Social security in China is one of the very important factors when hiring employees in China. It consists of five different types of insurance, plus one mandatory housing fund. The five “insurances” are pension, medical, unemployment, work-related injury, and maternity insurances.
Introduction of the Social Security in China.
According to the China Social Insurance Law, we have concluded the Basic principles of China’s social security system：
- All employees including foreigners working in China shall be covered by the social security system.
- Both employers and employees are required to make the contributions.
- The contributions are made on the monthly basis and adjusted on the yearly basis.
- Each city has its own contribution base and rate.
- All the insurance funds are managed by each city’s local authority and are pooled into provincial or municipal funds.
- Employers’ mandatory social security contribution obligations cannot be exempted by mutual alignment between employers and employees.
- If client has no legal entity in China, they shall engage PEO & employment agency to handle social security in China for their employees.
- All foreigners working in China shall contribute social insurance.
- Company shall set up the company social insurance account after company establish in China.
Components of China Social Security System
Employees who have contributed to pension insurance for more than 15 years can receive a monthly pension when they reach the statutory retirement age.
Employers and employees are both required to contribute to the pension system. Contributions from employees will be credited to their personal pension account. The employer’s contribution will be deposited in the government’s public account.
The retirement age in China varies according to gender and position. In general, males must retire at the age of 55, while females must retire at the age of 50. However, due to China’s aging population, the government intends to raise the retirement age.
Pension each employee can get monthly is coming from two portion.
- Employees’ personal pension accounts: accumulated through employee contributions and divided into 120 installments to be paid out monthly over a ten-year period.
- Government public account: All employer contributions are directed to the government public account, which is managed by the central government. These funds are used to pay employees’ pensions based on their working years and average salary. Employee can receive it till death.
Medical insurance is also paid for on a monthly basis by both the employee and the employer. The employee’s contribution goes directly to their personal medical account, while 30% of the employer’s contribution goes to the employee’s personal medical account and the remaining 70% goes to the government public account.
Employees can use their medical account funds to pay for medical treatments in hospitals in part or in full, depending on the medications and treatments they receive.
Medical insurance in China only covers treatment accepted and managed by government-approved hospitals; international hospitals, private hospitals, private rooms, and imported medicines are not covered.
Unemployment insurance must be paid for by both the employer and the employee.
The contribution is fully deposited into the government’s public account and is used to provide a minimum level of support as a benefit to individuals who meet certain criteria and are unemployed.
Individuals can use the government App to apply for benefits on their own. The length of the benefits is determined by how long the employee has contributed to the social security system; the maximum benefits available are 24 months.
In Shanghai, for example, unemployment benefits are RMB 1,895 per month for 1-12 months of unemployment, and RMB 1,516 per month for 13-24 months of unemployment in 2020.
Work-Related Injury Insurance
Work-related injury insurance are paid solely by employer. The contribution rate are different from company to company, depends on the work safety, risks of different industries, usually range from 0.5%-2%.
The entire contribution was deposited into the government’s general fund. When your employees suffer a work-related injury or illness, the work-related injury fund pays for their treatment.
Employees are eligible for work-related injury compensation if they can demonstrate that they have a working relationship with their employer and that the injury sustained was caused by their job. Employers must file the application, which must be approved by each local social security authority.
Maternity insurance is contributed by employer only for each employee they hire no matter male or female on the monthly basis. The contribution is paid into the government’s public account and is used to compensate female employees during their maternity leave periods.
Women who have been working and contributing to social security for more than three months are eligible for such compensation. Different cities have different policies and implementation methods.
In Shanghai, for example, the monthly compensation women can receive from the government is equal to their company’s average salary from the previous year. Generally, employers are not required to pay employees’ salaries during their maternity leave; however, if an employee’s salary is higher than the company’s average salary, the company is responsible for paying the difference. In Shanghai employee can apply for such compensation by themselves while in Beijing it shall be applied by employer.
Both employers and employees must make monthly contributions to the Housing Fund, and all housing fund contributions go directly to employees’ housing fund accounts; such funds can be used for housing mortgages when an employee buys a house.
The actual percentage of contribution varies by city or province. In Shanghai, the employer and employee contribution percentages are the same, at 7%. In some cities, the housing fund contribution rate is a range; for example, in Beijing, the range is 5% to 12%. Employers can choose a percentage for the housing fund contribution; however, each company can only have one contribution percentage for all employees, and employees’ contribution percentages must be the same as the employer’s.
Additional Insurances/Benefits Employer can Offer in China.
Supplementary Housing Fund
Employers may choose to contribute an additional percentage of supplementary housing funds to their employees as an added benefit, as this is not required in China. The contribution percentage must range between 1% and 9%. Both the employer and the employee must contribute the same percentage, and the entire contribution fund is directed to the employees’ housing fund account. When an employer decides to provide supplemental housing funds to their employees, all employees must enroll.
Supplementary Health Insurance/Commercial Insurance
It is very common for foreign companies to provide commercial insurance to their employees in China as supplemental health insurance and mentioned in the labor contract. Typically, commercial insurance is provided by an insurance agency. Employers can select from a variety of plans based on their budget and employee position or level. Some plans, for example, may cover private hospitals, and imported medicines are typically provided to expats or senior management staff. After enrolling in a commercial insurance plan, employees can submit hospital receipts and doctor’s statements to the insurance agency to claim their hospital expenses.
Social Insurance and Housing Fund Contribution Base and Rate.
Different cities have different contribution rates and bases for social insurance and housing funds, and such policies will be updated yearly by each city. The latest social insurance and housing fund policies in Shanghai, Beijing, and Shenzhen are listed below.
Social Security in China Exemptions for Foreigners
According to the Interim Measures for Participation in the Social Insurance System by Foreigners Working within China, released on 2011, all foreigners working in China are required to contribute social security in China. Housing fund is not mandatory for foreigners.
Foreign employees from countries that have signed social security exemption treaties with China, on the other hand, are eligible for social security exemptions. To be eligible for such exemptions, foreign employees must submit the necessary documentation from their employer. For your convenience, here is a list of countries:
Germany, South Korea, Denmark, Canada, Finland, Switzerland, and the Netherlands, Spain, Luxembourg, Japan, and Serbia
Foreign companies doing business in China must contribute to social security in China on time and in full. Each year, the local social security authority will select companies at random to conduct the social security audit. Any delay in making the contribution, or making the contribution on the incorrect basis, will all have an impact on the company’s credit with the government.