How to Deal with Expat Employees' Participation in the Chinese Social Insurance Scheme in Shanghai
After the national regulations - Interim Measures for the Participation of Foreigners Working in China in Social Insurance Scheme and Interim Measures for the Participation of Residents of Hong Kong and Macao, Taiwan in Social Insurance Scheme in Mainland China have been issued on 15 October 2011 and 1 January 2020 (collectively, “National Regulations”), foreign employees as well as employees from Hong Kong, Macao and Taiwan (collectively, “Expat Employees”) in most places in China are required to participate in the Chinese Social insurance scheme.
But in Shanghai, in the past decade, it was not compulsory for companies and Expat Employees to do so according to the Shanghai local policy - Notice on Several Issues Concerning the Participation of Foreign nationals working in Shanghai, Persons with Overseas Permanent (long-term) Residence and Residents of Hong Kong and Macao, Taiwan in Social Insurance for Urban Workers (“2009 Notice”), which was issued on 10 October 2009 by the Shanghai Human Resource and Social Security Bureau. In practice, most Expat Employees working in Shanghai were not provided with the Chinese social insurance while some of them were only provided with statutory basic pension insurance, medical insurance and work-related injury insurance based on agreements with their companies.
With expiration of the 2009 Notice on 15 August 2021, companies in Shanghai are facing the question on how to handle the issue of the Expat Employees’ participation in the Chinese social insurance scheme.
Statutory requirements
According to the National Regulations, all Expat Employees working in China hired by Chinese employers must participate in Chinese social insurance scheme including basic pension insurance, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance, except if an Expat Employee is qualified to be exempted from paying any social insurance premiums according to any bilateral social insurance treaty or arrangement. Until now Chinese government has signed bilateral social security treaties with Germany, Switzerland, Netherland and Spain, etc.
Since the Shanghai local government has no intention to extend its local policy, legally speaking, after 15 August 2021, companies in Shanghai shall comply with the statutory requirements and provide Chinese social insurance for their Expat Employees according to the National Regulations.
What can companies do for their Expat Employees?
Currently all competent social insurance administrative centers in Shanghai are open for registration of Expat Employees in the statutory social insurance scheme. Companies in Shanghai can already apply for social insurance registration for their Expat Employees by submitting a standard application form, employment contract, copies of work permit and passport of the Expat Employees.
Since this is a statutory requirement, legally speaking, the consents of the Expat Employees are not required if the companies decide to provide the statutory social insurance for them. I.e., after the social insurance registration has been completed, the company may start to pay social insurance premiums payable by the employer for the Expat Employees and withhold the social insurance premiums payable by the employee from the salaries of the Expat Employees, except if the company agrees to also bear the payments payable by the employee. However, if the company wants to cancel any commercial insurance or similar benefits of the Expat Employee due to the provision of statutory social insurance, it shall obtain the consents of the Expat Employee except if the parties agree otherwise in advance.
What are the risks, if companies fail to provide statutory social insurance for their Expat Employees?
After 15 August 2021, in Shanghai, failure of providing statutory social insurance for Expat Employees may be deemed as incompliance with statutory law. According to the China Social Security Law, the following administrative punishments may be imposed if a complaint is raised by an Expat Employee at the competent labor administrative authority or if found out in a regular inspection made by the authority:
- The person directly in-charge or other directly liable persons of the company may be imposed with a fine of RMB 500 to RMB 3,000 due to failing to make social insurance registration for the Expat Employees;
- The company may be required to make rectification within a prescribed time period by making social insurance registration and making up outstanding social insurance contributions for the Expat Employees;
- The company may be required to pay late payment fees at the daily rate of 0.05% of overdue payments; and
- The company may be required to pay a fine amounting to 1~3 times of the overdue payments if failing to make up the social insurance contributions within the prescribed time period.
In addition, under PRC labor law, if an Expat Employee is not able to enjoy social insurance benefits due to the reason that the company fails to provide the social insurance and such social insurance is not able to be made up, the employee is entitled to claim compensation against the company for losses.
Actions to be taken by companies
To reduce potential risks, companies may wish to provide statutory social insurance for their Expat Employees who are hired after 15 August 2021.
As for the existing Expat Employees who were not provided with statutory social insurance in the past, if a company decides to provide them with statutory social insurance from now on, before taking action, the company may wish to check with the competent social insurance administrative centers in advance about the updated policies because until now the authority at the municipal level has not issued any implementing policies about how to handle the social insurance issues for Expat Employees who did not participate in the social insurance scheme in the past and whether the making-up is necessary, etc. and different social insurance administrative centers may have their own practices.
