Generally speaking, China’s social security system is made up of five different kinds of insurance, plus one mandatory housing fund.

Employer obligations

To maintain compliance, the first and most important thing for foreign investors to know is what the employer’s obligations are in the social security scheme.

Under China’s system, it is not enough that employers are simply willing to pay. Whenever hiring new staff, employers need to register him or her with local Social Insurance Bureau and the Housing Fund Bureau to initiate or reactivate the corresponding accounts. Further, although both employer and employee are obligated to make contributions, it is generally the employer’s responsibility to correctly calculate and withhold the payments for both parties. Meanwhile, employers are obliged to make timely payments for themselves and their employees.

Calculating the contribution base

The social security contribution base is a figure that determined by the employee’s average income in the previous year. The calculation method is as follows:

Social security contribution base = Previous year’s total income / 12*

*For new hires, the starting salary may be used as the social security base during the first year.

The base figures for social security contributions have floors and ceilings. Generally, the contribution base is capped at 300 percent (or 500 percent in some cities) of the average local salary. And the minimum contribution base is usually decided either by the local minimum wage or certain percentage of the average local wage.

Local governments generally update the average local salary benchmark and minimum wage once per year, which update the social security floor and ceiling in kind. Considering that the timing for the release of these figures varies per city and per year, it is challenging but critical for investors to obtain accurate and up-to-date information for their operations in each region.

Local variances

The contribution base ceiling and floor, the contribution rates, the social insurance and housing fund registration, as well as other compliance requirements, might be very different from one city to another.

Under China’s current framework, it is very common that the local social insurance bureaus only accept instructions from the local authority that directly manages them. As such, employers should conduct social security research on a city-by-city basis or consult third party professional services to ensure compliance.

For foreigners

Foreign employees working in China have been required to participate in China’s social insurance scheme starting from 2011, when the Ministry of Human Resources and Social Security released the Interim Measures for the Participation in Social Insurance of Foreigners Employed in China.

Foreign employees are eligible for social insurance exemptions if they come from countries that have social insurance exemption agreements with China. To date, 12 countries have reached such agreements China: Germany, South Korea, Denmark, Canada, Finland, Switzerland, the Netherlands, France, Spain, Japan, Luxembourg, and Serbia. The exemption scope and qualifications may vary from one agreement to another, and the local social insurance bureaus may have different policies towards the implementation of the exemptions. Employers should consult and apply with the local bureau in charge before they decide not to contribute for their foreign employees.