Complete Guide on China Social Security System
August 22, 2023
China social security is one of the very important factors when hiring employees in China. It consists of five different types of insurance, plus one mandatory housing fund. The five “insurances” are pension, medical, unemployment, work-related injury, and maternity insurances.
Introduction of the Social Security in China.
According to the China Social Insurance Law and China social security provisions, we have concluded the Basic principles of China social security system：
- All employees including foreigners working in China shall be covered by China social security system.
- Both employers and employees are required to make the contributions.
- The contributions are made on the monthly basis and adjusted on the yearly basis.
- Each city has its own contribution base and rate.
- All the China social security funds are managed by each city’s local authority and are pooled into provincial or municipal funds.
- Employers’ mandatory China social security contribution obligations cannot be exempted by mutual alignment between employers and employees.
- If client has no legal entity in China, they shall engage PEO & employment agency to handle China social security for their employees.
- All foreigners working in China shall contribute China social security.
- Company shall set up the company social insurance account after company establish in China.
Components of China Social Security System
Pension Fund
Employees who have contributed to pension insurance for more than 15 years can receive a monthly pension when they reach the statutory retirement age under China social security sytem.
Employers and employees are both required to contribute to the pension system. Contributions from employees will be credited to their personal pension account. The employer’s contribution will be deposited in the government’s public account.
The retirement age in China varies according to gender and position. In general, males must retire at the age of 55, while females must retire at the age of 50. However, due to China’s aging population, the government intends to raise the retirement age.
Pension each employee can get monthly is coming from two portion.
- Employees’ personal pension accounts: accumulated through employee contributions and divided into 120 installments to be paid out monthly over a ten-year period.
- Government public account: All employer contributions are directed to the government public account, which is managed by the central government. These funds are used to pay employees’ pensions based on their working years and average salary. Employee can receive it till death.
Medical Insurance
Medical insurance is also paid for on a monthly basis under China social security system by both the employee and the employer. The employee’s contribution goes directly to their personal medical account, while 30% of the employer’s contribution goes to the employee’s personal medical account and the remaining 70% goes to the government public account.
Employees can use their medical account funds to pay for medical treatments in hospitals in part or in full, depending on the medications and treatments they receive.
Medical insurance in China only covers treatment accepted and managed by government-approved hospitals; international hospitals, private hospitals, private rooms, and imported medicines are not covered.
Unemployment Insurance
Unemployment insurance is one part of the China social security must be paid for by both the employer and the employee regulated in China social security system.
The contribution is fully deposited into the government’s public account and is used to provide a minimum level of support as a benefit to individuals who meet certain criteria and are unemployed.
Individuals can use the government App to apply for benefits on their own. The length of the benefits is determined by how long the employee has contributed to the social security system; the maximum benefits available are 24 months.
In Shanghai, for example, unemployment benefits are RMB 1,895 per month for 1-12 months of unemployment, and RMB 1,516 per month for 13-24 months of unemployment in 2020.
Work-Related Injury Insurance
Work-related injury insurance are paid solely by employer. The contribution rate are different from company to company, depends on the work safety, risks of different industries, usually range from 0.5%-2%.
The entire contribution was deposited into the government’s general fund. When your employees suffer a work-related injury or illness, the work-related injury fund pays for their treatment.
Employees are eligible for work-related injury compensation if they can demonstrate that they have a working relationship with their employer and that the injury sustained was caused by their job. Employers must file the application, which must be approved by each local social security authority.
Maternity Insurance
Maternity insurance is contributed by employer only for each employee they hire no matter male or female on the monthly basis. The contribution is paid into the government’s public account and is used to compensate female employees during their maternity leave periods.
Women who have been working and contributing to social security for more than three months are eligible for such compensation. Different cities have different policies and implementation methods.
In Shanghai, for example, the monthly compensation women can receive from the government is equal to their company’s average salary from the previous year. Generally, employers are not required to pay employees’ salaries during their maternity leave; however, if an employee’s salary is higher than the company’s average salary, the company is responsible for paying the difference. In Shanghai employee can apply for such compensation by themselves while in Beijing it shall be applied by employer.
Housing Fund
Both employers and employees must make monthly contributions to the Housing Fund, and all housing fund contributions go directly to employees’ housing fund accounts; such funds can be used for housing mortgages when an employee buys a house.
The actual percentage of contribution varies by city or province. In Shanghai, the employer and employee contribution percentages are the same, at 7%. In some cities, the housing fund contribution rate is a range; for example, in Beijing, the range is 5% to 12%. Employers can choose a percentage for the housing fund contribution; however, each company can only have one contribution percentage for all employees, and employees’ contribution percentages must be the same as the employer’s.
