China employers must provide certain mandatory benefits to their China employees (both Chinese and expat), and failing to do so can expose them to serious risks. In this post, I discuss six common myths about my firm’s China lawyers often hear or get asked about regarding mandatory employee benefits.
Myth 1: Employers need not pay into an employee’s social insurance during the employee probation period. Wrong. Your obligation to contribute to your employees’ social insurance starts when the employment relationship commences. Do not delay setting up your employees social insurance account or completing the transfer from the previous employer.
Myth 2: Employers need not provide any social insurance benefits to part-time employee. In most places in China, employers are required to pay for a part-time employee’s occupational injury insurance. Whether or not an employer is able to enroll such employee in just this one type of social insurance, rather than the full set of mandatory social insurance program, depends on your locale. For how virtually everything regarding China employment law is localized, check out China Employment Law: Local and Not So Simple.
Myth 3: An employer registered in City A with an employee who resides and works in City B can pay the employee cash to cover the employer’s portion of social insurance contributions. Wrong. Very wrong. The social insurance payments must be made under the name of the employer or, to the extent permitted under the law in the relevant locale, under the name of a qualified HR company. Either way, paying an employee (full-time or part-time) cash is never the right way to go. Note that hiring employees in other cities implicates company formation issues and should always be coordinated with the human resource and social security bureaus of both the city in which your company is located and the city in which your not-so-local employee is located and companies that get this wrong usually pay a very steep price.
Myth 4: Employers decide whether to make housing fund contributions for their employees. Issues regarding employee housing fund contributions do not come within the jurisdiction of the local human resource and social security authorities, but rather are overseen by a different agency. However, this does not mean you as the employer can simply opt out of this program. You must make such contributions for your China employees and if you do not know what these contributions are all about, you should find out.
Myth 5: Employers need not pay into a non-Chinese employee’s social insurance fund. That depends. In some cities (Beijing and Shenzhen, for instance) you cannot contract out of such obligations for non-Chinese employees. However, in other cities (Shanghai, for example) employers can enter into a contract with their foreign employees that relieves them out of having to contribute social insurance for their foreign employees. Note though that this contract has to be a valid and enforceable one under Chinese law and our China attorneys rarely see one that qualifies.
Myth 6: Employers can stop paying social insurance for an employee on statutory sick leave. Wrong, wrong, wrong. Statutory sick leave is defined as a period when the employee gets to take time off to recover from a non-work related injury or illness without having to worry about being unilaterally terminated by the employer. The employment relationship is not severed by such a leave and that means you as the employer must continue making all required contributions during your employee’s statutory sick leave.