The Chinese government has advanced the nation’s social security systems to include the basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to protect the basic rights of citizens. These systems enable participating individuals to obtain assistance from the state (according and subject to certain conditions and procedures) in special circumstances such as when they reach old age, suffer certain illnesses, suffer a work-related injury, become unemployed, undergo maternity, etc. Additionally, employers and employees both participate in a housing provident fund system in accordance with the law.
Generally, employers in China contribute social security premiums and housing provident funds for their employees pursuant to the law. Employees themselves also contribute their own social security premiums and housing provident funds pursuant to the law. Employers typically withhold a portion of their employees’ monthly salaries to help them complete their social insurance and housing fund contributions. The employer’s obligation to contribute to social security premiums and housing provident funds, cannot be exempted by mutual agreement with employees.
Expatriate employees hired by Chinese employers are also required to participate in the social security system when they complete the employment formalities required by law. However, expatriate employees may be exempt from social security contributions under a treaty or convention. Expatriate employees are not required to participate in the housing fund system. However, those with permanent resident status may choose to contribute to the housing funds at their own discretion.
Healthcare and Insurances
Employers and employees must both contribute basic pension insurance premiums pursuant to national and local law. Where an employee has contributed basic pension insurance for 15 cumulative years and has reached the statutory retirement age, he or she may collect pension on a monthly basis. The exact amount of such pension is determined according to factors such as his or her cumulative contribution period, his or her wage, the average monthly wage of employees in his or her locality, the total amount in his or her pension account, the average life expectancy of the urban population, etc.
Employers and employees both must contribute basic medical insurance premiums pursuant to national and local law. The costs of employees’ prescription drugs, medical treatments, medical services and use of other healthcare facilities for emergencies or rescue operations will be covered by the basic medical insurance fund pursuant to national and local laws, as long as such costs are consistent with basic medical insurance policies and incurred at approved medical institutions.
- Work-related Injury Insurance
Employers are required to contribute work-related injury insurance premiums according to the combined wages of all staff and a fee rate determined by the social security agency. Employees do not need to contribute to work-related injury insurance. Employees who suffer an accidental injury or contract an occupational illness in the course of work will be entitled to work-related injury insurance benefits if the injury or illness is verified as work related. If these employees are also evaluated and determined to have a disability grade, they will be entitled to disability benefits.
Employers and employees must both contribute unemployment insurance premiums pursuant to national and local law. An unemployed person who has contributed unemployment insurance premiums for at least one year before becoming unemployed, and has completed unemployment registration, may collect unemployment insurance benefits from the unemployment insurance fund.
Employers are required to contribute maternity insurance premiums pursuant to national and local law. Employees are not required to make such contributions. Maternity insurance benefits cover the medical costs for childbirth and provide a maternity allowance. Most cities in China have combined the maternity insurance with the basic medical insurance for unified collection. Each female employee is entitled to a 98-day maternity leave for childbirth, including 15 days that may be taken before childbirth. The maternity leave may also be prolonged according to local regulations.
For example, the local regulation in Shanghai prolongs the maternity leave to 128 days in total. In cases of difficult birth, the maternity leave may be extended for an additional 15 days. In the event of multiple births (such as twins), maternity leave will be extended by 15 days for each additional childbirth. In the event that a female employee undergoes an abortion within the first four months of pregnancy, she will be entitled to a 14-day maternity leave. In the event that a female employee undergoes an abortion after the first four months of pregnancy, she will be entitled to a 42-day maternity leave.
Employers and employees both must contribute to the housing provident fund pursuant to national and local law. The housing provident fund is used for employees to purchase, construct, renovate or rebuild personal dwellings. National labour legislation gives local governments broad flexibility in regulating the social insurance and housing fund and the precise contribution requirements may vary across different provinces or regions in China. Therefore, it is important to confirm the exact contribution rates required by local governments for social security and housing funds in the place where the employee’s social insurance and housing fund are registered.
- Supplementary Commercial Insurance
Apart from the abovementioned mandatory insurances, employers are free to purchase supplementary commercial insurance for their employees at their own discretion. For example, some employers provide a comprehensive health insurance plan (covering medical and dental expenses as well as accidental death and severe bodily harm) for employees and their dependents. However, this is entirely optional.
Holidays and Annual Leave
In the beginning of each year, the State Council will announce a holiday schedule which indicates 11 national holidays, including 1 day for the New Year Holiday, 3 days for the Chinese New Year, 1 day for Tomb Sweeping Day, 1 day for Labour Day, 1 day for Dragon Boat Day, 1 day for Mid-Autumn Day and 3 days of leave for National Day.
