Overview of the social security system
China’s social security system is made up of five different kinds of insurance, plus one mandatory housing fund, as follows:
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China Social Security System |
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Category |
Contribution* |
Description |
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Employer rates |
Employee rates |
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Pension insurance |
Around 16% |
Around 8% |
Designed to provide necessary financial support to individuals after their retirement |
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Unemployment insurance |
0.5%-1% |
Around 0.5% |
Designed to provide financial support to individuals who involuntarily lost their job within certain period |
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Medical insurance |
5%-12% |
Around 2% |
In the event of illness/non-occupational injury, an employee can have part of the treatment cost covered by medical insurance |
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Work-related injury insurance** |
0.5%-2%*** |
- |
Designed to cover the cost of treatment should an occupational injury or occupational disease occur |
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Maternity insurance**** |
0.5%-1% |
- |
Designed to cover part of the female employee’s medical expense of childbirth and their salary during the maternity leave |
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Housing fund |
5%-12%***** |
5%-12% |
Designed to ensure that workers save to purchase housing |
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* The amount of contribution in each category is calculated by utilizing the employee’s payment base figure and multiplying it by different percentages required by each local government entity. **Depending on what kind of work is being carried out by the employee. The procedure for the employee to enjoy the work-related injury insurance allowance is complicated, several documents may be required to prove the injury is work-related. *** The rate of the work-related injury insurance normally related to the industry of the company. ****Maternity insurance has been merged into medical insurance in most cities. The contribution rate of the employer shall be the sum of their original contribution rates to the medical insurance and the maternity insurance. The contribution rate of the employee shall be their original contribution rate to the medical insurance, considering employees don’t need to contribute to the maternity insurance. *****In certain cities, employer and employee are allowed to contribute more than 12 percent. |
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Employers' social insurance obligations
When hiring staff, employers need to register them with the local social insurance bureau and the housing fund bureau to initiate or reactivate the company’s corresponding accounts.
Although both employer and employee are obligated to make contributions, it is generally the employer’s responsibility to correctly calculate and withhold the payments for both parties.
Employers are required to pay their employees and ensure contributions are made on time. Failure to do so may lead to labor conflicts or fines. If there are serious and repeated infractions, the organization may be listed on an HR "name and shame" list, which may make it more difficult to recruit new employees in the future.
An employer’s obligation to make adequate and timely contributions cannot be alleviated or exempted by reaching a mutual agreement with employees.
How to calculate the contribution base?
The social security contribution base is a figure that is determined by the employee’s average income in the previous year (that is, January to December). The calculation method is as follows:
Social security contribution base = Previous year’s total income* / 12**
*Total income includes basic salary, allowance, bonus, commission, 13th salary etc.
**For new hires, the starting salary may be used as the social security base during the first year. The base figures for social security contributions have floors and ceilings. The contribution base is capped at 300 percent of the average local salary, and the minimum contribution base is usually decided either by the local minimum wage or certain percentage of the average local wage.
Local governments generally update the average local salary benchmark and minimum wage once per year, which updates the social security floor and ceiling in kind.
Social insurance foreign employees' contributions
As per the Interim Measures for the Participation in Social Insurance of Foreigners Employed released by the Ministry of Human Resources and Social Security (MOHRSS), foreign employees have to participate in the social insurance scheme.
However, since social security is managed at the regional level, a range of inconsistencies exist among cities. Some cities treat foreign employees the same way as domestic employees, which means that social insurance payments are compulsory, while others do not currently require foreign employees to contribute towards social insurance
Foreign employees are also eligible for social insurance exemptions if they come from countries that have social insurance exemption agreements with China.
