Issuing Body: Ministry of Human Resources and Social Security
Issuing Date: June 10, 2011
Working to implement China's landmark Social Insurance Law just weeks before it was to take effect, the Ministry of Human Resources and Social Security (MHRSS) issued a draft version of rules designed to clarify the participation of foreigners in the sweeping social insurance program, which was released by the Standing Committee of the National People's Congress in October 2010 and took effect on July 1, 2011. The Social Insurance Law governs five types of work-related insurance: pension, medical, unemployment, injury, and maternity insurance. But while that sweeping legislation said foreign workers "should participate in social insurance schemes," it provided little guidance about the parameters of that participation. The MHRSS released a draft version of the Provisional Measures on Foreign Workers Participating in Social Insurance in China (Draft Social Insurance Measures for Foreign Workers) for public comment on June 10. The period for public comments lasted just seven days.
Until enactment of the Social Insurance Law, the central government and various local governments had implemented myriad rules and policies governing social insurance in China. The absence of a unified nationwide framework for social insurance made the system complex and unwieldy.
The Social Insurance Law for the first time unifies social insurance rules across the country. It applies to both urban and rural residents, providing for five mandatory work-related insurance schemes: pension insurance, medical insurance, unemployment insurance, work-related injury insurance, and maternity insurance. By law, both employers and employees must contribute towards pension, medical, and unemployment insurance; employers alone pay for injury and maternity insurance.
The Social Insurance Law establishes social insurance management centers to collect social insurance premiums, and authorizes local MHRSS offices to investigate allegedly improper dispersals of social insurance funds. In addition, the law directs local governments to establish social insurance supervisory committees to oversee the collection and dispersal of money. The law likewise provides for penalties on those who fail to comply: an employer that fails to carry out social insurance registration may be penalized as much as three times the employer's share of premiums. Previously, there had been no monetary penalty on employers who failed to register.
The Social Insurance Law requires all foreign nationals who are employed in China to participate in the social insurance scheme. Following up on this provision, the MHRSS issued the Draft Social Insurance Measures for Foreign Workers in order to clarify key issues related to the participation of foreign nationals in social insurance. Key points of the Draft Social Insurance Measures for Foreign Workers Measures are summarized below.
Definition of Foreign Worker
As used in the Social Insurance Law and Draft Social Insurance Measures for Foreign Workers, a foreign worker employed in China is a non-Chinese national who is legally employed in China and has been granted an employment certificate such as an Alien Employment Permit, a Foreign Expert Certificate, or a Foreign Resident Correspondent Certificate.
All foreign workers, including those who are employed by a domestic employer and those who are sent to work in China by an overseas entity, are required to participate in all five mandatory social insurance programs (pension, medical, unemployment, injury, maternity). Employees from Hong Kong, Macau, and Taiwan must also participate, and are treated as Foreign Workers in the Draft Social Insurance Measures for Foreign Workers.
Receiving Insurance Benefits
The Draft Social Insurance Measures for Foreign Workers provide generally that "qualified Foreign Workers" who have participated in social insurance are eligible to receive benefits. The draft version of the law provides no clarification, however, on the qualifications for foreign workers. Thus it remains unclear whether the existing qualifications applicable to Chinese nationals, as codified in the Social Insurance Law, apply equally to foreign workers.
According to the Draft Social Insurance Measures for Foreign Workers, if a foreign worker who is qualified to receive social insurance benefits (other than unemployment insurance) leaves China, he may continue to receive benefits abroad by submitting a certificate of existence annually to the relevant social insurance agency. The certificate of existence must be authenticated by a Chinese embassy or consulate.
Alternatively, a foreign worker may, when leaving China, apply to receive a lump sum payment of pension funds held in a personal pension account, even if the person has not reached mandatory retirement age.
In the event of a foreign worker's death, the worker's spouse or children may inherit the balance in the individual's pension account.
Foreign workers who are nationals of a country that has a social insurance agreement with China may be exempt from certain types of social insurance. At present, China has executed bilateral social insurance agreements with South Korea and Germany. Foreign workers from South Korea are exempt from pension insurance, and those from Germany are exempt from both pension insurance and unemployment insurance for their first 48 months in China.
In any dispute between a foreign worker and an employer involving social insurance issues, the dispute may be settled through mediation, arbitration, or a lawsuit.
The release of the Draft Social Insurance Measures for Foreign Workers by the Ministry of Human Resources and Social Security was welcomed by the business community, as it gave businesses an opportunity to comment on rules that will significantly affect those that hire foreign workers.
Once the requirement for foreigners' participation in social insurance takes effect, all employers will have to pay social insurance premiums for foreign workers in China, possibly in addition to private insurance that in most cases was already available to foreign employees. This change will increase human resource costs for employers and may affect employment strategies for multinational corporations.
In their current form, the Draft Social Insurance Measures for Foreign Workers do not address many practical issues, including some that are essential to their implementation, and it has been reported that MHRSS is working on detailed implementing rules. It seems likely that the full implementation of the Draft Social Insurance Measures for Foreign Workers will not occur until these additional rules are issued.