By Dezan Shira & Associates
Although both employee and employer make contributions towards the social insurance funds in China, it is generally the case that the employer is responsible each month for withholding the contribution of the employee from gross salary, and making the employee’s contribution together with that of the employer.
When hiring a new staff member, employers need to register him or her with the local Social Insurance Bureau and the Housing Fund Bureau. As each city or region regulates its own social insurance scheme, the procedures vary per city and change rapidly. Below, we describe how this procedure generally works.
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Social insurance registration
To be able to hire staff, the company needs to obtain a social insurance number (or social credit number under five-in-one business license scheme). Certain documents, such as the company’s business license, ID documents of the legal representative, RMB bank account documents, etc., are required.
Notably, under the five-in-one business license scheme, the social insurance number will be unified with company’s social credit number. During the transitional period, i.e. before January 1, 2018, the separate social insurance number is still valid.
If employers pay employees through a branch of the company, they will often need to bring:
• Parent company’s business license;
• Power of attorney chopped with company seal.
After obtaining the social insurance number (or social credit number under five-in-one business license scheme), companies need to enter the employee’s details into the software provided by the Social Insurance Bureau. This information includes the employee’s salary, as this determines the social security contribution to be made.
Companies can sign a contract with an eligible bank to ensure that payments are made directly to the Social Insurance Bureau each month. In most cases, the first payment should be done by company-issued check. Funds can be automatically debited from the second month on.
- Late payments can result in a fine.
- If an employee suffers an injury at work, and occupational injury insurance has not been
paid, the company is liable for all the costs of treatment.
Housing fund registration
Registering with the Housing Fund Bureau typically requires the following steps:
- Opening an account with the Housing Fund Bureau. Companies usually need to bring the company business license and an ID document of the company’s legal representative.
- Applications are generally approved immediately. The company will receive a special account number for payments to the housing fund.
- Companies need to sign a contract between the Housing Fund Bureau, the company and an eligible bank to automate contribution payments. As with social insurance, the first payment needs to be made by a check issued by the company.
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Contributions from the employee and employer can vary considerably depending on the city in which the amounts of contribution are being made. For a company that has employees based in a number of cities around the country, this means that the overall cost to the company for an employee earning RMB 10,000 in one city may be quite different from someone on the same salary based in another city, although the cost in first-tier cities, such as Beijing and Shanghai, tend to be similar.
Companies based in large cities may find that if they employ an individual from a regional city in their head office, the employee will request to have social security paid in the city where the company is based rather than in their hometown. The reason is simple – the employee will be able to earn more money via the pension and housing fund.
The opposite situation occurs as well. For example, if an employee is relocated from Shanghai to Shenyang, they will likely request that social security continues to be paid in Shanghai. This is partly because the amount of pension and housing fund receivable in Shanghai will be higher. Additionally, the employee will probably consider the fact that it is unlikely the company will employ them permanently in Shenyang; there is a strong likelihood of a return to Shanghai at some point.
The social security contribution can affect the total compensation and benefits (C&B) cost quite considerably. Companies should take this variance into consideration when deciding where to locate their operations. Even within a single city, there are different percentages and bases for contribution of social welfare.
This article is adapted from “Human Resources and Payroll in China 2017-2018” A firm understanding of China’s laws and regulations related to human resources and payroll management is absolutely necessary for foreign businesses in China. This edition of HR and Payroll, updated for 2017/18, navigates China’s laws and regulations related to HR and payroll management – essential information for foreign investors looking to establish or already running a foreign-invested entity in China.
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