Ministries reduce insurance, housing fund costs for employers

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The central government has recently taken several measures to reduce social insurance and housing fund contribution costs for employers.

On 4 April 2016, the Ministry of Human Resources and Social Security and the Ministry of Finance jointly issued a notice on reducing the contribution rates for social insurance (which is inclusive of five types of insurance schemes, i.e., pension, medical, unemployment, work injury and maternity insurance).

Story_5_picAccording to the notice, within two years from 1 May 2016, the employer portion of the pension contributions should be reduced to 19-20%, while the total unemployment insurance rates for employer and employee (which were reduced from 3% to 2% in 2015), will be further reduced to 1-1.5%, with the employee contribution rate being capped at 0.5%. In addition, local authorities will continue to implement a 2015 national notice on reducing work injury insurance by 0.25% and maternity insurance by 0.5%.

The State Council announced in April 2016 that the local housing fund contribution rate should not be higher than 12% – though it is unclear whether 12% represents the total contribution rates for both employer and employee portions, or just the employer portion – and that local housing fund centres should formulate rules to reduce the contribution rates in phases. Companies facing economic difficulties may also apply to reduce the housing fund contribution rate, delay the housing fund payment and then increase the contribution rate, or make back-payments when their financial conditions improve. The national authorities are working on drafting formal regulations that will provide further details on these initiatives.

More than 10 provinces and municipalities – including Shanghai municipality, Guangdong province, Tianjin municipality, Yunnan province, Gansu province, Hangzhou municipality and Xiamen municipality – have reduced their local social insurance contribution rates recently. For example, Shanghai reduced the employer portion of social insurance contribution rates by 2.5% in total (i.e. 1% for pension and medical insurance, respectively, and 0.5% for unemployment insurance) effective from 1 January 2016. Guangdong province also reduced the total unemployment insurance rates by 1%, effective from 1 March 2016, and Hangzhou reduced the employer rate of work injury insurance and maternity insurance by 0.4% in total.

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]