After being reviewed for four times in three years, the Social Insurance Law of the People's Republic of China (the "Social Insurance Law") was finally adopted by the Standing Committee of the National People's Congress of China on 28 October 2010 and came into force on 1 July 2011. Subsequent to the promulgation of the Social Insurance Law, the Ministry of Human Resource and Social Security released Several Rules on the Implementation of the Social Insurance Law of the People's Republic of China (the "Implementation Rules") on 29 June 2011, which also came into force on 1 July 2011.
Social Insurance for Foreigners
According to Article 97 of the new Social Insurance Law, a foreigner working in China shall participate in the social insurance scheme by referring to provisions as set forth under the Social Insurance Law, which provides that all workers shall be entitled to five forms of social insurance, i.e. basic pension insurance, basic medical insurance, work injury insurance, unemployment insurance and maternity insurance.
Given that the uncertainty as to how foreign nationals will benefit under the Social Insurance Law, the Ministry of Human Resource and Social Security of China later released for public comment its draft on the Interim Measures on Participation in Social Insurance by Foreigners Working in China (the "Interim Measures") on 10 June 2011. As the deadline for comments collection (i.e. 17 June 2011) was very tight, it appears that the draft may be very close to finalize.
According to the draft Interim Measures, it is mandatory that the following two types of foreigners working in China shall participate in the social insurance scheme of China (except for nationals of foreign countries that have entered into bilateral or multilateral treaties with China for bilateral/multilateral social insurance exemption):
a. foreigners who are legally employed by enterprises, public institutions, social groups, privately owned non-enterprise units, foundations, law firms, and accounting firms etc. in China; and
b. foreigners who enter into employment contracts with overseas employers and are then seconded to work in branch or representative offices incorporated or registered in China.
According to the draft Interim Measures, citizens from Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan who are working in the mainland China shall also participate in the social insurance scheme by referring to the provisions as set forth under the Interim Measures.
It is advisable to take a closer look at the Interim Measures when they are formally promulgated to have a better understanding of the rights and obligations towards foreign expatriates thereunder.
Closer Supervision and Harsher Penalties
Obligations for Making Social Insurance Contribution
Clause 63 of the new Social Insurance Law provides that if the employer fails to make full payment of social insurance contribution in time and refuses to rectify the situation within the prescribed time limits, the in-charge authority can adopt the following measures:
a. to check the employer's deposit account with banks or other financial institutions;
b. to apply for approval from the relevant administrative authority to deduct the outstanding social insurance contributions directly from the employer's account opened with banks or other financial institutions;
c. to require a guarantee from the employer in case its account balance is insufficient to pay the outstanding social security contributions; and
d. to apply to the People's Court to detain, seize and auction the employer's assets at a value equivalent to the outstanding social insurance contributions in case no guarantee is given under the situation as described in item (c) above.
In addition, according to Clause 86 of the Social Insurance Law, a late fee of 0.05% per day shall be charged on the overdue amount and if the employer still fails to make the payment in time, a penalty ranging from 1-3 times of the outstanding social security contributions may be imposed.
Obligation for Issuing Proof on Termination of Employment Relationship
Clause 19 of the Implementation Rules provides that if the employer refuses to issue the proof on termination/release of the employment relationship to the employee when the employment contract is terminated or released, which results in the employee's failure to enjoy social insurance benefits, the employer shall make compensation to the employee.
Obligation for Withholding Social Insurance Contribution
Clause 20 of the Implementation Rules provides that if the employer fails to withhold the payable social insurance contribution from the employee's salary, the employer will be demanded to make up for the contribution on behalf of the employee within prescribed time limits and a late fee of 0.05% per day shall be charged. Moreover, the employer shall not require the employee to bear such late fee.
In light of the above stipulations, companies and entities operating in China shall pay more attention to comply with the obligations for making/withholding social insurance contribution for their employees (including expatriates) and issuing proof on termination of employment relationship in due course, given the more stringent requirements and the higher costs involved due to violation.
Having said the above, if the employer's business operation is in severe difficulty due to force majeure, Clause 21 of the Implementation Rules provides a grace period (which shall normally not exceed one year), where the employer's contribution to social insurance may be suspended. After the lapse of the grace period, the employer shall make up for the corresponding social insurance contribution but no late fee will be charged.