Non-Beijing entities banned from paying social insurance in the city

Companies registered outside of Beijing are not permitted to enroll employees in Beijing for social insurance. Many of them get around this restriction by engaging staffing agencies or payroll companies registered in Beijing to enroll and pay social insurance for these employees on their behalf. This results in the employer showing in the social insurance system different from that of the actual employer on the employment contract. However, this indirect method to get around the ban will come to an end soon due to a recent circular issued by the Beijing Social Insurance Center.

The “Notice on Issues Related to Labor Dispatching Enterprises and Human Resources Service Enterprises Participating in Social Insurance” (Notice, published by various secondary online sources on 20 July 2020 and reportedly issued to staffing agencies and payroll companies in Beijing on 30 June 2020) requires staffing agencies and payroll companies to submit various information of the employee participating in social insurance when registering and adding new employees through the online service platform and the social insurance system. This includes the type of employee, his/her position and salary, starting and ending date of employment contract/dispatch agreement, and the unified social credit code of the actual user entity. In addition, a copy of the employment contract may need to be submitted. Under these new requirements, if the actual user entity is not registered in Beijing, or the employer on the employment contract is not the company (staffing agency or payroll company) which opened the social insurance accounts for the employees in Beijing, the social insurance system will not be able to process the request.

As a result of the Notice, companies which have not registered a presence in Beijing but have hired employees in the city will not be able to engage staffing agencies or payroll companies to process social insurance withholding and payment on their behalf. Companies are being notified that this change may take effect as early as September 2020. If they do not address this issue in time, they risk non-compliance and failing to make social insurance contributions for these employees on time.

In light of the new requirements, companies that have not registered a presence in Beijing but have hired employees in the city are generally considering the following options:

• Set up a branch in Beijing;
• Transfer the employees to a staffing agency in Beijing, so that it becomes the employer on the employment contract, which would then dispatch or outsource the employee back to the company; or
• Purchase commercial insurance for the employee in Beijing and/or enroll the employee for social insurance in another city in China where the company has registered presence.

Each of these options have pros and cons with various implications in terms of risks and costs, which vary based on the actual circumstances such as number of affected individuals, the nature of their role, and the current arrangement with the staffing agencies and employees. Companies that are affected by the new requirement are advised to seek counsel for a solution to these issues though an approach that is most efficient and suitable for its needs.