Social Insurance Contribution for Foreign Employees in Shanghai
Since China reopened its borders to foreign workers a few months ago, employers in China have resumed hiring and employing foreign talents. However, since the pandemic, there have been modifications to the requirements when paying social insurance for foreign workers. In this article, we discuss the relevant legal requirements and the legal exposure for employers not complying with the requirements.
Legal Requirements for Enrolment of Foreign Employees
The current laws indicate clearly that, effective October 2011, employers in China are obliged to enroll foreign employees working in China (including those working in Shanghai) into local statutory social insurance schemes in China.1 However, such requirements used to be considered “non-mandatory” in Shanghai and are today still considered to be non-mandatory by some HR and legal professionals due to a prior local document called “Hu Ren She Yang Fa [2009] No. 38” (沪人社养发〔2009〕38号) (Shanghai No. 38 Document).
By way of background, the Shanghai No. 38 Document was originally issued by the Shanghai Municipal Human Resources and Social Security Bureau in 2009 to provide non-PRC nationals (then working in Shanghai) the opportunity to participate in the statutory pension, medical and unemployment insurance schemes in Shanghai because before the Social Insurance Law and the Interim Measures for the Participation in Social Insurance of Foreigners Employed in China (Interim Measures) took into effect in 2011, foreign employees were not allowed to participate in any statutory social insurance schemes in China. The Shanghai No. 38 Document soon became “controversial” after the issuance of the Social Insurance Law and the Interim Measures in 2011 because, under this local document, it was optional for foreign employees to participate in the said three statutory social insurance schemes, which is contradictory to the national legislation. However, the document nonetheless had been confirmed by the Shanghai authorities in 2016 to continue to be “applicable” until 15 August 2021.
As a result, and until 15 August 2021, many employers in Shanghai (including many MNCs) had elected to rely on the Shanghai No. 38 Document as a reason not to pay social insurance for their foreign employees in Shanghai. Since 15 August 2021, however, more and more employers in Shanghai (including many MNCs) have started to make the payments given the Shanghai No. 38 Document ceased to be effective, and the enrolment of foreign employees is mandatory under the Social Insurance Law and the Interim Measures.2
Legal Exposure for Employers Not Complying with Enrollment Requirements
Based on the relevant laws and current practice of the local labour and social insurance authorities in Shanghai, employers in Shanghai that have yet to pay social insurance for their foreign employees in Shanghai are exposed to potential legal risks, such as being requested by the foreign employees (whether current or former employees) to make back payments for them, being imposed late fees by the local social insurance authorities, being liable for the social benefits that the foreign employees would have otherwise enjoyed (e.g., damages for the employee’s inability to receive pensions in China after reaching the statutory retirement age), etc. Further, a foreign employee may terminate his/her employment with the employer and claim for the statutory severance pay on the ground that the employer failed to pay social insurance for him/her.
Employers in Shanghai that are planning to hire foreign employees, or those who have hired foreign employees but have yet to pay social insurance should pay attention to the above developments and act on social insurance enrollment. In addition, the following issues are worthy to note:
- Any adverse impact on foreign employees’ individual income taxes in China arising from their enrollment in social insurance.
- Whether the employer will bear the employee’s portions of contributions for the foreign employees and how it may claim these back when the foreign employees leave China.
- Any implementation plan / timeline of contributing social insurance for the foreign employees including a communication plan with social insurance authorities, especially if there are multiple foreign employees.
1Article 97 of the Social Insurance Law, effective 1 July 2011, provides that foreigners working in China shall participate in social insurance analogically in accordance with the Social Insurance Law. Further, according to Articles 3 and 4 of the Interim Measures for the Participation in Social Insurance of Foreigners Employed in China, effective 15 October 2011, employers in China are legally required to enroll foreign employees (including those directly employed in China and those employed outside China and seconded to work inside China) into the local statutory social insurance schemes in China.
2In fact, even before 15 August 2021, if a foreign employee made a complaint, the local authorities in Shanghai would require the employer to enroll the foreign employee into the local statutory social insurance schemes in Shanghai.
