China: Any Agreement to Waive or Not Contribute to Social Insurance is Invalid, and Employees Who Terminate the Employment Contracts on This Ground are Entitled to Request Statutory Severance from Their Employers

On August 1, 2025, the Supreme People’s Court released six new typical cases of labour disputes, aligning with the Interpretation II. Among these rulings, the Supreme People’s Court explicitly affirmed that any agreement between employers and employees to waive social insurance contributions is legally invalid.  Even if an employee has signed such a waiver, they retain the right to terminate their employment and claim severance pay on the grounds of the employer’s failure to fulfil social insurance obligations.

In this case, Mr. Zhu was employed by a security company (the “Company”) in July 2022, with both parties agreeing that the Company would not contribute to social insurance premiums but instead directly pay the relevant costs to Mr. Zhu as an allowance. Subsequently, the Company made no contributions.

Mr. Zhu claimed that the agreement regarding the non-contribution to social insurance was a pre-printed standard clause prepared by the Company, which deprived him of his statutory rights, conflicted with current laws and regulations, and was therefore invalid. On that ground, Mr. Zhu terminated the employment contract and filed an arbitration application with the Labour and Personnel Dispute Arbitration Committee, requesting the Company to pay severance for the termination of the employment contract.  The Labour and Personnel Dispute Arbitration Committee did not support Mr. Zhu’s request for compensation. Mr. Zhu was dissatisfied and filed a lawsuit.

The court held that the payment of social insurance contributions is a statutory obligation for both the employers and the employees and may not be waived by agreement except as expressly permitted by law.  Any agreement to waive or not contribute to social insurance is invalid. The Company failed to pay social insurance contributions for Mr. Zhu in accordance with the law, and Mr. Zhu terminated the employment contract on this basis, which constituted a statutory circumstance under which the employer is required to pay severance. The court therefore ordered the Company to pay Mr. Zhu statutory severance for the termination of the employment contract.

The Supreme People’s Court held that the mandatory requirement for social insurance contributions helps to encourage employers to mitigate employment risks by legally contributing social insurance contributions, guide employees to focus on long-term interests, and realizes the role of the social insurance system in protecting and improving people’s livelihoods.

Key Action Points

In practice, employers have historically avoided social insurance contributions for various reasons. Some have sought to reduce labour costs by deliberately failing to make mandatory contributions. Others have adopted alternative arrangements, such as disbursing equivalent cash allowances to employees, thereby shifting the burden onto employees to enrol in voluntary urban-rural resident pension insurance schemes.  Additionally, certain employees — particularly younger employees—may exhibit low willingness to participate in social insurance programs, prioritizing immediate cash compensation over long-term statutory benefits.

With the insurance of the Interpretation II, it is clearly stipulated that any agreement to waive social insurance contributions, whether initiated by the employer or the employee on a voluntary basis, is invalid.  It emphasizes that social insurance is a mandatory obligation under the PRC law, implicating public interest rather than private contractual rights that parties may freely waive or modify.

This judicial stance serves as a critical reminder to employers to strictly comply with social insurance contribution requirements and implement proactive measures to mitigate legal and financial risks arising from non-compliance.