Social security is a complicated but unavoidable issue in employer-employee relationship management for businesses operating in China. In this article, we provide several guidance to China's social security system.
China’s social security system constitutes five different types of insurance and contributions to the mandatory housing fund.
* Medical Insurance
* Unemployment Insurance
* Work-Related Injury Insurance
* Maternity Insurance
* Housing Fund
* Commercial /Supplemental Health Insurance
* Supplemental Housing Fund
China’s social security law was promulgated by the central government, but its administration and specific details are governed by local authorities. For instance, for each benefit, the employee and employer contributions rates and base differ as per the local jurisdiction and are subject to annual changes and reforms.
What makes the payroll in China quite complex is that the contribution rates for social insurance and housing funds are updated every year and change according to city jurisdiction, for example, Beijing, Shanghai, Guangzhou, and Shenzhen have different contribution rates and bases as follows:
The contribution to China's social security system is mandatory for Chinese employees and their employers as well as foreigners employed in China. It will be considered ILLEGAL if a company does not contribute any social insurance or housing fund for its employees in China. Hence, it is important for a licensed and experienced service provider like Talent Spot, to handle the employee mandatory benefits administration for your company in China.
Talent Spot has over 20 years of payroll outsourcing experience in China. Our payroll outsourcing concentrates on payment arrangement and employee welfare management taking into consideration all relevant regional HR laws and regulations. We ensure accuracy and provide customized payroll outsourcing across all cities in China. Choosing Talent Spot payroll outsourcing means faster and easier solutions to improve compliance and drive your comprehensive human capital management to the next level.
The contribution to China’s social security system is mandatory for Chinese employees and their employers as well as foreigners employed in China. It will be considered ILLEGAL if a company does not contribute any social insurance or housing fund for its employees in China. Hence, it is important for a licensed and experienced service provider like Talent Spot, to handle the employee mandatory benefits administration for your company in China.
Social Security in China consists of 5 mandatory insurance schemes (pension fund, medical insurance, industrial injury insurance, unemployment insurance, and maternity insurance) + a housing fund (only applicable to Chinese employees). Each contribution has been explained in detail below:
An individual can receive a pension based on the amount accumulated in his/her individual fund after retirement.
In general, individuals need to pay at least 15 years of contributions prior to receiving a pension in China. Some industries have different retirement ages, but mainly men are 55 years old, women are 50 years old (blue-collar work), men are 60 years old, and women are 55 years old (white-collar work). The amount of retirement benefits depends on local regulations. Due to China’s population problems, these ages may soon change.
In the event of illness or non-occupational injury, an employee can have part of the treatment cost covered by medical insurance.
Medical insurance in China is required to be paid by both – the employer as well as the employees on a monthly basis. The medical insurance fund will reimburse medical expenses to designated hospitals for treatment. The patient will no longer need to pay for the treatment in advance and then wait for compensation. Medical insurance only covers treatment accepted and managed by government-approved hospitals and clinics (excluding “international clinics”).
In the event of redundancy, the employee may claim unemployment benefits for a maximum of 24 months.
Employers must contribute to the unemployment insurance fund in China. However, only employees in certain jurisdictions are required to increase their monthly contributions. Under normal circumstances, unemployed persons have the right to receive unemployment benefits for up to 12 to 24 months (depending on the actual situation) if they make more than 12 months of donations.
The work-related injury fund in China covers the cost of treatment should an occupational injury or illness occur. In addition, Employees working under certain weather conditions will receive allowances.
Only employers are required to pay work-related injury insurance monthly. In some jurisdictions, the monthly amount required will vary according to the industry. Insurance usually includes all work injuries and occupational diseases. The work injury insurance fund will pay for the treatment. Employers still need to pay part of their wages to individuals, but their wages will be less than full wages. Even if the employer does not make the necessary contribution, the individual can still apply for treatment and pay through the insurance fund. The fund manager will then be required to track the employer for full compensation.
During maternity leave, the employee receives reimbursement from this insurance.
Only employers need to pay maternity insurance in China every month. Monthly payments from insurance funds to women during maternity leave will be based on women’s average wages. This means that if she works at a company and other women earn more than her, she can get more money during maternity leave. In order to obtain these benefits, the female employee’s employer must pay 3 months of monthly funds, and related medical services must comply with China’s family planning policy. In some cases, male employees can also enjoy benefits.
In order to ensure that employees save to purchase housing, housing fund in China is paid by employers and their employees, which is often with social insurance. Housing Fund Management Regulations (Housing Provident Fund Management Regulations) The rate of contribution of employees and employers in the country depends on the local government, and it should not be less than 5% of the average salary of the company. For example, the contribution rate of both employer and employee is 12% in Beijing. In Shanghai, the contribution rate of employer and employee is both 7%.
There are several extra benefits that are not mandatory for employees and can be treated as a kind of additional benefit. The most commonly utilized benefits have been explained as follows:
Commercial/supplemental health insurance
Commercial insurance refers to the form of insurance for the purpose of making profits through the operation of insurance contracts, which are operated by specialized insurance companies. The commercial insurance relationship is a contractual relationship voluntarily signed by the parties. The insurer pays insurance premiums to the insurance company according to the contract. The insurance company is liable for compensating insurance premiums according to the contractually agreed accidents like property damage caused by its occurrence, or when the insured dies, suffers disability, or sickness or reaches an agreed age or period, the insurance company should pay the insurance premium. The difference between commercial insurance and social insurance is that commercial insurance is a non-mandatory and more of a commercial offering. Insurance business operators pursue profits through independent accounting, self-management, and self-financing. The purpose is to provide people with basic livelihood protection.
Supplemental housing fund
The supplemental housing fund refers to the company’s willingness to provide an additional amount of funds to the employees after they have paid up the statutory housing fund. The employees themselves must also pay the reserve funds in the same proportion and deposit them into the employee’s supplementary housing fund account, which belongs to the company’s employees. Paying the housing fund is mandatory, and the payment of the supplementary housing fund is voluntary.
Clients can choose to use China Benefits Administration in combination with Talent Spot Payroll Services or engage with us as a stand-alone service – providing your organization with several benefits.