1. Legal framework
The Chinese government has set up social security systems such as basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance, maternity insurance, etc. to protect the basic rights of citizens. These systems enable Chinese citizens to obtain assistance from the state (according and subject to certain conditions and procedures) in special circumstances such as when they reach old age, suffer certain illnesses, suffer a work-related injury, become unemployed, undergo maternity, etc. Additionally, employers and employees both participate in a separate housing provident fund system in accordance with the law.
Generally, employers in China contribute social security premiums and housing provident funds for their employees pursuant to the law. Employees themselves also contribute their own social security premiums and housing provident funds pursuant to the law. Employers typically withhold a portion of their employees’ monthly salaries to help them complete their social insurance and housing fund contributions.
Expatriate employees hired by Chinese employers are also required to participate in the social security system when they complete the employment formalities required by law. However, expatriate employees may be exempt from social security contributions under a treaty or convention. Expatriate employees are not required to participate in the housing fund system. However, those with permanent resident status may choose to contribute to the housing funds at their own discretion.
Employers and employees are required by law to contribute to their respective social security premiums and housing provident funds and cannot be exempt by special agreement or arrangement.
2. Required Contributions
(1) Basic pension insurance
Employers and employees must both contribute basic pension insurance premiums pursuant to national and local law.
Where an employee has contributed basic pension insurance for 15 cumulative years and has reached the statutory retirement age, he or she may collect basic pension benefits on a monthly basis.
(2) Basic medical insurance
Employers and employees both must contribute basic medical insurance premiums pursuant to national and local law.
The costs of employees’ prescription drugs, medical treatments, medical services and use of other healthcare facilities for emergencies or rescue operations will be covered by the basic medical insurance fund pursuant to national and local laws, as long as such costs are consistent with basic medical insurance policies and incurred at approved medical institutions.
(3) Work-related injury insurance
Employers are required to contribute work-related injury insurance premiums according to the combined wages of all of their employees and a fee rate determined by the social security agency. Employees do not need to contribute to work-related injury insurance.
Employees who suffer an accidental injury or contract an occupational illness in the course of work will be entitled to work-related injury insurance benefits if the injury or illness is verified as work related. Those whose injuries are verified and who have lost their ability to work will also be entitled to disability benefits.
(4) Unemployment insurance
Employers and employees must both contribute unemployment insurance premiums pursuant to national and local law.
An unemployed person who has contributed unemployment insurance premiums for at least one year before becoming unemployed, and has completed unemployment registration, may collect unemployment insurance benefits from the unemployment insurance fund.
(5) Maternity insurance
Employers are required to contribute maternity insurance premiums pursuant to national and local law. Employees are not required to make such contributions.
Maternity insurance benefits cover the medical costs for childbirth and provide a maternity allowance.
However, the government is now working to combine maternity insurance and basic medical insurance, which reflects the government’s target of lowering employers’ operation cost. This means private businesses in China may not be required to pay maternity insurance for their employees in the future.
Each female employee is entitled to a 98-day maternity leave for childbirth, including 15 days that may be taken before childbirth. The maternity leave may also be prolonged according to local regulations. In cases of difficult birth, the maternity leave may be extended for an additional 15 days. In the event of multiple births (such as twins), maternity leave will be extended by 15 days for each additional childbirth.
Local governments may have different regulations regarding maternity leave.
(6) Housing fund
Employers and employees both must contribute to the housing provident fund pursuant to national and local law.
The housing provident fund is used for employees to purchase, construct, renovate or rebuild personal dwellings.
Apart from the abovementioned mandatory insurances, employers are free to purchase supplementary commercial insurance for their employees at their own discretion.
4. Required Maternity/Sickness/Disability/Annual Leaves
On December 27, 2015, the PRC Standing Committee of the National People’s Congress issued the new Population and Family Planning Law of the People’s Republic of China (the “Law”) which formally abandons China’s decades-long one-child policy and allows all couples to have two children. According to the Law, late marriage and late birth are no longer encouraged, and maternity leave may be extended by local rules.
During an employee’s sick leave period, his or her salary will be determined and paid based on the standard of sick pay and sick benefits during the medical treatment period according to state laws and local regulations.
If an employee cannot perform his or her original work or other work arranged by the employer after his or her period of medical care expires, the employer has the right to terminate the employment contract and pay severance upon giving the employee a 30 days’ advance written notice or one month’s payment in lieu of notice. In addition, the employer must pay medical treatment subsidies equivalent to 6 to 12 months of his or her salary based on the seriousness of his or her sickness.
Disability could be caused by non-work-related injury or work-related injury. If the employee’s disability is caused by a non-work-related injury, the employee could enjoy the same benefits (sick pay, medical leave and medical treatment subsidies) as in the event of illness.
If an employee needs to suspend his or her work in order to receive medical treatment for a work-related injury or an occupational disease, his or her original wage and welfare benefits shall remain unchanged during the suspension period. The suspension period is generally no longer than 12 months.
Where the work-related injury is severe or the circumstance is exceptional, after being assessed by the local work capability assessment committee, the said suspension period could be extended by no longer than 12 months. After the disability grade is determined by the local work capability assessment committee, the employee shall not be entitled to his or her original wage and welfare benefits, but can enjoy other disability benefits.
(4) Annual Leaves
Employees who have worked between one and ten cumulative years are entitled to five days of annual leave. Employees who have worked between ten and 20 cumulative years are entitled to ten days of annual leave. Employees who have worked for more than 20 cumulative years are entitled to 15 days of annual leave.
If the employer fails to arrange annual leave for employees due to business reasons, the employer must pay an encashment to employees for such accrued but untaken annual leave. This encashment should total 300% (100% has been included in the monthly salary and therefore only 200% needs to be additionally paid) of an employee’s daily normal salary for each accrued but untaken day of annual leave.
5. Mandatory and Typically Provided Pensions
Currently in China, mandatory and typically provided pensions only include the basic pension insurance. Recently, the government decides to reduce the employer’s pension insurance contribution rate to lower the cost of private businesses. As from May 1, 2016, if employers’ pension insurance contribution rate in any province (city, district) is greater than 20%, it shall be reduced to 20%, and if the said rate is 20% and the cumulative balance of the pension insurance fund could afford at least nine months’ payment in any province (city, district), it may periodically be reduced to 19% in two years’ term.