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Foreign employees and businesses employing foreign individuals in Shanghai must be aware of the changing regulation in relation to the foreigners’ social insurance. The special provision on staff social insurance contribution that has been successfully implemented in Shanghai is set to expire on 15 August 2021. This article looks into the matter in a greater detail.
“Interim measures for foreigners working in China to participate in staff social insurance” was issued in 2011 by the Central Government and stipulated that foreign employees in China shall pay staff social insurance in accordance with this regulation. However, some regions have the authority to make local adjustment on the policy.
In 2009, Shanghai Municipal Human Resources and Social Security Bureau issued a regulation No. 38 [2009], which validity was extended by regulation No. 301 [2016] in the year 2016. The above document has some conflicts with the regulations issued by the Central Government. It has now been confirmed that such regulation will expire after 15 August 2021 without any renewal.
Prior to the expiration, these were the two main differences in relation to those documents:
1. It is compulsory to make the social contribution according to the nation-wide regulation, while it is not compulsory according to the Shanghai local policy.
2. Expats do not need to contribute to all insurance categories in Shanghai according to the local policy:
|
Nation-wide regulation |
Shanghai local policy |
|
|
Basic retirement insurance |
Yes |
Yes |
|
Basic medical insurance |
Yes |
Yes |
|
Injury insurance |
Yes |
Yes |
|
Unemployment insurance |
Yes |
No |
|
Maternity insurance |
Yes |
No |
(From the table above, maternity insurance and basic medical insurance have been combined and levied together from the end of 2019.)
Therefore, it becomes compulsory to make staff social fund contribution after 15 August 2021 in Shanghai. The base for calculating social security contributions is the prior year’ average salary of the staff, and the total contribution ratio is 37.66% of that base. From this ratio, the company’s part is around 27.16%, while the individual’s part is 10.50%.
Furthermore, the authorities have stated the lower and upper limits on the base salary from which the social security contribution is calculated. As such, the lower limit basis is set at RMB 5,975, while the upper limit is set at RMB 31,014.
The table below presents two examples showing the additional costs companies and individuals are facing now in accordance with the updated regulation. We assume that up until this point a company and an individual did not make social insurance contributions in Shanghai.
Case 1. Monthly gross salary is RMB 20,000
Case 2. Monthly gross salary is RMB 40,000 (it exceeds RMB 31,014)
|
Category |
Case 1 (RMB) |
Case 2 (RMB) |
|
Gross salary |
20,000 |
40,000 |
|
The base for calculating social security contributions |
20,000 |
31,014 |
|
Social Security Insurance (Individual part) |
2,100 |
3,257 |
|
Social Security Insurance (Company part) |
5,460 |
8,467 |
|
Total cost |
7,560 |
11,724 |
Assuming that a foreign individual’s salary exceeds RMB 31,014 per month (or RMB 372,168 annually) which is the upper cap, the social security contribution is calculated based on the upper cap amount and not the actual salary.
However, the law enforcement standards in practice vary from place to place. In Shanghai, it adopts the "inform-enforce" rule, which means that foreign employees who report or complain to local social insurance bureau can require the employer to pay social insurance dating back as long as 2011. In other regions employers must proactively pay social insurance for foreign employees. If you would like to know more about the most recent financial policy developments in China, please contact us at info@phcadvisory.com.
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