Focus: New Social Insurance Law in PRC
8 June 2011
In brief: A new social insurance law in the PRC (to take effect on 1 July 2011) provides, for the first time, an overarching framework for the administration of the five national social insurance funds in the PRC. Partner David Wenger (view CV) , Senior Associates Ross Keene and Maggie Ma and Consultant Crystal Zhang report on the changes, which will impose greater obligations on employers and the relevant administrative agencies.
How does it affect you?
- Employers must provide their employees with details of social insurance contributions paid each month.
- Some of the expenses previously borne by the employer in relation to work-related injuries will now be carried by the insurance fund.
- The new law seeks to enhance the portability of some of an employee's social insurance accounts if the employee moves to a different part of China.
- The new law provides the authorities with a range of measures to collect social insurance premiums that have not been paid by employers, and imposes stiffer penalties for late payment.
- Foreigners working in China will be able to participate in China's social insurance system.
For a number of years, China has implemented a social insurance system, which has been governed by a series of rules and regulations at both the central and local level. The new Social Insurance Law (which was passed by China's National People's Congress on 28 October 2010) will provide a framework for the administration of the social insurance system, while the existing regulations will continue in effect (unless they are inconsistent with the new law).
The five categories of national social insurance, as confirmed under the new law, are:
- Basic pension insurance Insurance contributions are made by both the employer and employee. On retirement, an employee who has contributed for at least 15 years will receive a pension from the government. The amount of the pension will be based on a number of factors, including the amounts contributed, the contribution period, the current local average wage (which is adjusted annually) and average life expectancy.
- Basic medical insurance Contributions are made by both the employer and employee. Some of an employee's medical expenses are covered (in whole or in part) out of the basic medical insurance fund.
- Work-related injury insurance Only employers make contributions to the work-related injury insurance fund. Premiums are set based on the injury rate in the relevant industry. Wages and other defined costs arising out of work-related injuries are paid either out of the injury insurance fund or by the employer.
- Unemployment insurance Both employers and employees must pay unemployment insurance premiums. If these premiums have been paid for certain minimum periods then the employee may receive unemployment insurance payments, for a maximum of 24 months.
- Maternity insurance The employer must pay maternity insurance premiums. Such funds are used to make certain maternity leave payments and pay related medical expenses.
In addition to setting out specific rules with respect to each of the five categories of social insurance, the Social Insurance Law deals with other administrative issues, such as the collection of premiums, the administration of social insurance funds and the supervision of the utilisation of those funds.
The employer must provide an employee with a breakdown of the social insurance premiums paid each month.
Continuation of contributions to pension fund
Employees who have not made contributions to the basic pension insurance fund for 15 years when they retire are now able to continue to contribute until the minimum contribution period is reached, so that they will then be able to receive the pension.
Decreased liability for employers in relation to work-related injuries
Some of the expenses related to work-related injuries, which were previously payable by the employer, are now paid by the work-related injury insurance fund. Those expenses include meal allowances during hospitalisation, certain transportation, accommodation and meal costs, and lump-sum medical subsidies upon termination of the employee's labour contract.
The new law enhances the portability of an employee's social insurance accounts, by providing that an employee's basic pension, basic medical and unemployment insurance status will be transferred when they move to a new region.
New methods to collect social insurance premiums
The new law also attempts to address the significant issue of employers failing to pay social insurance premiums for their employees. Under the new law, if an employer fails to pay social insurance premiums in full and on time, the authorities can adopt a range of measures, including making investigations and deducting the relevant amounts from the employer's bank account, requiring the employer to provide a guarantee for outstanding amounts, and recovering outstanding amounts through the court-enforced sale of an employer's property. Social insurance premiums payable by employees must be withheld from the employee's salary by the employer and paid to the authorities.
Increased penalties for late payment
If an employer fails to pay social insurance premiums in full, and on time, the relevant authorities can make an order for rectification and impose a daily fine of 0.05 per cent of the overdue payment. If the payment is not made within the stipulated period, the relevant authorities can impose a fine on the employer of one to three times the overdue amount. Fines of between RMB 500 and RMB 3000 could also be imposed on the representatives of the employer who are responsible for the non-payment.
Participation by foreigners in social insurance
The new law provides that foreigners (ie non-Chinese citizens) working within the territory of China shall participate in social insurance 'by reference to' the provisions of the Social Insurance Law. (Participation by foreigners in social insurance is currently permitted in certain Chinese cities under local regulations.) However, it is unclear whether participation by foreigners will become mandatory, or exactly what benefits foreigners will enjoy as a consequence of their participation. Further implementation rules are expected to be promulgated in the future.
The new PRC Social Insurance Law, taking effect on 1 July 2011, will be a milestone for the PRC's social insurance system, as it will be the first time there is unified regulation of the five social insurance funds at the national level. The new law is also an important part of the authorities' efforts to ensure that social insurance premiums are paid as required, and that full-time workers across China can receive social insurance benefits. However, implementation rules have not yet been promulgated and there are a number of areas that await clarification. The authorities are also expected to intensify their efforts to enforce the obligations imposed on employers, employees and relevant administrative agencies under the new law.
- David WengerPartner,
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