According to the Regulations on Paid Annual Leave of Employees, employees who have worked between one and ten cumulative years are entitled to five days of annual leave. Employees who have worked between ten and twenty cumulative years are entitled to ten days of annual leave. Employees who have worked for more than twenty cumulative years are entitled to fifteen days of annual leave. If the employer fails to arrange annual leave for employees due to business reasons, the employer must pay an encashment to employees for such accrued, but untaken annual leave. The encashment value should total 300% of an employee’s daily normal salary for each accrued, but untaken day of annual leave (100% has been included in the monthly salary and therefore only 200% shall be paid additionally).
Maternity and Parental Leave
On 27 December 2015, the PRC Standing Committee of the National People’s Congress issued the new Population and Family Planning Law of the People’s Republic of China (the “Family Planning Law”) which formally abandoned China’s decades-long one-child policy and allows all couples to have two children. Late marriage and late childbearing are no longer encouraged under the Family Planning Law, and maternity leave may be extended by local rules.
Sickness and Disability Leave
During an employee’s sick leave period, his or her salary will be determined and paid based on the standard of sick pay and sick benefits during the medical treatment period according to state laws and local regulations. If an employee suffers from a non-work-related illness or injury and needs to stop working as a result of medical treatment, a medical treatment period between 3 and 24 months will be granted according to local regulations in the place where the employee works, and based on the employee’s years of service with the current employer and all previous employers (e.g. the employee’s entire employment history). If an employee cannot perform his or her original work or other work arranged by the employer after his or her statutory medical treatment period expires, the employer has the right to terminate the employment contract and pay severance upon giving the employee a 30-days’ advance written notice or one month’s payment in lieu of notice. In addition, subject to local regulations in different cities, the employer may pay medical treatment subsidies equivalent to 6 to 12 months of his or her salary based on the seriousness of his or her sickness.
Disability could be caused by a non-work-related injury or a work-related injury. If the employee’s disability is caused by a non-work-related injury, the employee could enjoy the same benefits (sick pay, medical leave and medical treatment subsidies) as in the event of illness. If an employee needs to suspend his or her work in order to receive medical treatment for a work-related injury or an occupational disease, his or her original wage and welfare benefits shall remain unchanged during the suspension period. The suspension period is generally no longer than 12 months. Where the work-related injury is severe or the circumstance is exceptional, after being assessed by the local work capability assessment committee, the said suspension period could be extended by no longer than 12 months. After the disability grade is determined by the local work capability assessment committee, the employee shall not be entitled to his or her original wage and welfare benefits, but can enjoy the following disability benefits:
- If an employee is assessed as having a disability between grade one and grade four, the labour relationship shall remain unchanged, and the employee shall withdraw from his or post and enjoy i) a lump sum disability allowance paid by the work-related injury insurance funds according to his or her disability grade; and ii) a monthly disability subsidy paid by the work-related injury insurance funds according to his or her disability grade.
- If an employee is assessed as having a disability between grade five and grade six, the employee shall a) enjoy a lump sum disability allowance paid by the work-related injury insurance funds according to his or her disability grade; b) retain the employment relationship; and c) enjoy a monthly disability subsidy paid by the employer according to his or her disability grade, if it is difficult for the employer to arrange work for him or her, which shall be no lower than the local minimum salary. If the employee decides to terminate the employment relationship, he or she shall enjoy a lump sum work-related injury medical allowance paid by the work-related injury insurance funds and a lump sum disability employment allowance paid by the employer based on the standards prescribed by the local governments.
- If an employee is assessed as having a disability between grade seven and grade ten, the employee shall enjoy i) a lump sum disability allowance paid by the work-related injury insurance funds according to his or her disability grade; ii) if the employment contract expires or the employee decides to terminate the employment contract, a lump sum work-related injury medical allowance paid by the work-related injury insurance funds; and iii) a lump sum disability employment allowance paid by the employer based on the standards prescribed by the local governments.
- If an employee with a work-related injury has been assessed as having a disability grade and confirmed by the work capability assessment committee as requiring daily life care, expenses incurred for daily life care shall be paid monthly by the work-related injury insurance funds.
Pensions: Mandatory and Typically Provided
Currently in China, mandatory and typically provided pensions only include the basic pension insurance. Recently, the government decided to reduce the employer’s pension insurance contribution rate to lower the cost of private businesses. The Circular of the General Office of the State Council on the Comprehensive Plan for Reducing Social Insurance Contribution Rate requires that, starting from 1 May 2019, if the employer’s contribution rate for the basic pension insurance in any province (city, district) is higher than 16%, it can be reduced to 16%.
- Any Other Required or Typically Provided Benefits
Marriage leave is stipulated by the local population and family planning regulation and its length ranges from 3 to 30 days, in different cities of China. When a member of the employee’s immediate family (parents, spouse or children) passes away, the employee may be given 1 to 3 days of compassionate leave with the approval of the employer, under specific circumstances. Pursuant to the PRC Labour Law, marriage leave and compassionate leave shall both be considered as paid leaves.