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.