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China Employee Benefits – Myths and Truths

What are the Myths and Truths regarding Employee Benefits in China?

Chinese labor law underwent an important revision that took effect on January 1, 2017. The new risks imposed by these changes are substantial even though on the surface, they appear to be public shaming in nature. However, they could lead to increased litigation, and if you violate them, it puts you in the PRC cross-hairs for more intense scrutiny and possible revocation of approval to do business in China. These new laws apply equally to Chinese and foreign (expat) workers. The PRC Ministry of Human Resources and Social Security (“MOHRSS”) issued these revisions under regulations titled “Measures for Evaluating Compliance and Integrity of Employers’ Labor Protection (《企业劳动保障守法诚信等级评价办法》).” The interesting aspect of these new rules is that they make the myths surrounding Chinese law even more treacherous if you fall into those traps. Let’s take a look at a few and set the record straight.

You don’t need to pay an employee’s social insurance if that employee is on statutory sick leave. An employee’s employment contract is neither ended nor temporarily suspended during the statutory sick leave. That law is on the books to prevent the employer from terminating the worker while he/she is on sick leave. You must make all required contributions for the worker including the payment of social insurance.

Housing fund contributions are optional at the employer’s discretion for their employees. This myth rears its ugly head because the requirement to do it is not under the purview of the local PRC human resources authority. A different government agency oversees compliance with this law. It’s tempting to not pay these contributions to an employee’s health and welfare and claim cross-agency ignorance but, the PRC will catch up with you. You may, in fact, be ignorant because of the shift of government agencies, but ignorance is no excuse for not complying with the law. Hire smarter HR people that know the rules or bring in Chinese expert legal talent that knows the labor laws inside and out.

Social insurance does not need to be paid during a new employee’s probation period. You cannot cut corners here. Once the employment contract is signed, your legal obligation to pay the social insurance for that employee begins. There is no gray area here open to interpretation.

If the legal residence of the employee is different than the legal location of the company and comes under other local worker compliance rules, the company is no longer obligated to make social insurance contributions for the employee but rather can pay the employee cash and make him/her responsible for making their social insurance contributions. Ok, you’re crossing a lot of legal compliance issues, and none of them are good. First, the national PRC labor laws are clear. The employer is responsible for paying these social insurance contributions. Local modifications to those rules can make some alterations but do not modify that compliance issue. Second, you’ve opened your company up to increased scrutiny over the nature of your original application for doing business in China. The golden rule is that the location is everything in the eyes of the Chinese government. If you violate the location issue, your approval to do business in China will be revoked. Hiring workers outside of your declared location is a red flag and will get some attention. Trying to modify the rules on your own based on a technicality such as a worker residing outside your declared location is double jeopardy. Avoid creating loopholes and follow the rules.

Employers are exempt from paying social insurance contributions for part-time employees. There are local labor interpretations of the national rules that cause the confusion here. Social insurance contributions are an umbrella for many different types of insurance. Some local labor rules allow the employer to limit that contribution to just occupational injury insurance rather than the full suite identified in the national Chinese labor laws. This kind of issue highlights why you need to engage local labor law legal talent as part of your HR group and simply hire a native, local Professional Employment Organization (PEO) to put a buffer between you and your employees to limit your risk.

Paying the social insurance contribution for other than a native Chinese worker is optional for the employer. The answer to this myth has many dependencies that are based on the local interpretations of national PRC law. But, the bottom line is that, from the Chinese legal perspective, you will probably lose that case if it comes to litigation. Chinese case law does not support your position not to pay the contributions. Thus, you have no legal precedents to cite, and as a foreign-owned company, the Chinese are not prone to letting you set any new legal precedents. Be conservative and opt for the lowest risk for your business.

The bottom line here is that many of these myths arise from the confusion and interpretations of law created at the local level. Native Chinese lawyers have far more experience and the cultural understanding of what works and what doesn’t work when it comes to trying to bend the Chinese labor laws. Have that kind of legal talent on retainer and consult them often before you make any mistakes that might threaten your approval to have a business in China.

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DATE March 28, 2017
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