Supplimental employee heating charges hit investors in Liaoning

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The northeast of China is entering the cold winter period, and at this time of year families have to pay their winter heating charge, which generally amounts to over RMB1,000 per household – a considerable amount considering the official average wage in Dalian is only RMB1,836 per month.

In the past, this charge was generally paid on behalf of workers by the State-Owned Enterprises who provided the accommodation for their staff. However with the breakdown of this system and widespread ownership of apartments by the general population, the issue of who should pay for heating charges has been a hot topic.

Last year on September 30, the Dalian Municipal Government issued a notification based on Liaoning Province Public Heating Management Regulations. The document states that companies based in Dalian are required to pay both their current and retired employees a heating allowance. In 2005 the allowance was supposed to be paid as a lump sum, calculated based on the specific rank of each employee. The allowance paid to senior managers was RMB2,254, while the amount paid to the lowest rank of worker was RMB966. There are also various complications, for instance spouses of army staff are eligible for higher allowances than other staff.

From this year the allowances are supposed to be paid monthly. These allowances are paid directly to current and retired staff members in addition to basic salary and do not form part of Individual Income Tax Calculations.

In addition to this rule, on September 15, 2006 a circular was issued explaining an additional “Pensioners Heating Allowance” that was being imposed retrospectively from January 1, 2006. Under this system, each month all companies in Central Dalian have to pay RMB37 for each person they employ (this is equal to 2 percent of the average wage for a worker in Dalian last year). The revenue will be pooled into a fund that will be used to pay retired workers’ heating bills in the future, however it remains unclear exactly how retired people will be able to claim benefits from this fund.

Particularly for labour-intensive manufacturing companies with a large payroll these mandatory allowances and taxes are a significant expense, reducing the competitiveness of such companies here in comparison with other areas in China. In effect it increases the monthly minimum wage by over RMB100 per month. As a result there is widespread non-payment and fully-organized implementation of the system seems to be on hold. However company owners here should take note – the notification about the heating allowance to employees states that if the company fails to pay this allowance to its staff the Chief Representative of the company and main directors can be held personally responsible.

Dezan Shira & Associates maintain an office in the Northeast Chinese city of Dalian, advising investors on legal administration, corporate establishment, due diligence and tax policy. Please contact Adam Livermore or visit the Dalian office website for more information.