5605-07 The Center • 99 Queen's Road Central • Hong Kong • +852 3528-8300
Blank Rome comprises multiple affiliated partnerships: a limited liability partnership with the full name Blank Rome LLP, qualified in Pennsylvania and maintaining offices throughout the U.S.; Blank Rome Government RelationsLLC in Washington, DC; and a Hong Kong general partnership, Blank Rome Solicitors & Notaries, which practices in Hong Kong. Blank Rome maintains appropriate registrations in the jurisdictions in which its offices are located. Alist of the partners in each entity is available for inspection at any Blank Rome office.
August 2011 No. 2www.BlankRome.com
OverviewThe Social Insurance Law (“SIL”) was promulgated by the
Standing Committee of the Chinese National People’sCongress on 28 October 2010, which has taken effect since1 July 2011. This is the first comprehensive law that focuseson Chinese social security system and also provides guidanceon foreign employees’ participation in Chinese social securi-ty system. This memorandum provides a general introductionto SIL with particular attention to its implication on foreignemployees and Foreign Invested Enterprises (“FIEs”) in China.
SIL sets out a framework for comprehensive social secu-rity system in China that is based on five areas of insurance:
1. Basic pension insuranceInsurance contributions are made by both the employers
and the employees. On retirement, an employee who hascontributed for at least 15 years will receive a pension fromthe government. The amount of the pension will be based ona number of factors, including the amounts contributed, thecontribution period, the current local average wage (which isadjusted annually) and average life expectancy.
2. Basic medical insuranceInsurance contributions are made by both the employers
and the employees. Some of an employee’s medical expens-es are covered (in whole or in part) out of the basic medicalinsurance fund.
3. Work-related injury insuranceOnly the employer needs to make contributions to the
work-related injury insurance fund. Premiums are set basedon the injury rate in the relevant industry. Wages and otherdefined costs arising out of work-related injuries are paideither out of the work-related injury insurance fund or by theemployer.
4. Unemployment insuranceBoth the employers and the employees must pay unem-
ployment insurance premiums. If these premiums have beenpaid for certain minimum periods then the employees mayreceive unemployment insurance payments, for a maximumof 24 months.
5. Maternity insuranceThe employers must pay maternity insurance premiums.
Such funds are used to make certain maternity leave pay-ments and pay related medical expenses.
Key Changes1. Continuation of Contributions
to Pension Insurance FundUnder SIL, employees who are ineligible to receive pen-
sion payments because they have not made contributions tothe basic pension insurance fund for the requisite 15 years
China Social Insurance Law Update
Asia Update
BLANK ROME SOLICITORS 2
ASIA UPDATE
when they retire are now able to continue to contribute tothe pension fund after retirement until the minimum contri-bution period is reached, so that they will then be able toreceive the pension.
2. Transferability of IndividualSocial Insurance AccountsImplementation of SIL encourages workforce mobility
through the transferability of social insurance accounts acrossdifferent locations, which means workers are allowed totransfer pension, medical and unemployment insurance fromone city or province to another when they change their placeof work. It also makes clear that the premium contributionyears in different locations will be calculated cumulatively.This enables the portability of individual social insuranceaccounts and gives the employees more flexibility to betterenjoy the pension benefits.
3. Reduction of Work-related Injury Costs Borne by the EmployersSIL reduces the costs to be borne by the employer
towards an employee suffering work-related injury. Under thenew regime, items such as food allowance, reimbursementor accommodation and transportation costs for medical treat-ment outside the city where the employee works, as wellas the one-off medical subsidy required to be paid to anemployee suffering work-related injury when his/her contractof employment is terminated which has previously not cov-ered will now all be covered by the work-related injury insur-ance fund.
4. Liability for Non-complianceSIL provides for new mandatory means to collect the
social insurance premiums where an employer fails to paythe social insurance contributions in full and on time. Thenew means include making investigations and deducting therelevant amounts from the employer’s bank account, order-ing banks and other financial institutions to directly withholdthe owed amounts from the bank account after applying tothe local administrative authorities for permission to do so,requiring the employer to provide a guarantee for outstand-ing amounts, or applying to the courts to detain, seize andauction off the assets of the employer to the value equal tothe social insurance premiums due and payable and deductthe outstanding social insurance premiums from the gener-ated income of the auction.
