BUSINESS BRIEF -- NOVEMBER 2011

• Social Insurance Laws for foreign workers were promulgated on July 1, 2011;
• Regulations on payment came into force on October 15, 2011;
• Companies are now required to register and commence payment on behalf of eligible foreign employees;
• No measures have been released to deal with the issue of back payment to July 1, 2011, but companies are advised to set aside adequate funds.
• Foreign employers/employees are advised to maintain private expatriate insurance arrangements in addition to the Chinese system.

INTRODUCTION

This article offers a brief introduction to compliance with new social insurance laws and regulations for foreign workers in China and answers some common questions about how the system will work.

The current measures have lead to confusion among employees and employers alike. However, while ambiguities and inconsistencies exist, all employers of eligible foreign workers are now obliged to register their foreign employees and commence payment on all five insurances.

The Social Insurance Law governing foreign workers was passed by the National People’s Congress but the rates and procedures are set by local bureaus and differ by region. Authorities now charged with implementing the system readily admit that much of the detail is yet to be determined but are rapidly implementing new procedures and policies.

The information below is current as at November 9, 2011. Where marked, the information applies to Beijing registered companies and their employees only. For further information, please contact your social insurance agent or local labor bureau.

BACKGROUND

Social Insurance reform is an ongoing process; and recent measures have exposed some of the difficulties facing the Chinese authorities in developing public policy to handle an increasingly mobile workforce, integrated into the global economy and with evolving wealth and income disparity. China’s workforce of foreign nationals is now being absorbed into a social insurance system that is evolving to meet the basic needs of the standard Chinese employee on a regional basis.

While the image of an expat employee in China is that of a highly paid manager, the country’s 300,000 foreign workers cover diverse demographic profiles. In Shanghai, 80 percent of foreign workers come from developed economies and 32.2 percent are corporate executives. Whereas in China’s manufacturing hub of Shenzhen, increasing numbers of unskilled factory jobs are being filled with temporary workers from Southeast Asia.

It is hoped that the current measures will bring the Chinese system closer into line with similar social insurance systems around the world.

ELIGIBILITY

Who is required to participate?

All foreign nationals in China who hold:

1. a work permit (including Alien Work Permit, Resident Foreign Journalist Certificate) and Alien Residence Permit, or;
2. an Alien Permanent Residence Permit and are lawfully employed in China.

These include foreign workers who are legally employed by enterprises lawfully incorporated or registered in China, and those who enter into employment contracts with overseas employers and are then seconded to work in branch or representative offices lawfully incorporate or registered in China.

Are employees of embassies and consulates included in the scheme?

No.

Are residents of Hong Kong SAR and Macau SAR included in the scheme?

Not currently. While the draft measures included provisions for Hong Kong and Macau residents, the final version omitted them. According to sources at the Beijing labor bureau, there are further technical issues to be resolved. Regulations governing Hong Kong and Macao residents will be issued soon and are expected to be consistent with foreign workers.

Can I opt-out if I have coverage under the social insurance of my home country?

No, unless your country of nationality has concluded a bilateral social insurance treaty with China. Currently, only Germany and the Republic of Korea (South Korea) have such arrangements in place. China is now engaged in preliminary discussions with several other countries to negotiate further treaties, including Japan, Belgium and France, but these will require a number of years to complete.

Can I choose not to participate in the Chinese system if I have other private expatriate insurance arrangements?

No.

Can I continue to hold other expatriate insurance policies as a supplement to the Chinese system?

Yes. In particular, we advise foreign employers and workers to continue commercial medical insurance arrangements alongside the compulsory Chinese government contributions. While the Chinese hospital system is improving rapidly, it does not operate at a level of service that suits the needs of many expatriates and their families, especially outside of major metropolitan areas.

REGISTRATION

Will foreign workers be issued with a social insurance number?

Yes. All foreigners eligible to participate in the social insurance scheme will be issued with a unique permanent social security card and number that will be based on their passport number.

Even if you change your passport, your social security number will remain unchanged.

How do I obtain a social insurance number? (Beijing)

Employers should download a software patch from the Beijing Social Insurance Information System (Version 4.3.7 and above), which will allow you to enter the foreign employee’s passport number and generate a social insurance number for them.

This software is available from the following websites (in Chinese only):

Beijing Human Resources and Social Security Bureau: www.bjld.gov.cn

Beijing Social Insurance Service Platform: www.bjrbj.gov.cn/csibiz/

When/Where do I register? (Beijing)

Employers should register their existing foreign employees now at the Social Insurance Fund Management Center or through a Social Insurance Agency.

