Answer: Employers are obligated to purchase the “five insurances and one fund” for most of their employees. However, for employees on casual hours, employers are only required to purchase work injury insurance, and for foreign employees, there is no mandatory requirement to purchase the housing provident fund. The term “five insurances and one fund” refers to the social insurance system established in China since 2006. It means that every employer is obligated to purchase basic pension, basic medical, unemployment, work injury, maternity insurance (the five insurances), and housing provident fund (the one fund), for their employees.
The contribution base for the five social insurance programs is, in principle, the individual employees’ previous month¡¯s wages, but it is subject to an upper limit of 60% and a lower limit of 300% of the local social average salary from the previous year. Some provinces and municipalities may also use individual average wages from the previous year as the base. Some provinces and municipalities may also use individual average wages from the previous year as the base.1The basic pension insurance policy for urban employees in Sichuan Province clearly stipulates that the basic pension insurance premium for an employee shall be based on the average monthly wage of the previous year, or the wage of the previous month, of the employee. In China at present, the issue of social insurance contribution base is an area of low legal compliance. Many enterprises contribute to social insurance for employees merely based on local minimum wage standards rather than individual employees’ previous month’s wages. Consequently, due to this non-compliance, employers may have to compensate for discrepancies in certain items of social insurance entitlements, such as one-off disability allowance, caused by insufficient social insurance contributions.2Gao Jianping, Guangzhou Liwan District Social Insurance Fund Management Center Financial Administration (Finance) Retrial Review and Trial Supervision Administrative Ruling No.2770 of Guangdong Provincial People¡¯s High Court Administrative Ruling (2019). In the case the employer purchased insufficiently the work injury insurance for the employee, the employee insisted that the Social Security Bureau paid the one-off disability allowance in full. The Guangdong Provincial High Court held that the request should be made to the employer rather than the Social Security Bureau, and therefore rejected the request in the retrial.
Some types of social insurances including pension, medical, and unemployment insurance are contributed by both employers and employees. In case of insufficient contribution, the employees¡¯ loss of aforementioned discrepancies in social insurance entitlements should be borne by both parties according to the ratios of the contributions.
The purchase of social insurance involves the proportion of individual contributions of employers and employees. At present, there is no uniform regulation on the proportion of employer and employee contributions to the five insurances in the whole country, and the proportion varies from place to place, and the proportion of contributions in the same place may also be adjusted at different times.
Taking Shenzhen, Guangdong Province in 2023 as an example, the contribution ratio for pension insurance is 14¨C15% for employers and 8% for employees, which is the result of years of decrease. The contribution ratio for medical insurance is 6.2% for employers and 2% for employees. However, the contribution ratios for second and third tiers of medical insurance are 0.45% for employers and 0.1% for employees. For unemployment insurance, the contribution ratios are 0.7% for employers and 0.3% for employees. Contribution ratios for work injury insurance range from 0.14% to 1.14% for employers only depending on different roles in different industries. Contribution ratios for maternity insurance (including male employees) are 0.5% for employers only.
Housing provident fund is jointly contributed by employers and employees during the implementation of the employee’s employment contract. It is used to assist employees in purchasing property or investing in renovation of their residences. In practice, the compliance status of housing provident fund contributions is lower than that of social insurance, and it wasn’t until around 2015 that the government began to promote mandatory contributions. According to the “Regulations on the Management of Housing Provident Fund,” both employers and employees should contribute at least 5% of employees’ individual salaries from previous year.
In addition, enterprise annuity is a supplementary pension insurance voluntarily decided by employers and workers in accordance with the Measures for Enterprise Annuity. It is not a mandatory obligation of employers, and employees can only withdraw it if it is in place when they reach retirement age. 3Liang Haiqing and Maoming Petrochemical Hospital Co., Ltd. and Maoming Branch of China Life Insurance Co., Ltd. Liu Wei v. Xi’an Xihang Group Aerospace Ground Equipment Co., Ltd. Civil Ruling of Shaanxi Provincial People¡¯s High Court (2017) No.1296. Some courts, such as those in Beijing, even hold that disputes regarding enterprise annuity are not considered as employment disputes. 4Civil Judgment of Second Instance on the Labor Dispute between Tan Zhao and China Shipbuilding Industry International Trading Co., Ltd. Civil Judgment of Beijing No.2 Intermediate People’s Court (2021) Jing 02 Min Zhong No. 11343.
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- 1The basic pension insurance policy for urban employees in Sichuan Province clearly stipulates that the basic pension insurance premium for an employee shall be based on the average monthly wage of the previous year, or the wage of the previous month, of the employee.
- 2Gao Jianping, Guangzhou Liwan District Social Insurance Fund Management Center Financial Administration (Finance) Retrial Review and Trial Supervision Administrative Ruling No.2770 of Guangdong Provincial People¡¯s High Court Administrative Ruling (2019). In the case the employer purchased insufficiently the work injury insurance for the employee, the employee insisted that the Social Security Bureau paid the one-off disability allowance in full. The Guangdong Provincial High Court held that the request should be made to the employer rather than the Social Security Bureau, and therefore rejected the request in the retrial.
- 3Liang Haiqing and Maoming Petrochemical Hospital Co., Ltd. and Maoming Branch of China Life Insurance Co., Ltd. Liu Wei v. Xi’an Xihang Group Aerospace Ground Equipment Co., Ltd. Civil Ruling of Shaanxi Provincial People¡¯s High Court (2017) No.1296.
- 4Civil Judgment of Second Instance on the Labor Dispute between Tan Zhao and China Shipbuilding Industry International Trading Co., Ltd. Civil Judgment of Beijing No.2 Intermediate People’s Court (2021) Jing 02 Min Zhong No. 11343.