China Law Alert: New Social Insurance Law

June 29, 2011

Employment Law


The Most Important Law of the Year

The new Social Insurance Law of the People’s Republic of China will come into effect on July 1st 2011. There are several big changes employers and employees must know about because the new laws will have a substantial impact on current labor practices. The new Social Insurance Law is the most important piece of legislation this year and affects everyone in China that holds a job.

The Basics of Chinese Social Insurance

There are five basic social security insurances stipulated in the Social Insurance Law: a basic pension, basic medical insurance, unemployment insurance, work-related injury insurance and maternity insurance. Both employees and employers will make contributions for the first three kinds of insurance and only employers will make contributions for the last two.

The Inclusion of Foreign Workers

One of the biggest changes in the new law is that foreign employees will be included in China’s social insurance system for the first time. This will strongly affect many foreign employees, of which there are 600,000 in China, since they will be paying Chinese social insurance as well social insurance in their native country. Some insurance options will not be available to foreigners, such as access to the public housing fund. Employers should pay close attention to further implementations of the new rules.

Potential Problems for Foreign Workers in China

Foreign employees who work in China for longer than 6 months must be included in the social security system. In addition, foreigners must contribute for at least 15 years before they can collect a pension after retirement.
According to China Daily, a foreign employee who is eligible to receive the pension after the designated amount of time, can still collect even after leaving China. The new law will also allow the balance of the individual’s pension account to be inherited by their offspring.

Current Social Insurance Tax Rate

Currently, depending on the province, Chinese nationals pay at least 14% of their monthly income to social security. This 14% is divided into: 11% for pensions, 2% for medical and 1% for unemployment. In cities like Beijing, employees don’t pay part of their monthly salary for maternity or disability benefits.

Some firms estimate that a foreigner holding a working visa in Shanghai will have to pay a maximum of 1,285 yuan a month to the central government after the law goes into effect. In comparison, a Chinese national living in Beijing pays 1,000 to 1,200 yuan a month.

The Importance of Paying Social Insurance

The social insurance fund is under strict supervision. If an employer fails to report the social insurance premiums for the employee, according to the law, the amount that will have to be paid will rise to 110% of the last month’s payment. If he fails to pay before the deadline set by the social insurance’s collection agency, the administrative department and higher departments have the right to withdraw money from their bank account without consent.

Strong Administrative and Civil Penalties

Social insurance is mandatory. In China it is quite popular that an employee waives their rights to social insurance compensation voluntarily in exchange for higher pay. Employers should be aware of its illegality, you will be fined one to three times of the premium owed if caught. The responsible personnel may be fined 500-3,000 RMB.

It is now a good time to check to see if your company’s employee handbook will be compliant with the new laws and regulations. Since the law is new and complicated, and many local regulations have not been released yet, it might be necessary to get advice from professional lawyers to avoid possible risks and penalties.

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2 Comments on “China Law Alert: New Social Insurance Law”

  1. jacshen Says:

    Congratulations on your new blog! All good stuff!!


  2. photographe 74 Says:

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