China’s Social Insurance Law for Foreigners: Preparing your business for SIL


Cities across China are in different stages of administering the new social insurance law for foreigners. Shanghai-based lawyer Tony Tang explains the ramifications for businesses employing foreigners.

On October 28, 2010 the PRC enacted new social insurance laws (‘SIL’). One of these laws requires businesses with foreign employees and foreign employees themselves to make social insurance contributions. These social insurance contributions account for the PRC’s statutorily recognised insurances – retirement, medical, work related injury, unemployment and maternity insurance.
Although national law in China, the law is regulated at provincial government level. Hence, the roll out of the new law varies in terms of substance and implementation from city to city in China. The Beijing government has started accepting social insurance payments for Beijing’s foreign employees. Other local governments which have implemented the SIL include Shenzhen, Suzhou and Guangdong province. Whilst nothing has substantially changed in Shanghai (where we are based) and other cities, the SIL for foreign employees is enforceable at anytime. The implementation of the SIL has the potential to have considerable impact on a company’s bottom line. It is worth understanding how the system works, how Australian businesses operating in China can prepare and the implications.
Upon implementation the employer is required to register to make social insurance contributions with their local social insurance bureau. The employer will be required to make payments for each foreign employee from company money and on behalf of the employee (out of the employee’s salary). Each employee will be issued with a social security number and social security card.
To avoid the late payment surchage of 0.05 percent per day as per the SIL, it may be prudent for Australian businesses to already withhold contributions so they can be paid immediately if required. In Shanghai, employers are required to contribute 37 percent of the employee’s monthly salary which is capped at 3 times the average monthly wage (AMW). Currently, Shanghai’s AMW is RMB4,331 per month. Hence, social insurance contributions for foreign employees is capped at 37 percent of RMB12,993. Most foreigners in Shanghai earn in excess of RMB12,993 so generally the company would be required to contribute RMB4807.41 per month per foreigner.
When negotiating new employment contracts, Australian businesses should consider that the employee may need to start making social insurance contributions. Prospective employees considering working in China may be disgruntled by having to make social insurance contributions at some future stage after finalising their employment contract to work in China. In Shanghai, employees must contribute 11% of their salary which is capped at RMB12,993. So, a foreign employee in Shanghai would be required to contribute RMB1429.23 per month. Employers should explain to prospective employees that the employee’s social insurance contributions go into a personal social security account. The personal account can be transferred to different cities in China if the employee changes their Chinese city of employment, and can be closed with the money refunded to the employee upon exiting employment in China.
Foreign employees working for Australian businesses in China for a period of 183 days or less are not required to partake in the SIL. Hence, if it’s practical, companies may consider structuring their company so foreign employees are in China short term.
The most logical way forward in terms of mitigating the effect of the SIL on Australian businesses operating in China will need to come from government. Countries who sign a bilateral or multilateral social insurance agreement with China will exempt their citizen’s from partaking in China’s SIL. Presently, the only nations to have entered into such an agreement with China are Germany and South Korea. We at Tony Tang, suggest it is in the interests of Australian businesses operating in China to submit to the Australian government that such an agreement would be of benefit to Australian businesses employing Australian employees in China.
Australian businesses should remember that there is nothing preventing enforcement retrospectively. There is precedent to support such occurrence. For example, the Suzhou Human Resource and Social Security Bureau implemented the legislation on January 18, 2012. However, foreigners who had been working before and as at October 15, 2011 and in any period prior to implementation were required to make retrospective payments from October 15, 2011.
In the future, the further implementation of the SIL for foreigners working in China may fall into line with other laws which ensure that positions are filled by Chinese employees rather than foreigners. For example, from 2017 onwards partners with out Chinese accounting qualifications at the “Big Four” accounting firms may not exceed 20 percent in China. As the Chinese economy grows and improves we may see further laws where the central government is seeking to strengthen its internal control in relation to foreigners working in China. Hence, for Australian businesses the time to prepare is now.
In Shanghai, it will most likely cost a business RMB4807.41 per month per foreigner, assuming that the foreigner earns in excess of RMB12,993. This would mean a yearly cost of RMB57,688.92 (over US$9,000) per foreigner per year to the company’s bottom line. Companies should ask themselves: “Can we afford that sort of hit to our bottom line?” And: “In the knowledge that social insurance contributions for foreigners may be a reality in the future what strategies will we implement presently?” 

Contact the author through John Crozier Durham at the Foreign Service Centre at Shanghai Tony Tang Law Firm at


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