China takes further steps to reduce social insurance burden on employers

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China is further reducing the social insurance burdens on employers according to a national notice and it is implementing rules issued in April 2019. On 1 April 2019, the State Council issued the notice on Comprehensive Plans for Reducing Social Insurance Contributions. On 28 April 2019, implementing rules in support of the notice were jointly issued by the Ministry of Human Resources and Social Security, the Ministry of Finance, the State Taxation Administration, and the National Healthcare Security Administration.

The notice and its implementing rules will:

  1. Reduce pension contributions by employers: Starting from 1 May 2019, China has reduced the maximum employer contribution rate for pension insurance from 20% to 16%. This reduction was first introduced by the Ministry of Finance in March and is being restated in the notice and its implementing rules.
  2. Continue with temporary reductions in employer contributions to unemployment insurance and work injury insurance: These temporary reductions will remain in effect until 30 April 2020.
  3. Discourage large back-payment orders against companies that have past social insurance non-compliance: The notice and its implementing rules specifically require local authorities to take actions to substantially reduce social insurance burdens on small-scale employers, and recommend that they do not impose large back-payment orders on companies that previously underpaid or did not pay social insurance contributions.
  4. Reduce social insurance contributions by adjusting the calculation formula for the base amount: Social insurance contributions are generally calculated based on an individual employee’s average monthly salary from the previous year (“base amount”), with caps and floors for the base amount determined at the local level. The notice stipulates that the formula used for determining the caps and floors on the base amount should be adjusted downwards so that ultimately the contribution amounts payable would be less.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at [email protected]