New Social Insurance Contribution Regulations – Implications for Shanghai Based Expat Employees Jeanette Yu (虞英倩), Partner, Head of Employment & Pension Practice Area Group, CMS, China；Ada Hua (华心雨), Junior Associate, CMS, China

Effective from 16 August 2021, employers in Shanghai must enrol foreign workers, including employees from Hong Kong, Macao, and Taiwan, in China’s national social insurance scheme — and pay contributions for them. Since the introduction of the PRC Social Security Law, which came into effect on 1 July 2017, as well as national regulations, including 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, Macao, Taiwan in Social Insurance Scheme in Mainland China, issued on 15 October 2011 and 1 January 2020 respectively, collectively known as the “National Regulations”, foreign employees as well as employees from Hong Kong, Macao and Taiwan, collectively known as “Expat Employees” (expat employees) in most places in mainland China, have been required to participate in the Chinese social insurance scheme.

However, until recently, since social insurance was managed at a regional level, this meant vast inconsistencies existed among different cities. For instance, in Shanghai for the past decade, it was not compulsory for expat staff working for companies registered in the city to participate in the Chinese social insurance scheme, 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 employees were provided with statutory basic pension insurance, medical insurance, and work-related injury insurance based on agreements with their organisations.

Meeting statutory requirements

With the expiration of the 2009 Notice on 15 August 2021, companies in Shanghai are now confronted with the question of how to handle the issue of the expat employees’ participation in the Chinese social insurance scheme. To provide a guideline, the Shanghai Human Resource and Social Insurance Bureau and Shanghai Medical Insurance Bureau jointly issued the Notice on Relevant Issues Concerning the Participation of Foreign Nationals, Persons with Overseas Permanent (long-term) Residence and Residents of Hong Kong and Macao, Taiwan in Social Insurance for Urban Workers during the Period of Working in Shanghai, which became effective on 16 August 2021 (2021 Notice). According to the 2021 Notice, expat employees working in Shanghai are required to participate in the Chinese social insurance scheme in accordance with the National Regulations.

Participation encompasses basic pension, medical, unemployment, work-related injury insurance, and maternity insurance. Expat staff from countries that have entered into bilateral treaties with mainland China may be exempted from paying social insurance premiums, according to bilateral social insurance treaties or arrangements. Employees who are residents of Hong Kong, Macao, and Taiwan, who remain enrolled in equivalent schemes, could be exempt from enrolment in the mainland Chinese social insurance scheme, if they provide relevant documentation confirming that they already participate in a social insurance scheme in his or her home region.

Expat employees, who previously participated in the Chinese social insurance scheme according to the 2009 Notice, can continue participating in pension, medical, and work-related injury insurance until they change their employer or resume their social insurance participation following an interruption of employment. For example, if a worker is unwell for an extended period, as long as the employment relationship with the employer is maintained, the employer is able to continue providing the Chinese social insurance to the employee.

Registration and enrolment

Currently, social insurance administrative centres in Shanghai are open for registration of expat staff eligible to join the statutory social insurance scheme. Companies in the city can apply for social insurance registration for their expat employees by submitting a standard application form, employment contract, copies of work permit, and the passport of expat employees.

Since this is a statutory requirement, the consent of expat staff is not required if the company they are employed by decides to provide the statutory social insurance on their behalf. For instance, after the social insurance registration has been completed, the organisation may pay social insurance premiums payable by the employer on behalf of the expat employee and withhold the premiums payable from the salary of the employee, unless the organisation agrees to bear the payments payable by the employee. However, if a company wishes to cancel any commercial insurance or similar benefits the expat employee receives due to the provision of statutory social insurance, the company should seek consent from the employee, except in circumstances where both parties have agreed otherwise in advance.

Compliance

After 16 August 2021, in Shanghai, failure to provide statutory social insurance for expat employees will be deemed as non-compliance with statutory laws. According to directions issued by the Shanghai Human Resources and Social Security Bureau, any dispute arising from expat employee’s social insurance issues will be handled in accordance with the National Regulations. Organisations found to have infringed the social insurance requirements may be required to make up the outstanding social insurance contributions for expat employees from October 2011, and for employees who are residents of Hong Kong, Macao, and Taiwan, from July 2011. According to the China Social Security Law, the following administrative penalties may be imposed if a complaint raised by an expat employee with a competent labour administrative authority is upheld or an infringement is uncovered during a routine inspection made by the regulating 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 failure to make social insurance registration for expat employees; 

• The company may be required to make rectification within a prescribed period by making the social insurance registration; 

• 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 to 3 times the overdue payments if it fails to make up the social insurance contributions within the prescribed period.

In addition, under PRC labour laws, if an expat employee is not able to enjoy social insurance benefits due to the reason that the organisation 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 organisation for losses.

Reviewing employment social insurance arrangements

To avoid potential risks, companies need to ensure they provide the requisite statutory social insurance for their expat employees hired after 16 August 2021. It is also prudent to communicate with expat staff about their rights and obligations arising from the issue of the contributions to Chinese social security. For expat employees who were previously provided with three types of social insurance, organisations may continue with the existing practice, except if their original social insurance contributions are interrupted or stopped due to a change in employment circumstances. For existing expat employees who were not previously provided with statutory social insurance, to avoid any potential misunderstandings and prevent disputes, companies should make the effort to provide relevant employees with statutory social insurance as soon as possible.

Note: : The information contained herein is intended to be a general guide only and is not intended to provide legal advice. This journal, its publisher and the HKIHRM do not assume any legal responsibility in respect of any comments provided in this article, which do not constitute legal advice and should not be taken or construed as such. Independent professional legal advice should be sought as necessary in respect of legal matters and issues raised in this article.