Guide to China’s Social Security System | Who Pays What?

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In this article, we want to answer one of the common questions that we receive from our users:

Does China have a social security system?

And the answer is yes. China’s social security includes different parts that employers have to consider when they want to hire staff in the country.

In this article, we provide comprehensive guidance to China’s social security system.

Having your own business in China does not automatically entitle you to hire staff. There are a set of rules and laws that every employer in China has to abide by while considering the recruitment of local or foreign employees. If you hire employees for your company in China, certain responsibilities must be undertaken and confirmed for employee welfare.

China’s Social Security System 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).

China’s Social Security Contributions

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 fund are updated every year and change according to city jurisdiction, for example, Beijing, Shanghai, and Guangzhou 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 to handle the employee mandatory benefits administration for your company in China.

Introduction to the China Social Security System

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:

Pension Insurance

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.

Medical Insurance

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”).

Unemployment Insurance

In the event of redundancy, the employee may claim unemployment benefits in China 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.

Work-related Injury Insurance

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.

Maternity Insurance

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.

Housing Fund

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%.

Add-on benefits that employers can consider offering their employees

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 or caused by its occurrence, or when the insured dies, suffers disability, 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 for 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 supplementary housing fund is voluntary.

Clients can choose to use China Benefits Administration in combination with our HROne Payroll Services or engage HROne Agency as a stand-alone service – providing your organization several benefits.

Do foreigners pay social insurance in China?

Foreigners in China have been required to contribute to the social insurance by the regulation “Interim Measures for the Participation in Social Insurance of Foreigners Employed in China“, released in 2011.

However, because social security is administered at the regional level, there are a variety of regulations between cities. Cities like Beijing, Tianjin, Shenzhen, and Nanjing, for example, treat international employees the same as domestic employees, requiring them to pay social insurance contributions.

On the other side, Shanghai does not require foreigners to contribute social security.

Expats are not obligated to contribute to the housing fund plan in most cases. Many cities, however, allow foreigners to contribute to housing funds on a voluntary basis. This is a strategy for attracting talent.

Reasons Why HROne is Beneficial for Your Business in China

  • Relieving the burden of handling complex processes
  • Streamlining your workflow and freeing up valuable in-house resources
  • Managing employee-related risks and compliance
  • Access to in-depth HR expertise to handle HR issues
  • Leveraging relationships with a broad network of government departments
  • More information about tax and social security contributions for your employees in China
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  1. End of zero covid restrictions in China
  2. Using an Employer of Record in China
  3. Registering a company in China
  4. Using a combination of both
  5. Takeaways for 2023

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