In the last three years, I estimate that about 25% of the China employee wage/labor disputes on which my firm has worked have involved foreign (i.e., non-Chinese) employees. I think there are two reasons for this. One, companies do not bother calling us if the dispute involves a Chinese employee being paid $12,000 a year. In those cases, they typically just settle the case themselves as quickly and as cheaply as possible. Their foreign employees always make way more than that.
The second reason is more important. Far too many companies are under the mistaken impression that China’s labor laws do not apply to foreign workers when they most certainly do. China’s labor contract law applies to all of your China-based employees, foreign or not. China’s labor contract law even applies to those foreign employees who have a contract with you saying United States or some other country’s laws apply. To put it another way, all employment law is local.
So what this means is that in many ways you are at greater risk from your non-Chinese employees than from your Chinese employees because foreign employees still generally make considerably more than Chinese employees.
The congruity between foreign and Chinese employees recently got even closer with China’s very recent (July 1) enactment of its new Social Insurance Law, which law applies equally to Chinese and foreign employees.
The new social insurance system will cover the following:
- Pension insurance
- Unemployment insurance
- Work-related injury insurance; and
- Maternity insurance.
Local governments (provinces and cities) determine the contribution rates for employers and employees. We generally tell our clients to expect to have to pay about 40% of an employee’s wages in social insurance.
The new law lessens the employer’s burden for covering work-related injury costs. The new law also includes penalties against employers that fail to make sufficient or timely insurance contributions. This penalty is set at .05% a day on the outstanding contribution. If the employer fails to pay the penalty, additional fines can be imposed by the local administrative department. If things get really bad, the local social insurance administrative department has the right to collect outstanding amounts directly from the employer’s bank account. The law also requires that each employer register with the local insurance administrative department within 30 days of incorporation and register any employee within 30 days of employment.
Were you aware that your foreign employees in China are now covered by social insurance? What have you done to comply with this new law? How has/will this new law impact your bottom line?