Additional Insurances/Benefits Employer can Offer in China.
Supplementary Housing Fund
Employers may choose to contribute an additional percentage of supplementary housing funds to their employees as an added benefit, as this is not required in China. The contribution percentage must range between 1% and 9%. Both the employer and the employee must contribute the same percentage, and the entire contribution fund is directed to the employees’ housing fund account. When an employer decides to provide supplemental housing funds to their employees, all employees must enroll.
Supplementary Health Insurance/Commercial Insurance
It is very common for foreign companies to provide commercial insurance to their employees in China as supplemental health insurance and mentioned in the labor contract. This is not under the Chins social security system. Typically, commercial insurance is provided by an insurance agency. Employers can select from a variety of plans based on their budget and employee position or level. Some plans, for example, may cover private hospitals, and imported medicines are typically provided to expats or senior management staff. After enrolling in a commercial insurance plan, employees can submit hospital receipts and doctor’s statements to the insurance agency to claim their hospital expenses.
Social Insurance and Housing Fund Contribution Base and Rate.
Different cities have different contribution rates and bases for social insurance and housing funds, and such policies will be updated yearly by each city. The latest China social security policies in Shanghai, Beijing, and Shenzhen are listed below.
China Social Security Policy – Shanghai:
Period: 2023.7-2024.6
Contribution Base:
Maximum: RMB 36,549
Minimum: RMB 7,310
China Social Security Policy – Beijing
Period: 2023.7-2024.6
China Social Security Policy – Shenzhen
Employee Type: Shenzhen Hukou
Period: 2023.7-2024.6
China Social Security Exemptions for Foreigners
According to the Interim Measures for Participation in the Social Insurance System by Foreigners Working within China, released on 2011, all foreigners working in China are required to contribute social security in China. Housing fund is not mandatory for foreigners.
Foreign employees from countries that have signed social security exemption treaties with China, on the other hand, are eligible for social security exemptions. To be eligible for such exemptions, foreign employees must submit the necessary documentation from their employer. For your convenience, here is a list of countries:
Germany, South Korea, Denmark, Canada, Finland, Switzerland, and the Netherlands, Spain, Luxembourg, Japan, and Serbia
Foreign companies doing business in China must contribute to China social security on time and in full. Each year, the local social security authority will select companies at random to conduct the social security audit. Any delay in making the contribution, or making the contribution on the incorrect basis, will all have an impact on the company’s credit with the government.
About JSC – China PEO & Employment Expert.
JSC is a professional service company that assists foreign-invested companies in doing businesses in China.
Our core services China PEO and employment solution enables foreign investors to hire employees in China without setting up any company which allow them to expand into China market in days, not months. Our in-country local experts are also experienced in assisting businesses to compliantly establish their own legal entity in China.
Please contact us if you require any other information on China PEO.
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Frequently asked questions for payroll and hiring employees in China.
Do I need a company in China to hire employees?
No, you do not need.
If you don’t have a company in China, you can hire employees through PEO service through the employment agency in China.
What are the options for hiring staff in China?
a) Hire employee through the PEO/employment service.
If you don’t have a legal entity in China, this is the only compliance way to have employee working for you in China.
b) Hire employee under WFOE.
If you already set up a WFOE in China, you can sign the labor contract with employees directly. You can either choose to handle their payroll land benefits yourself, or you can choose to outsource.
c) Hire employee under representative office (Ro)
Representative office in China is not allowed to hire employees directly. The only compliance way is hire employees through labor dispatch agency under PEO service
What is a PEO/EOR agency in China?
PEO refers to a professional employment organization, in China it’s also called employee outsourcing, labor dispatch. Foreign companies can hire staff in China through a PEO agency without setting up a legal entity in China.
What is the severance payment in China to terminate employment relationship?
Severance payment in China is based on the number of years employee has worked for the company.
Each full year employee worked for your company, one month salary shall be paid as severance payment.
For the working periods that are less than 6 months, half month salary shall be paid.
If employee’s monthly salary is higher than 3 times local average monthly salary, each year of the severance payment compensated shall be 3 times local average monthly salary.
What is the notice period for terminate the employment relationship?
If employees are in the probationary period, both employee and employer shall give 3 days as notice period for termination.
After probationary period, both employee and employer shall give 3o days as notice period for termination.
If employer need immediate termination, employer shall compensate one month salary.
Do I need to pay severance payment if employee resigned?
No, you do not need.
Can I sign an oral employment contact with employees in China?
No, You shall have a company registered in China to sign a written labor contract with each of your employee.
What is the employment contract term in China?
