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China Expats, Employers to Get Hit With Social Welfare Costs

On June 10, 2011, China’s Ministry of Human Resources and Social Security released two measures to the public for solicitation of opinions: namely the “Interim Measures for the Participation in Social Insurance of Foreigners Employed in China (Draft for Comments)” and the “Measures on the Administration of Social Insurance Record of Individuals’ Rights and Interests (Draft for Comments).” The comment solicitation period for both draft measures ends on June 17, 2011.

The two draft measures were formulated based on the Social Insurance Law, which is set to take effect on July 1, 2011. The respective draft measures are discussed below.

Draft Interim Measures for the Participation in Social Insurance of Foreigners Employed in China
The draft Interim Measures are relatively short, consisting of only 12 articles. According to the Interim Measures, foreigners who are legally employed by enterprises, public institutions, social groups, privately-owned non-enterprise units, foundations, law firms and accounting firms which have been registered or recorded in line with the laws in China are required to participate in the following insurances: basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance. The employing units and foreigners should pay the social insurance premiums in accordance with relevant regulations.

For foreigners who entered into employment contracts with employers outside of China and are dispatched to work in branch or representative offices registered or recorded in China, they and the branch or representative offices are also required to pay the social insurance premiums in accordance with relevant regulations.

The Interim Measures provide that, where a foreigner departs China prior to the stipulated age for receiving pension, his or her individual account will be retained. Where the foreigner reenters China for employment, the payment period can be calculated cumulatively. Upon written application by the foreigner, the social insurance agency can pay the foreigner the amount in his or her individual account in one lump sum and terminate the basic pension relationship. Upon the foreigner’s death, the amount remaining in his or her individual pension insurance account can be inherited.

The Interim Measures cover Chinese citizens who are citizens of the Hong Kong Special Administrative Region and Macao Special Administrative Regions, as well as citizens of Taiwan. These personnel as well as all foreigners legally employed in China will be issued social insurance cards and assigned social insurance numbers.

For foreigners who are nationals of countries that have entered into bilateral or multilateral treaties relating to social insurance with China, his or her social insurance participation will be handled in accordance with such treaties.

Since the promulgation of the Social Insurance Law in October 2010, there has been much debate and uncertainty as to the extent to which the Law applies to foreigners, and whether or not foreigner’s participation in social insurance would be mandatory. The draft Interim Measures clarify the government’s intent to include foreigners into China’s social insurance scheme.

Draft Measures on the Administration of Social Insurance Records of Individuals’ Rights and Interests
These draft Administration Measures provide for the methods by which social insurance agencies are to collect information relevant to individuals’ social insurance rights and interests. In addition to participants and their employers, designated hospitals and pharmaceutical retail shops are among the entities required under the Administration Measures to provide accurate information in a timely manner to social insurance agencies.

The Administration Measures emphasize the reliability and security of the information collection process. For example, where social insurance agencies collect information on individuals’ social insurance rights and interests through online declaration, they are required to adopt ID verification, encryption and anti-repudiation security mechanisms. Furthermore, a system with multiple layers of review and verification of the collected information is required to be established. Social insurance agencies are not permitted to delegate entirely the maintenance of the data on the record of individuals’ rights and interests to another entity or individual. Where other entities or individuals assist with the maintenance, social insurance agencies are required to enter into confidentiality agreements with them.

In order to ensure that the information on individuals’ rights and interests can be accessed uniformly, the Administration Measures require that the human resources and social security special network be connected to the various levels of social insurance agencies and service outlets. Social insurance agencies are also required to establish an information enquiry and administration system on the record of individuals’ rights and interests, which provides enquiry services to participating personnel and units through service outlets, self-help terminals, telephones or web sites. Social insurance agencies are also required to mail a record of the individuals’ rights and interests to participants at least once a year free of charge.

The public can submit their opinions on these draft measures by accessing the relevant website (www.chinalaw.gov.cn), by e-mail (lifachu@mohrss.gov.cn), by fax (011-84233796), or by mail to the Legislation Department of the Ministry of Human Resources and Social Security.

“The issue here is not whether China will implement the collection of welfare from foreign employees – because I think they will – but how well managed that collection will be,” comments Chris Devonshire-Ellis, principal of Dezan Shira & Associates. “It is not on one hand unreasonable for the Chinese government to levy social insurance costs on expat employees, the United States for example does the very same thing. What may become an issue however is the current standard of care provided, and the efficiency of accessing that.”

“Even amongst Chinese nationals, the procedures required to tap into their individual social welfare fund are highly complicated and seem almost designed to prevent access when needed. Additionally, the standard of care provided is generally low in relation to the amount of welfare actually paid,” Devonshire-Ellis continues. “Although there does seem to be a ‘refund’ mechanism in place should the employee leave China, I have concerns about employees trying to exit the country if their fund is not up-to-date, and the abilities of individuals to actually collect refunds upon departure. I have previously looked into the aspect of China’s welfare system in an earlier article and the official figures about how it is used and who gets relief are completely obtuse. I’m not sure whether foreign expats or employers used to a more transparent system in the West will be totally happy with the management of their social welfare contributions in China given the existing structure of the current model. It could act as a catalyst for welcome change within that, or it could create friction and frustrations between the Chinese government and expatriate employees in China. Expatriates and their employers in China would be well advised to contact their respective chambers to make their own views heard about this new employment expense.”

Related Reading

Employment Overheads in China’s Welfare System
In this issue of China Briefing we look at China’s social security regime and the five social insurance funds that enterprises in China must contribute to: pension, medical insurance, unemployment insurance, maternity insurance, and occupational injury insurance.

Human Resources in China
Specifically designed to cover the most important issues relating to managing a Chinese workforce, this guide details the HR issues that both local managers in China and investors looking to establish a presence on the mainland should be aware about.

The Mysteries of China’s Social Welfare Fund

China Now Has Third Highest Labor Costs in Emerging Asia

When China Mandatory is Negotiable

The Communist China Price


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