China adopted a mandatory system of pro rata hiring of disabled persons. According to the PRC Disabled Persons Security Law and the Rules of Employment of Disabled Persons, companies are obliged to hire disabled persons in proportion of no less than 1.5% of their total staff. If any company fails to hire a sufficient number of disabled persons as required by statutory law, it is obliged to make contributions to the disabled persons’ employment security fund (the "Fund".).
In the past, contributions to the Fund were subject to local regulations. Some locations such as Beijing and Shanghai issued relevant local regulations. Some locations, such as Sichuan Province, did not.
On 9 September 2015, the PRC Ministry of Finance, the PRC State Tax Bureau and the China Disabled Persons Federation jointly issued the Methods on Levying, Use and Management of Disabled Persons’ Employment Security Fund (the “Methods”). These Methods apply nationalwide. Based on the Methods, all companies in the country should make contributions to the Fund if they do not hire a sufficient number of disabled persons.
1. As required by the law, disabled persons hired by a company shall be no less than 1.5% of its total staff and the exact proportion applicable shall be subject to the decision of the local government at the provincial level where the company is located. Currently in Shanghai, the proportion is no less than 1.6%; in Beijing, it is no less than 1.7%.
2. If a company fails to hire disabled persons in the proportion required by its local government, the company will be obliged to pay contributions to the Fund. However, the number of disabled persons which have been hired by the company will be taken into consideration when calculating the contribution amount.
3. Fund contribution amounts will be calculated as follows:
Payable amount = (number of total staff of the previous year x rate required by the local government - number of hired disabled persons) x average annual salary of the employees in the previous year
The total staff of a company refers to the employees who have signed employment contracts with a term of one year or more. Seasonal employees will be converted to the number hired on a yearly basis. Seconded employees shall be included in the total number of employees.
The average annual salary of the employees of a company shall be calculated on the basis of the total payroll of all staff.
4. The disabled persons hired by a company may be taken into consideration when calculating the Fund contribution payable by the company if the following circumstances are fulfilled:
(1) The disabled person holds a PRC Certificate of Disabled Person which indicates that such person has visual impairments, hearing disabilities, speech disabilities, physical handicaps, intelligence disabilities, mental disabilities or multiple disabilities, or a person holding a PRC Certificate of Disabled Army Man (Grade 1 to Grade 8).
(2) The company signed an employment contract with the disabled person for a term of at least one year, pays a salary not less than the minimum monthly salary of employees as announced by the local government, and duly and fully pays social insurance and housing fund contributions for the disabled employee according to law.
Disabled persons holding a PRC Certificate of Disabled Person of Grade 1 or Grade 2 or a PRC Certificate of Disabled Army Man of Grade 1 to Grade 3 shall be counted as two disabled persons. Disabled persons hired by the company at the locations other than its registered address shall be counted as well.
5. Companies shall duly declare the status of hiring disabled persons to the competent social security administrative authority every year. If a company fails to declare within the prescribed time limit, the company shall be deemed as not hiring disabled employees. In practice, the declaration period varies among different locations. For example, in Shanghai, the declaration period is from 1 July to 31 July each year. In Beijing, the declaration period is from 1 April to 30 April.
6. Fund contributions are levied by the competent local tax bureau on a monthly basis. In practice, contributions are paid together with the social insurance contributions for the employees either on a monthly basis or in a lump sum once a year, subject to the practice of different locations.
Based on the Methods, in the future, all companies nationwide must either hire disabled persons or pay Fund contributions. The competent social security authority is entitled to inspect companies according to law. According to the Rules of Employment of Disabled Persons, if a company neither hires disabled persons nor pays Fund contributions, the competent administrative authority may give warning and ask for rectification within a prescribed time limit. If a company fails to pay the Fund contributions as required by the competent administrative authority, in addition to outstanding payments, the company may be required to pay late payment fees at the rate of 0.5% per day of delay.