制度的决定). In the event of illness or non-occupational injury, an employee can have part of the treatment cost covered by medical insurance.
Again, both the employer and the employee are responsible for making contributions. In Beijing, an employee currently contributes 2% of gross income, while the employer contributes 10%. In Shanghai, current contribution levels are 2% and 9.5% respectively. It should be noted that benefits are not overly generous and many employees will face out of pocket expenses. Some may choose to buy additional private medical over.
This is also referred to as ‘work-related injury insurance’. The work-related injury fund covers the cost of treatment in the event of an occupational injury or illness, and contributions are made solely by an employer. Current contribution rates are 0.4% in Beijing and 0.2 to 1.9% in Shanghai. Rates may vary across locations and industries. This specific insurance can be quite complicated in terms of burden of proof and is ultimately governed by the Social Insurance Law, the Work-related Injury Insurance Regulations and the Law on the Prevention and Treatment of Occupational Diseases.
As with workplace insurance, contributions are made solely by an employer. Current contribution levels are 0.8% in Beijing and 1% in Shanghai. Maternity issues are a potential minefield and employers would be well advised to avoid falling foul of any related statutes governing the treatment of pregnant staff.
The housing fund is designed to ensure that workers save to purchase housing and is administered by the Ministry of Housing and Urban-Rural Development rather than the Ministry of Human Resources and Social Security.
The Regulations on the Administration of Housing Funds (住房公积金管理条例) state that employee and employer contribution rates are to be determined by the local government but should not be lower than 5% of the average wage at the enterprise. In Beijing, current contribution levels are 12% for both employer and employee, and 7% each in Shanghai.
As with any employment-related issue in China, it is imperative that foreign companies pay close attention to any changes and remain compliant with all relevant national and local regulations. The following article from Grace Yang, an employment specialist at Harris Bricken Law firm, outlines some of the misconceptions surrounding social benefits in China:
As always, it is sensible to seek professional advice if you are uncertain about any aspects of your China operations.