To date, 11 such agreements have been implemented:
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Country |
Date of implementation |
Mutual range of exemption |
Personnel exempt from paying insurance premiums in the participating countries |
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Germany |
April 4, 2002 |
Pension, unemployment insurance |
Dispatched personnel, subsidiary staff, those with no employer, naval crew, diplomatic employees |
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South Korea |
January 16, 2013 |
Pension for urban employees, rural endowment insurance, urban endowment insurance, unemployment insurance |
Dispatched personnel, short-term employees, self-employed persons and investors, employees on board ships and aircraft, diplomatic and consular office personnel, government or public institutions employees |
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Denmark |
May 15, 2014 |
Pension |
Dispatched personnel, employees on navigational ships and aircraft, diplomatic and consular office personnel, government or public institution employees, Chinese nationals employed on Danish territory whose employment period is not more than six months, or falls under a training and education program of no more than 18 months, expecting persons who have already participated in the country’s social insurance scheme |
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Canada |
January 1, 2017 |
Pension for rural and urban residents |
Dispatched personnel, self-employed persons, employees on board ships and aircraft, government employees |
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Finland |
February 1, 2017 |
Pension, unemployment insurance |
Dispatched personnel, self-employed persons, employees on navigational ships and aircraft, diplomatic or consular personnel, and civil servants |
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Switzerland |
June 19, 2017 |
Pension, pension for urban and rural residents, unemployment insurance |
Dispatched personnel, employees on board ships and aircraft, diplomatic and consular personnel, government or public service agencies, accompanying family members |
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The Netherlands |
September 1, 2017 |
Pension, unemployment insurance |
Dispatched personnel, employees on board ships and aircraft, civil servants, diplomatic and consular personnel, accompanying family members |
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Spain |
March 20, 2018 |
Pension, unemployment insurance |
Dispatched personnel, employees on board ships and aircraft, civil servants, diplomatic and consular personnel |
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Luxembourg |
May 1, 2019 |
Pension |
Dispatched personnel, self-employed persons, employees on navigational ships and aircraft, diplomatic or consular personnel, and civil servants |
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Japan |
September 1, 2019 |
Pension |
Dispatched personnel, employees on board ships and aircraft, civil servants, diplomatic and consular personnel |
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Serbia |
February 1, 2021 |
Pension, unemployment insurance |
Dispatched personnel, employees on board aircrafts, diplomat and consular personnel, civil servants and personnel of equivalent treatment |
China has also signed agreements with France, which is not yet in effect.
The exemption scope and qualifications may vary from one agreement to another, and the local social insurance bureaus may have different policies towards the implementation of the exemptions. Employers should consult and apply with the local bureau in charge before they decide not to contribute for their foreign employees.
Expatriates generally cannot participate in the housing fund scheme. Nevertheless, some regions, such as Shanghai, Shenzhen, and Tianjin, allow foreign employees to make contributions to the housing fund on a voluntary basis. This is a measure to attract talents rather than being a mandatory obligation.
FAQ: HR in China – Navigating the Country’s Social Security Scheme
Are there any mandatory benefits employers must provide their employees in China?
Yes, employers must provide their employees with timely and adequate social security payments. China’s social security system consists of five different types of insurance, plus one mandatory housing fund.
- Pension insurance: provides necessary financial support after retirement.
- Unemployment insurance: provides financial support to those who involuntary lost their job within a certain period.
- Medical insurance: covers part of treatments costs in the event of illness or non-occupational injury.
- Work-related injury insurance: covers the cost of treatment in the event of occupational injury or occupational diseases.
- Maternity insurance: covers part of a female employee’s medical expense of childbirth and salary during maternity leave.
- Housing fund: ensures that workers save some money towards buying a house.
Are foreign employees working in China required to participate in the social insurance scheme?
Foreign employees are required to participate in China’s social insurance scheme. However, since social insurance is managed at a regional level, there has been inconsistencies among cities.
Foreign employees can also be eligible for social insurance exemptions if their countries have social insurance agreements with China. The scope of the exemptions and qualifications may vary from country to country. In addition, foreign employees are generally not required to contribute to the housing fund scheme, however, they can make voluntary contributions in certain cities.
Are there any other obligations for employers regarding the social insurance scheme?
Under China’s system, when hiring new staff members, employers must register them with the local social security and housing fund bureaus to initiate or reactivate their accounts. It also falls upon the employer to correctly calculate and make payments for contributions - for both themselves and their employees.
Payments must be made timely and late contributions may result in fines.
Can an employer’s social security obligations be waived if an employee opts out of the social insurance scheme?
No, an employer’s obligation cannot be waived even if a mutual agreement has been reached with an employee. In practice, employers and employees may mutually agree not to contribute, especially in the case where gross salaries are not high. However, in the case of a labor dispute the court will consider such agreements invalid, and employers may be required to repay the social security or pay extra severance pay in the case of termination.
Whose responsibility is it to collect social security payments?
Starting from January 1, 2019 the Scheme for Deepening the Reform of the State Tax & Local Tax Collection Administration System states that all social insurance premiums will be collected by the tax authorities. Other policies relating to social security payment base and rates will remain the same. Though this new rule isn’t officially implemented in most cities, we foresee that the tax authorities will be able to obtain more and more information on enterprises through big data, thus putting forward higher requirements for enterprise compliance.