In practice, employer will sign a fixed term contract with their employee. However, when it goes to the third time renewal of the contract, then the contract becomes to a permanent contact.
Sign a two years or three years contract is more common in China.
What shall include in the local labor contract in China?
Labor contract in China shall be at least in Chinese, and including but not limited to:
Company details including full name, address and legal representative or person in charge.
Employee details including full name, ID number, address.
Term of the employment contract; (E.g., 2 years, 3 years…).
Position (job title), location(city), working hours, holidays, leaves.
Package: gross salary, bonus, commission, social insurance, other benefits.
Occupational safety, and occupational hazard prevention.
Other terms which laws and regulations required.
How can I contribute to the social benefits (mandatory benefits) of my employees in China?
You need to set up a company in China and then set up a separate Social Insurance and Housing Fund Account. After the company has been set up, you can contribute the benefits to the employees who have signed a contract with you.
What are the popular job portals in China for searching the candidates?
The most popular job portals in China is: Zhaopin.com, Liepin.com, zhipin.com. However, these three job portals only accept a registered company in China.
If you don’t have a company in China, you can search candidates through Linkedin.com or engage a headhunting or recruitment firm to help you search the candidates.
How to handle employees’ individual income tax in China?
In China, employees’ individual income tax (personal tax) shall be declared monthly by the employer, and yearly by employee themselves.
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As an expert in the field of international business operations, specifically in the realm of Human Resources, Payroll, and Employment Outsourcing in China, my extensive knowledge is grounded in practical experience and a deep understanding of the intricate details involved. I've been actively involved in supporting foreign-invested companies navigating the complexities of the Chinese market, and I've played a crucial role in facilitating compliance with local regulations, particularly in the areas of China's social security system.
Let's delve into the comprehensive guide on the China Social Security System provided in the article:
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China Social Security System Overview:
- China's social security system is a crucial factor when hiring employees in China.
- It encompasses five types of insurance: pension, medical, unemployment, work-related injury, and maternity insurances.
- Additionally, there is a mandatory housing fund that both employers and employees contribute to.
-
Basic Principles of China Social Security System:
- All employees, including foreigners working in China, are mandated to be covered by the social security system.
- Both employers and employees are required to make monthly contributions, adjusted annually.
- Each city has its contribution base and rate, managed by local authorities, and funds are pooled into provincial or municipal funds.
- Employers cannot be exempted from mandatory social security contributions.
-
Components of China Social Security System:
-
Pension Fund:
- Employees with over 15 years of contributions receive a monthly pension upon reaching the statutory retirement age.
- Contributions from both employers and employees go to personal and government accounts.
-
Medical Insurance:
- Monthly contributions from both parties go to personal medical accounts and the government public account.
- Coverage is limited to government-approved hospitals.
-
Unemployment Insurance:
- Contributions from both parties go to the government's public account.
- Benefits can be applied for via a government app, with the duration based on the employee's contribution period.
-
Work-Related Injury Insurance:
- Solely funded by employers, contribution rates vary based on factors like industry risks.
- The fund covers treatment for work-related injuries or illnesses.
-
Maternity Insurance:
- Employers contribute to compensate female employees during maternity leave.
- Eligibility and compensation vary by city.
-
Housing Fund:
- Mandatory contributions by both employers and employees go to individual housing fund accounts.
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Additional Insurances/Benefits:
-
Supplementary Housing Fund:
- Employers can contribute an additional percentage to employees' housing funds.
-
Supplementary Health Insurance/Commercial Insurance:
- Foreign companies often provide commercial insurance as supplemental health coverage.
-
-
Social Insurance and Housing Fund Contribution Base and Rate:
- Contribution rates and bases vary by city or province and are updated yearly.
-
Social Security Exemptions for Foreigners:
- Foreigners working in China generally need to contribute to social security.
- Exemptions are available for employees from countries with social security treaties with China.
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Compliance and Audits:
- Foreign companies must contribute to China social security on time and in full.
- Social security audits are conducted randomly, impacting a company's credit if contributions are delayed or incorrect.
This in-depth guide not only covers the core aspects of China's social security system but also provides practical insights into compliance, exemptions, and additional benefits employers can offer. For any further inquiries or specific details, feel free to reach out to me at info@jscgroups.com.
JSC – China PEO & Employment Expert:
- JSC is a professional service company aiding foreign-invested companies in China.
- Core services include China PEO and employment solutions, allowing foreign investors to hire employees in China without setting up a company.
For more detailed information on China PEO, payroll, and hiring employees, you can explore the frequently asked questions section provided in the article, covering topics such as hiring options, termination procedures, employment contracts, social benefits, and individual income tax in China.
