10 May 2012
Social insurance is a mandatory, non-profit social security system established by law in China. It is administered by the labour and social security departments.
There are five types of social insurance in China: old-age, medical, unemployment, work-related injury and child-bearing. Among these, the premiums for old-age, medical and unemployment insurance are jointly contributed by the enterprise and the individual, whereas work-related injury and child-bearing insurance premiums are the sole responsibility of the enterprise.
Social Insurance Responsibility
All enterprises must register with the local social insurance institution, participate in social insurance schemes and pay social insurance premiums on a monthly basis. The portion of premium payable by individual workers will be withheld and deducted from their salary and paid to the relevant authorities by the enterprises.
If any changes in the social insurance registration details occur, due amendment must be made to update the record. In the event an enterprise ceases to be responsible for paying social insurance premiums because it has been dissolved, terminated, merged or gone bankrupt, it should promptly cancel its social insurance registration.
Reporting and Payment of Social Insurance
According to the Social Insurance Law of the People's Republic of China promulgated on 28 October 2010, enterprises must put in the application to register for social insurance for their employees at a social insurance agency within 30 days of hire.
An enterprise must submit its social insurance report, detailed report on social insurance premiums withheld and deducted from its employees, and other relevant information to the local social insurance institution before the 5th day of each month. The institution concerned will check and approve the report within two days. Upon receipt of the approved report, the enterprise should make full payment of social insurance through its bank or by cheque or cash within three days.
Social Insurance Premiums
(a) Basic old-age insurance: In general, the contribution of the enterprise will not exceed 20% (including the portion entered under the individual’s account) of its total payroll. The actual percentages are determined by provincial governments and may vary from place to place. The contribution of the employee to old-age insurance premium may eventually reach 8% of his salary, which is his average monthly salary during the previous year. This amount is also used as the base for calculation of social insurance premiums payable by both the enterprise and the employee.
(b) Basic medical insurance: This is jointly contributed by the enterprise and the employee. In general, the premium paid by the enterprise equals to about 6% of its total payroll, while the employee contributes 2% of his salary.
(c) Unemployment insurance: The enterprise contributes a certain percentage of its total payroll (the percentage varies from place to place, e.g. 2% in Guangzhou), while individual workers contribute about 1% of their salary (e.g. 1% in Guangzhou).
(d) Work-related injury insurance: Premiums vary with the risk category of the injury, the work-related injury insurance funds, and the frequency of occurrence of the work-related injury and occupational disease concerned. Actual premium rates are set by the social insurance administrative department of the State Council. Where an employee suffers a work-related injury or contracts an occupational disease, s/he shall, upon work-related injury staff verification, be entitled to specific work-related injury insurance benefits. Of such cases, those who lose their work ability shall, upon verification by the work ability assessment staff, receive disability benefits.
(e) Child-bearing insurance: Premiums are based on a certain percentage of an enterprise’s total payroll (e.g. 0.7% in Guangzhou). Child-bearing insurance is calculated based on the average monthly wages of the previous year at the employing unit.
The Social Insurance Law also stipulates that:
If an employing unit fails to report the social insurance premium payable in accordance with regulations, the amount payable shall be set at 110% of the premium paid in the previous month.
Where an employing unit fails to make social insurance contributions in full and on time, the social insurance agency may order rectification within a specific time frame. Beginning from the day of delinquency, the employing unit shall be charged an additional late fee of 0.05% per day. If the contribution continues to be unpaid past the due date, the administrative department shall assess a penalty of 100% to 300% of the owed amount.
Where an employee with work-related injury becomes eligible for old-age insurance benefits, the disability insurance benefits shall be replaced by old-age insurance benefits. Where the old-age benefits are less than the disability benefits, the difference shall be compensated by work-related injury insurance funds. Where a work-related injury or occupational disease results in death, a lump sum compensation shall be paid at 20 times the nationwide urban resident per capita disposable income in the previous year, plus other compensations for burial, etc, in a lump sum of 10 times the nationwide urban resident per capita disposable income.