Companies May Face Fines for Failing to Enroll Expat Employees in Social Insurance Programs

Companies in China faced a year-end scramble to enroll their foreign employees in China’s social insurance scheme before January 1, 2012, after the Ministry of Human Resources and Social Security (MOHRSS) released a notice to pressure local authorities to impose fines on companies whose foreign employees were not registered by the end of 2011. The notice’s public release in mid-December gave companies only two weeks to comply. The widespread lack of local implementing rules from local human resources and social security (HRSS) bureaus and the variety of systems in different locations has left many companies confused about how to comply and concerned about potentially facing stiff fines

The MOHRSS notice calls on local authorities to strictly implement the Provisional Measures for Foreigners Working in China to Participate in the Social Insurance System since the measures took effect on October 15. However, companies cannot comply without clear direction from local HRSS bureaus, which has been largely lacking. Some cities--such as Beijing; Chengdu, Sichuan; and Qingdao, Shandong--have publicly issued rules to implement foreign employee enrollment in the social insurance system. According to media reports, local HRSS bureaus in cities such as Zhongshan, Guangdong and Xiamen, Fujian have already started enforcing the measures even though the implementing rules have not been publicly released. In the absence of clear compliance procedures, companies have expressed concerns to local HRSS bureaus that they would be unfairly fined.

Beijing
In an attempt to comply with the MOHRSS notice, the Beijing HRSS bureau issued a separate notice in mid-December that specifies a fine of 0.05 percent of a company’s unpaid social insurance premium for the October 15 to December 31, 2011 period for expat employees who register after January 1, 2012. According to the bureau’s statistics, as of late December 2011, approximately 2,000 foreign employees had registered for the social insurance system out of Beijing’s 30,000 foreign employees.

US-China Business Council (USCBC) member companies reported that given the holiday season and the required registration paperwork, it has been difficult for companies to respond to the new deadline. According to China International Intellectech Corp. and Beijing Foreign Enterprise Human Resources Service Co., Ltd., two companies that handle expatriate employment issues, the Chaoyang District social security bureau may waive the fine for October through December 2011 for companies that register all employees before January 20, 2012. There has been no word, however, about similar waivers in other districts.

Shanghai
Shanghai has the largest expatriate population in China and local authorities will face a significant workload to enroll all these expatriates into the social insurance system. Additionally, since mid-October, many foreign companies with Shanghai operations have waged an intense lobbying campaign to communicate to local government officials the cost increases that companies would face as a result of the provisional measures. (Based on current average monthly salary thresholds used to calculate contributions, employers could likely pay up to roughly ,000 per year per expat employee in social insurance contributions.) According to USCBC sources, officials at the Shanghai HRSS bureau are sensitive to company concerns and have been somewhat reluctant to rush to implement the new rules in light of company lobbying efforts and the administrative workload for the agency.

A USCBC contact in the Shanghai HRSS bureau said the agency will study the new notice and coordinate with MOHRSS for future implementation in Shanghai. However, there is no timeline for further implementation, and it is unlikely, according to USCBC sources, that Shanghai will impose fines for failing to register. Shanghai already has rules that allow, but do not require, foreign employees to pay into the Chinese social insurance system, but the rules only cover three types of insurance--pension, medical insurance, and work injury--rather than the five mandated in the provisional measures. Other sources indicate that local authorities may likely communicate to companies through unofficial channels that foreigners “should” register per the existing rules rather than “must,” leaving the current voluntary system in place.
A few USCBC member companies in Shanghai have already started to pay for their expatriate employees’ social insurance fees or have registered their expatriate employees into China’s social insurance system under Shanghai’s existing rules as a good faith effort toward compliance. However, most companies are still waiting for the local implementation details. Lack of official implementation details could likely result in Shanghai-based foreigners remaining unregistered.

Dalian
In Dalian, Liaoning--another city with a large expat community--local authorities have told certain companies that they would delay implementation, according to media reports. The Dalian HRSS bureau stated in August that all expats employed locally must enroll in the social insurance program. Payments would be set at 30 percent of an employee’s monthly salary without a cap on contributions. Because other cities in China have set caps on social insurance contributions--in many cases, up to three times the local average monthly salary--Dalian-based foreign companies have expressed concern about the lack of a cap. USCBC sources indicate that Dalian officials have decided to adopt a cap for social insurance contributions, though they have not publically announced it, and may delay implementation of the MOHRSS measures.

Next steps
The provisional measures released in October apply to all foreigners hired directly in China or seconded from overseas offices. As previously reported in CMI, most foreigners doubt that they will benefit from participating in China’s social insurance system. For example, even though foreigners are now required to pay into the unemployment insurance system, they must leave China once they lose their job and cannot collect unemployment insurance benefits overseas. In another example, funds from the health insurance component cannot be used at the private hospitals or specialty clinics where most foreigners receive treatment.

A bilateral treaty is the only way to exempt foreign employees from duplicate social insurance payments. Germany and South Korea have signed bilateral treaties with China to exempt their citizens from paying into China’s social insurance programs. Because those treaties only cover one or two types of social insurance, even employees from those countries will likely still need to sign up for other social insurance programs. Japan has launched bilateral treaty negotiations with the PRC government and more countries may start the negotiation process. To date, the US government has not engaged in formal negotiations with China over this issue.

With MOHRSS pressuring local bureaus to enroll foreigners into the systems, it is likely that additional local implementation rules will be released over the next several weeks. USCBC will continue to follow this issue and report on additional developments.