Some Key Changes to the State-Sponsored Social Benefits Programs in Mainland China

The Chinese government is encouraging greater participation in the state-sponsored social benefits schemes through legislative changes. These changes will impact multinational employers, with the most significant change taking effect on January 1, 2020.

There have been some significant legislative changes to the social insurance and housing fund schemes in the People’s Republic of China (PRC or mainland China) that will affect multinational employers across the country.

Changes in the Social Insurance Scheme

Pursuant to the Interim Measures for Hong Kong, Macao, and Taiwanese Residents to Participate in Social Insurance in the Mainland (Measures), which the Ministry of Human Resources and Social Security (MOHRSS) and the National Medical Security Administration recently released, employers in the PRC will be required as of January 1, 2020, to enroll their employees who are residents of Hong Kong, Macao, and Taiwan (HMT) in the five state-sponsored social insurance schemes. These include pension insurance, medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance. Employers and their HMT resident employees will be required to contribute their respective portions of the social insurance premiums in accordance with local regulations.

Background

Notably, enrollment in the social insurance scheme has been mandatory since 2011 across the PRC for local PRC residents and for “foreigners” working in the PRC (though Shanghai has never enforced the enrollment of foreigners).

The Measures build on the PRC Social Insurance Law, which took effect on July 1, 2011, and established the first national, basic social insurance framework for employees across mainland China. The Social Insurance Law requires that all employers in the PRC enroll each employee in five insurance programs. Before the Social Insurance Law, PRC law did not mandate that any “foreigners” enroll in the social insurance programs.

On October 15, 2011, the Interim Measures on Participation in Social Insurance by Foreigners Working in China (2011 Interim Measures), which were issued by MOHRSS, took effect. The 2011 Interim Measures require that the PRC employers or sponsors of foreign employees enroll them in all five social insurance programs within 30 days of obtaining work permits for them.

Article 2 of the 2011 Interim Measures defines a “foreigner” as a person who is not a PRC national, holds a PRC work permit (such as a work permit for foreigners, foreign expert certificate, or permit for permanent foreign journalists) and residence permit (permanent or temporary), and is employed lawfully in China. This definition includes foreigners who are officially employed overseas (outside of mainland China) but who are seconded to PRC companies. Notably, HMT resident employees are absent from the definition of a “foreigner” in the 2011 Interim Measures. Thus, the Measures fill a longstanding gap as to whether HMT resident employees can or should be enrolled in the social insurance scheme as a matter of law.

The Details Around Enrollment of HMT Residents

According to the Measures, if an employer employs HMTs, then the employer should provide the valid identification document of the HMT resident (e.g., Home Return Permit/Mainland Travel Permit for Hong Kong and Macao Residents), and the employment contract entered into between the employer and the HMT resident, along with other application documents, to register the HMT resident in the social insurance scheme.

Notably, if an HMT resident leaves the PRC before meeting the mandatory pension requirements, the individual’s social insurance personal account will be retained; and if the HMT resident returns to the PRC to work or live, and continues to pay, the payment period will be calculated cumulatively. However, if the HMT resident does not intend to return to the PRC, he or she may apply in writing to withdraw the balance of his or her individual pension account in a lump sum payment when he or she departs China, and thereby terminate enrollment in the social insurance scheme.

The Measures provide that HMT residents can be exempted from enrollment in the basic pension and unemployment insurance schemes in the PRC if they have participated in the local social benefits schemes in HMT, continue to maintain social insurance relations in those jurisdictions, and have proof of participation. It is this partial exemption provision that suggests that enrollment will be mandatory and enforced, even in Shanghai, where the local authorities still do not mandate the enrollment of expatriate employees in the social insurance scheme.

Broader Voluntary Enrollment of Expatriate and HMT Resident Employees in the Housing Fund

In 2012 the PRC government issued the Measures for Relevant Treatments Enjoyed by Foreigners with Permanent Residency Status in China (2012 Measures), which provide that foreigners who obtain a permanent residence permit in the PRC can be enrolled in the housing fund scheme. However, the PRC government has not provided any regulation or guidance at the national level that explicitly or directly regulates the issue of whether foreign employees without permanent residency can be enrolled in the housing fund scheme. In 2006, the PRC Ministry of Housing and Urban-Rural Development (MOHURD) issued the Notice on Several Specific Issues regarding Housing Fund Management (2006 Notice) and stipulated that “employees” in the Regulation of Housing Fund Management (a regulation on which the PRC housing fund scheme is mainly based) does not include HMT residents or other expatriates. However, this lack of inclusion does not necessarily equate to a complete prohibition.

In 2017, MOHURD issued another notice (2017 Notice) – without abolishing the 2006 Notice – and stipulating that HMT resident employees can be enrolled in the housing fund scheme in accordance with the Regulations on Housing Fund Management. Some local governments, such as the Beijing government, have interpreted the 2017 Notice as suggesting an intent of the national government to include more employees, including foreign employees, in the housing fund scheme. Thus, as the PRC national government does not explicitly prohibit foreign employees, which for these purposes includes HMT residents, from participating in the housing fund system, the interpretation permits flexibility and discretion for local governments to handle this issue as they choose.

Some local governments have issued local regulations that allow foreign employees to be enrolled in the housing fund scheme, while others, like Chengdu, still stick strictly to the 2012 Measures and only allow foreign employees with PRC permanent residency status to enroll in the housing fund scheme.[1]

In contrast, in cities like Beijing, Shanghai, Tianjin, and Shenzhen, for example, employers can enroll their locally employed expatriate and HMT resident employees in the housing fund scheme.^[2] Notably, the mutual consent of the employer and the employee is required. For those employers that would like to provide an additional benefit to their expatriate and HMT resident employees who have or would like to reside in the PRC and purchase or fix up their homes, providing this benefit may be attractive. However, for those employers that are not interested in taking on this additional cost or providing this supplemental benefit, they are not required to do so, even if a foreign employee makes the request. In general, the practical implementation of the housing fund scheme requires the employer’s express agreement, and a foreign employee cannot make housing fund contributions on his/her own.

Obtaining a reimbursement of the housing fund contributions if the foreign or HMT resident employee leaves the PRC with no intent to return is addressed in some of the local regulations. According to the guidelines posted online by the Shanghai Center, foreign employees can obtain a refund of their individual housing fund contributions if their employment ends and they are going to leave the country.^[3] In contrast, pursuant to the Shenzhen and Tianjin local regulations, a foreign employee can obtain a refund of both his or her personal contribution and the employer’s contribution if certain conditions are met. ^[4] In Shenzhen, these conditions include the termination of the employment relationship and not entering into another employment relationship in Shenzhen or leaving the country.^[5]

In sum, these regulations demonstrate that the PRC government is encouraging greater participation in the state-sponsored social benefits schemes. As enforcement around enrollment and proper contribution levels for the social insurance and housing fund schemes continues to increase, particularly in light of the inclusion of multinational companies in the social credit system, the risks around noncompliance will also continue to escalate.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the author, K Lesli Ligorner, in our Beijing and Shanghai offices.