Social Insurance in China: Prepare Your Business for Big Changes on January 1, 2019

By Helen Kong and David Niu

On January 1, 2019, employers will need to have their business ready for a big change to China’s social insurance system: social insurance contributions will be levied by China’s tax bureau.

Over the last few years, local tax bureaus in many cities began collecting social insurance contribution payments on behalf of the social insurance bureau. In these cases, what the tax bureau did was essentially accumulate the social insurance fund and then transfer it to the social insurance bureau.

The tax bureau did not have the responsibility to check the social insurance fund; authorities did not request the employees’ contribution base to be recorded onto the tax bureau’s online system.

Social insurance in China

Under the new rule, the tax bureau will have much more responsibility: the tax bureau will be in-charge of social insurance collection and will check if the social insurance contribution base corresponds with the payment amount.

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Employers in China need to review their social insurance processes.

As time is short before January 1, Dezan Shira & Associates Human Resources and Payroll team have made a shortlist of the changes that will make the biggest impact and address the most frequently asked questions on how to be ready for the transition and its impact on compliances.

Tips for employers

1. Employers that pay the minimum social insurance contributions for employees need to be careful with calculations because the tax bureau will be able to spot short payments;
2. Employers that have not treated social insurance contributions for dispatched employees or low-cost workers seriously need to review their practices immediately because the tax bureau will inspect all salary related information, personal data, and social insurance information together with the company’s tax information;
3. Employers need to register and pay social insurance for employees in company-registered cities because the tax bureau will identify grey practices (such as using a local agency to pay social insurance for an employee in a city where the company is not registered; the employee’s tax account will show no social insurance payment);
4. Employers need to treat the new collection method seriously because the tax bureau can affect business-as-usual if social insurance payments are not done on time and in full;
5. Employers should be aware that in recent years the authorities have increased penalties for companies that are not compliant with social insurance regulations, particularly for non- and under-payment, and we expect these penalties to become more severe after January 1.

FAQ’s 

Dezan Shira & Associates Human Resources and Payroll team has been working with companies across the world to prepare their China business for January 1.

Below, we have shortlisted the most common questions human resource managers have asked our team.

1. Will the social insurance bureau become obsolete once the tax bureau starts collecting the contributions?

While contributions will be collected by the tax bureau, the social insurance fund will still be controlled by the social insurance bureau. To understand more about the expanding role of the tax bureau, read our earlier article here.

2. Will the tax bureau pursue retroactive payments for social insurance arrears?

In the State Council executive meeting on September 18, 2018, Premier Li Keqiang said, “all regions shall keep the current social insurance policy.”

The social insurance and tax bureaus followed that statement with two notices that indicated that it will be strictly prohibited to organize any centralized settlement of historical arrears of an enterprise by anyone.

While it is clear that a centralized settlement will not be allowed, it is not clear whether the authorities will seek to collect historical arrears. Businesses will need to monitor government announcements and circulars to understand whether the authorities will seek retroactive payments for social insurance arrears.

3. Will the contribution rate be reduced after the tax bureau begins levying the social insurance?

In the State Council executive meeting on September 6, 2018, the authorities stated that they would consider an appropriate reduction to the social insurance contribution rate.

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Following that announcement, the human resource and social insurance bureaus on October 31 announced that they would discuss the requirements for reducing social insurance rates, raised during the State Council executive meeting.

More recently, on November 2, the State Council announced the first update for lowering social insurance contributions: the total employer and employee contribution for the unemployment insurance rate will be reduced in phases from three percent to one percent. Originally, this policy was set to expire by the end of April 2019, but it will be extended.

While further social insurance rate reductions have not been confirmed, the government’s public statements make clear that that the authorities are studying ways to reduce enterprises’ social insurance burden. Businesses will need to monitor government announcements and circulars in the coming months to understand if further social insurance contribution reductions are likely.

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