For any new employees, they should be registered within 30 days of being issued their employment permits. This can be conducted between the 5^th and 25^th of each month.

How do I register? (Beijing)

After generating a social insurance number, employers should complete and print three copies of the Beijing Social Insurance Personal Information Registration form and two copies of the Beijing Social Insurance Personnel Enrolment form. These can be generated using the Beijing Social Insurance Information System software.

Bring the following original and copied documents to the agency or center; the originals will be checked the copies placed on file:

1. Passport
2. Alien employment permit, foreign expert certificate, or certificate of resident foreign correspondent;
3. Foreign residency permit
4. Beijing social insurance personal information registration form (print in triplicate and seal)
5. Beijing social insurance Personnel enrolment form (print in duplicate and seal)
6. Passport photos (2 x 1 inch colour photos, recent and on white background)
7. Other related documents

PAYMENT

From what date will payments commence?

This is yet to be clarified but it seems likely that payments will be backdated to July 1, 2011, which was the date the new laws were promulgated. Until further notice, payments are only required from Oct 15, 2011.

No regulations about back payments have been released but employers are advised to budget for the possible requirement of full back payment of all five insurance obligations back to July 1, 2011.

How do we determine what rates are payable?

The amount payable for an individual employee is determined by the place of their employment permit registration and their monthly salary. Some regional variation exists in how monthly salary is determined. In Beijing, it has been announced that where applicable the rate for existing employees will be determined by the average monthly salary over the previous calendar year.

Insurance rates are determined by the local government district in which an employer is registered. While all regions have published a salary base and cap for determining premiums, at least in Dalian the local authorities have removed the cap on individual contributions, greatly increasing the cost of hiring foreign workers on higher salaries.

Rates valid as at September 1, 2011

Example:

To calculate medical insurance for a foreign worker in Beijing on a gross monthly salary of RMB 20000

Calculable Basis (Beijing)

Base = RMB 2521 (0.6 x average Beijing monthly salary)
Cap = RMB 12603 (3 x average Beijing monthly salary)

As a salary of RMB 20000 pre month exceeds the maximum calculable basis, this worker is only liable for a payment based on a salary of RMB 12603 per month.

Who makes the payments?

The individual contribution is withheld by the employer and submitted together with the company contribution.

Whether the individual contributions are deducted from an existing salary or the existing salary is raised to account for the new contributions is for individual negotiation.

What happens if my employer does not make payments?

Any company not fulfilling their social insurance obligations runs the risk of punitive fines and having their business license revoked.

We strongly advise all companies with foreign workers to comply with the scheme immediately.

COMMON QUESTIONS

Medical

What happens to my personal contributions?

This will vary according to region but will be the same as for Chinese employees. In Beijing, your 2 % personal contributions will be deposited into a Bank of Beijing individual passbook account that can be drawn on as needed.

Can I be reimbursed for treatments at international private hospitals in China?

No. You can only claim medical insurance for hospitals appointed by the medical insurance scheme, which does not currently included international private hospitals. The outstanding issue to be resolved is that the cost of services at international hospitals is far above claims available under the Chinese insurance system.

How are foreigners meant to utilize medical services that do not cater to their particular needs or provide little information in their language?

The relevant government authorities are currently researching ways to improve service delivery to foreign workers including dedicated service windows.

Pension

What happens to my pension account when I leave China?

If you leave China, your account will be maintained. So far, it has been confirmed that it should be permissible to withdraw the accumulated funds as a lump sum from your individual contribution retirement pension account on leaving China.

If you leave China and continue to work beyond the legal retirement age, you can still draw your Chinese pension as long as you maintain your account and have achieved the minimum age and contribution requirements.

How long will my individual insurance account be maintained if I leave China?

The account will be maintained for life unless you decide to close it.

Unemployment

If employment is a condition of residency for foreign workers, how can they make use of unemployment insurance?

This apparent paradox is yet to be resolved. Any reform to the residency conditions of foreign nationals involves the coordination of several government departments. It is expected further details will be released soon.

Maternity

Will foreign nationals be covered for more than one child under their maternity insurance?

This is yet to be determined. While there is some variance in the application of China’s one child policy according to ethnicity and household registration, we have been advised that measures will be released stating the maternity insurance for foreign workers will only cover the birth of one child.