5. Registration of Social InsuranceUnder SIL, each employer must register with the local
social insurance administrative department within 30 days ofthe employer’s incorporation. In addition, the employer mustregister its employee(s) within 30 days of employment.
6. Foreign Employees’ ParticipationArticle 97 of SIL provides that foreign employees may
participate in the Chinese social security system. Please seethe elaboration in detail below.
Foreign Employees’ ParticipationThe participation of foreign employees in the Chinese
social security system is on a voluntary basis and there ispresently no further elaboration on how they are able to par-ticipate in the social insurance in SIL, which shall be furtherimplemented in detail.
On 10 June 2011, China’s Ministry of Human Resourcesand Social Security released the “Interim Measures for theParticipation of Foreign Employee Employed in China inSocial Insurance (Draft for Consultation)” (the “InterimMeasures”). According to the Interim Measures, foreignemployees who are legally employed by enterprises, publicinstitutions, social groups, privately-owned non-enterpriseunits, foundations, law firms and accounting firms whichhave been registered or recorded in line with the laws inChina are required to participate in the country’s social insur-ance programs. All foreign employees who are legallyemployed in Mainland China will be issued social insurancecards and assigned social insurance numbers.
For foreign employees who enter into employment con-tracts with employers outside Mainland China and are dis-patched to work in registered branch or representative officesor subsidiaries in Mainland China, such foreign employeesare required to participate in the social insurance programsin accordance with relevant regulations.
The Interim Measures cover the citizens of Hong KongSpecial Administrative Region and Macao Special AdministrativeRegion, as well as citizens of Taiwan. However, citizens ofcountries that have entered into treaties with China in rela-tion to social insurance (currently only Germany and SouthKorea) shall be handled in accordance with that treaty.
The Interim Measures is presently only a draft, thereforeit remains unclear how the Chinese authorities will providefor foreign employees wishing to participate in the socialsecurity system.
BLANK ROME SOLICITORS 3
ASIA UPDATE
Obligations of FIEs under SILNotwithstanding the uncertainties of how foreign employ-
ees are able to participate in Chinese social security system,SIL has clearly set out the following obligations for FIEs:
1. Pay social insurance contributions in accordance withSIL;
2. For work-related injuries, pay the expenses which arenot covered by work-related injury insurance;
3. For unemployment, provide the unemployed individ-ual with certification of the expiry or termination oftheir employment in a timely manner;
4. Register with the local social insurance agency within30 days after its establishment. If there are anychanges occur to the registration or the employer isterminated by law, within 30 days of such changes ortermination, undertake the procedures for change orderegistration;
5. Register employees with the local social insuranceagency within 30 days after the date of employment;
6. Withhold and pay social insurances on behalf of theemployees (the part which shall be borne by theemployees) and inform the payment to the employeeson a monthly basis;
7. Provide accurate information regarding the contribu-tions to social insurances when the social insuranceadministrative department conducts investigationsand be willing to cooperate with authorities.
Blank Rome CommentsSIL sets out the basic framework for the revised social
insurance regime in China. However, much of the details stillremain to be fleshed out through the adoption of detailedimplementing rules. Particularly, it is still unclear as to howthe provisions relating to social insurance contributions byforeign employees working in China will be implemented.Depending on how it is implemented, SIL may cause anincrease to the costs of doing business in China for foreigninvestors or for those looking to employ foreign employees.
We suggest that both domestic and foreign investorsmonitor implementation of SIL and carefully review theimplementation rules when issued, and assess the potentialimpact on their cost structures accordingly.
To learn more about the issues discussed in this advisoryplease contact Kristi Swartz (+852.3528.8335/[email protected]), Henry Kuller (+86.21.6101.0523/[email protected]) or any other member of our Asiabased attorneys listed below.
— Kristi Lynn Swartz, Vivian Ma
Blank Rome’s Asia Practice provides experienced legal representation for Asia-based clients doing business inthe United States and for U.S. clients doing business in Asian countries. This includes counseling our U.S.-based clients
on the legal issues involved with entering and developing new markets for their goods and services in Asia.
Many attorneys in our Asia Practice group are fluent in Cantonese, Mandarin, and Shanghainese and haveextensive knowledge of the cultural and legal systems that affect business and investment in Asia. We understand
the unique needs of Asia-based clients and have a team of attorneys with strong, cooperative relationshipswith knowledgeable local law firms to provide a platform for efficient and comprehensive service.
