New measures come into into force this weekend 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” takes 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,” advised Henry Tan, Asia-Pacific chairman, Nexia  Internationa, a global network of independent accounting,  tax and consulting firms.

“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,” he said. “Foreign workers employed directly by Chinese businesses must also  comply.”
Both employers and foreign employees will contribute towards  the cost of the insurance, which covers pensions, medical, work-related injury,  unemployment and maternity.
Local social security offices will  determine the exact contribution rates but they are likely to be  up to a maximum of 12% of salary for employees and 38% for employers. Currently the combined contribution total is capped at around RMB5,600 per month  per foreign employee.
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.