The Beijing perspective

In China, there are five types of statutory social insurance that must be paid into the state social insurance fund together by both the employer and employee. These include basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance.

PRC law requires the employer to pay the contributions of work-related injury insurance and maternity insurance in full and split the contributions of the remaining three with the employee. The contribution is calculated on a base which is generally the average amount of the employee's salaries in the last year. In most regions in China, this calculation base for each employee will be adjusted every January.

As per the state law, the employer must pay a certain percentage of the base as its contribution while the employee shall pay their percentage as well, which is deducted from the employee's pre-tax income.

Overall, there are two factors, i.e. the social insurance base (Base) and the proportion of each party's responsibility (Proportion), that together determine the contribution amounts. However, the application of these two factors varies among different regions of China due to different local standards published by local governments.

Beijing as an example

In Beijing, the Base for an individual employee is the individual's average monthly salary (pre-tax) last year from January to December, and the Base has an upper limit and a lower limit. The upper limit applies to those whose average salaries of last year exceed three times the amount of Beijing's average salary for employees in the last year (i.e. Rmb17,379). Similarly, the lower limit of the Base is 40% of the Beijing average for pension insurance and unemployment insurance, and 60% of the Beijing average for the other three types of social insurance.

The Proportion of contribution for the employer and employee, respectively, is as follows:

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Foreign employees

From 2011, Chinese legislation began to require employers to make social insurance contributions for non-Chinese citizens working in China. Since then, local governments have published a series of policies on the non-Chinese citizen's social insurance contribution. Employers must pay attention to their local policies so as to be compliant.

To make sure the contribution amount is calculated correctly, the employer's HR department shall consult with the local social insurance centre to confirm the calculation figures are in line with the local regulations. Alternatively, the employer can engage a professional service vendor, for example a law firm or an HR agency (such as FESCO and CIIC), to assist in handling the social insurance calculation.


Linda Liang, King & Wood Mallesons, Beijing

The Shanghai perspective

It is true that underpaying social insurance is a major cause of workplace unrest in China. A recent example is in in Dongguan city, Guangdong province in April 2014, where more than 10,000 workers at the Yue Yuen Shoe Factory went on strike after finding out that the employer had been underpaying their social insurance contributions. The workers demanded full payment of the contributions, as well as salary increases and renegotiation of labour contracts. The strike and the related settlement reportedly cost Yue Yuen up to US$27 million. It is therefore crucial that employers fully comply with the social insurance contribution requirements.

China began to set up its social insurance programmes in the 1990s. On July 1 2011, the PRC Social Insurance Law (中华人民共和国社会保险法) (SIL) took effect and established a national basic social insurance framework for employees across China. The law requires that all employers in China enrol each employee in five social insurance programmes: basic pension; basic medical insurance; work-related injury insurance; unemployment compensation; and maternity insurance.

Under the SIL, both employers and employees must contribute to the five social insurance programmes at the place where the employers are located. The contribution base and rates are subject to local regulations and rules, and vary among cities. In Beijing and Shanghai, for instance, rates are set at the municipal level. In other localities, rates are set either at the provincial level or at the city level.

The figure below shows the current monthly contribution rates for employers (ER) and full time employees (EE) under the standard five social insurance programmes in Shanghai: