Have questions? Ask us!

Social Security Contributions in China: A Guide for Overseas Employers

Employers hiring in China will find a fairly complex social security system with many different contribution rates that vary between cities and regions.  Companies that are used to a standard national system of contribution rates may find it difficult to adjust to all of the calculations required.

The contribution rates for employers can be high, so foreign employers will need detailed information and guidance prior to hiring to assess the overall cost of compensation.

What does China’s social security system include?

China’s social security system covers five different types of benefits and a housing fund.  Employees do not contribute to all of these, and rates vary between regions so the rates listed are a range of percentages applied depending on work location.

  • Pension: Employee retirement fund

Employer rate: 14-16%        Employee rate: 8%

  • Medical: Reimburses medical expenses at approved hospitals

Employer rate: 10%              Employee rate: 2%

  • Unemployment: Up to 12-24 months of benefits in case of redundancy

Employer rate: .5-.8%           Employee rate: .2-.5%

  • Maternity: Insurance to cover wages during maternity leave

Employer rate: .8-1%           Employee rate: 0

  • Work-related Injury: Cost of treatment for occupational injury

Employer rate: .14-1.9%      Employee rate: 0

  • Housing fund (residents only): Savings for house purchase

Employer rate: 5-12%          Employee Rate: 5-12%

This is a generous list of social benefits and explains why the employer’s contribution rate can be almost 30% of salary.  Foreign employers may be shocked at this amount, for example if they are based in the US where the employer social security contribution is only 7.5%.

Subscribe to get more insights like this.

What are the employer’s and employee’s payroll obligations?

Employer

  • Register new employees with Social Insurance and Housing Fund Bureaus
  • Calculate correct contributions for both employer and employee
  • Make timely contributions, and adjust for annual rate changes

Employee

  • Agree to the contributions made by employer (mutual agreement with employer for non-contribution is possible)

How are the contributions calculated in China?

The first step is to calculate the social security contribution base, which uses the previous year’s salary divided by 12 (New employees use the starting salary). There are minimum and maximum contribution bases, depending on the location of work.

Next, the contribution rate is applied to the base, and that rate will vary between regions.  In general, the employee’s contribution rate totals just over 10% and the employer rate ranges from 27-30%, subject to the ceiling for the contribution base.

Are foreign workers and expats required to contribute to social insurance?

The national system does require expat employees to contribute, however, some regions have different rules for foreigners.  For example, Shanghai does not require expats to contribute to social insurance, and other cities may only require certain insurances to be paid such as medical.

Another exception is for foreign employees whose home country has a social insurance agreement with China, and in that case it does not have to be paid (because the employee is still contributing at home).  Those countries include Germany, Canada, Japan and others, where pension and/or unemployment is exempted.

Client Case: Social insurance contribution change

Each year the contribution base can change if there is a salary change, and we had a client with employees in China who needed to know the current contribution for 2020.  In this case, the contribution base salary was going to be adjusted higher since there was a salary increase over the previous year for one employee, which meant a higher social contribution for both the employee and employer.

Do you need more information about China?

If you are entering China as an employer for the first time, you may have other questions such as:

Does the contribution rate based on previous year salary apply for previous employment, or is it just with the same employer?

Does China have any non-taxable allowances to cover employee expenses like transportation or meals? 

If the home country does not have a social insurance agreement with China, how is double payment avoided for employer and employee?

Because doing business and hiring in China is complex and dynamic, we assist our clients in meeting the local employment regulations to stay in good standing as a local employer.  This includes making sure all payroll calculations, benefits and entitlements are correct and compliant.  We make international employment simple.

 Need more information about employing in a new country? Learn more about:

 

 

Looking to hire an employee in China? Get in touch.

Related Articles