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China in focus - China Implements A More Regulated Social Insurance Regime

  • China


    What has happened?

    The PRC Social Insurance Law was adopted by the Standing Committee of the National People’s Congress on 28 October 2010 and will come into effect on 1 July 2011. It will be the first time China promulgates a comprehensive law to regulate the five social insurance schemes (i.e. basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance). Currently, provisions regarding the five social insurances are scattered throughout a number of  regulations and rules both at national and local levels. 

    Why is this relevant?

    The Social Insurance Law introduces a range of new provisions including changes to the way social insurance premiums are collected and the way social insurance funds are managed. It also imposes harsher penalties for non-compliance.

    This new law establishes a social security system with extensive coverage, which is transferable for cross-region employment. It is aimed at removing obstacles to the free flow of human resources. It further regulates and clarifies the rights and obligations of employees and their employers.

    It is anticipated that the promulgation of this new law will increase employees’ awareness  of their legal rights, especially the rights over social insurances. Employers should be fully aware of their new obligations and be prepared for a more regulated legal regime. 

    What is the impact?

    • Wide Coverage. The new law covers all employing entities and individuals within the territory of China. All employees, self-employed individuals with no employees, non-full time employees and flexible employment individuals are covered by the new law.

    The basic pension insurance and basic medical insurance covers all residents in cities and rural areas. The work-related injury insurance, unemployment insurance and maternity insurance covers all employing entities and employees.

    Foreign employees in China are entitled to the social insurance benefits granted under the new law. At present, almost all of foreign employees are unable to participate in social insurance schemes in China. This has long been a concern for foreign employees, especially for those who are not covered by social insurance in their home countries. However, how to implement these measures will be subject to further implementing rules to be issued.    

    • Transferable premiums. One of the major changes under the new law is to allow the free transfer of social insurance premiums when an individual is employed across cities/provinces. The contribution years will be calculated accumulatively and the basic pensions will be paid in an integrated way when the statutory retirement age is reached.
    • Flexibility for contribution to basic pension insurance at retirement age. The new law provides that if the accumulated contribution period of an employee has not reached 15 years by the time such employee reaches the statutory retirement age, he/she may choose to continue paying contributions until the contribution period of 15 years has been reached (in order to be eligible to receive the monthly basic pension). Alternatively, he/she can choose to participate in the new form of social pension insurance scheme and enjoy the relevant pension insurance benefits in accordance with the regulations issued by the State Council from time to time.
    • Changes to work-related injury insurance. There are three major changes to the work-related injury insurance:

    - firstly, three items which were previously borne by employers are now to be paid out of the work-related injury insurance, these are: food allowance for hospitalization, travel and accommodation expenses for medical treatment outside of the location of the social insurance pooling fund; and the lump-sum medical allowance in the case of expiry or termination of employment contracts.    

    - secondly, if an employer fails to contribute to the work-related injury insurance scheme, the employer will be liable to pay insurance benefits in the case of work-related injury. If the employer fails to pay, the work-related injury insurance fund will initially reimburse such benefits to the employee. The fund will then recover such benefits from the employer.

    - lastly, if the work-related injury is caused by a third party but such third party fails to pay the medical expenses or such third party cannot be identified, the insurance benefits will initially be reimbursed by the work-related injury insurance fund. The fund will then recover such benefits from the third party.

    These measures will alleviate the burden on employers in the case of work-related injuries, whilst at the same time provide better protections to employees in such situations.

    • Strong mandatory collection measures. The issue of how to go about collecting social insurance premiums has always been a challenge for social insurance agencies. The new law grants them mandatory collection powers to reinforce their ability to enforce the laws and regulations on social insurance premium collection. These powers include:

    - a power to order the relevant bank or financial institution of an employer in default to allocate and transfer any unpaid contributions by applying for an administrative order to the relevant administrative department;

    - a power to request the employer to provide collateral and sign an agreement for delayed payment; and

    - a power to request the People’s court to seize and auction a defaulting employers property.

    • Timeframe for social insurance registration. Employers are obliged to comply with the following timeframe in terms of social insurance registration:

    - registration with the local social insurance agency must be made within 30 days of the establishment of the company;

    - where any changes occur to the registration particulars of the employer or the employing entity is dissolved or liquidated according to law, an application for change or deregistration must be made within 30 days of such change or termination;

    - an application for social insurance registration for a new employee must be made within 30 days of the employment of such employee;

    - employers must inform its employees each month of the details of the social insurance contributions made on their behalf.      

    • Greater liabilities for non-compliance. Employers who fail to comply with the obligations set out under the new law will be exposed to greater liabilities.

    - penalty for non-registration: a fine equivalent to 1-3 times the amount of the outstanding social insurance contributions if an employer fails to register for social insurance and fails to remedy this failure within a specified time limit. Those management personnel and other personnel who are directly responsible shall be liable to a fine ranging between  RMB500 and RMB3,000.

    - penalty for delayed and insufficient contributions: a late payment fee at the rate of 0.05% per day will be charged, should an employer fails to make social insurance contributions in full and on time. If an employer fails to make the outstanding contributions within such time limit, a fine equivalent to 1-3 times the outstanding amount will be imposed.


    The new law does not intend to deal with the detailed rules and regulations of the five social insurance schemes, but rather, it sets out the basic framework of the new social insurance regime in China. With more stringent measures and severe sanctions for non-compliance, employers should note all the new changes brought by this new law and make sure they strictly comply with the new provisions.

    As the detailed rules and local regulations implementing the new social insurance regime are not set out in this new law, employers should also pay close attention to legal updates on legislation relating to social insurance schemes from both national and local levels in the coming months.