China Employment Law Frontline August 2020

Currently in China, the city in which an employee contributes (and receives) social insurance will affect the level of residential benefits that they receive, which vary greatly across different locations in China.

For example, the pension in Beijing is relatively higher than many other cities in China. A non-Beijing citizen will be allowed to purchase an apartment in Beijing providing that they have made social insurance contributions in Beijing for at least five years. As such, it is likely that individuals will wish to contribute social insurance in well-developed cities such as Beijing, Shanghai and Suzhou, where the level of benefits will be notably higher than those received in less-developed cities.

However, strictly speaking, the PRC Social Insurance Law requires employers to contribute social insurance for its employees in the city where the employer is registered. Given the above difference of local benefits, the employees based in Beijing would prefer contributing social insurance locally. As such, employers that were registered outside Beijing which wanted to engage an employee based in Beijing would previously engage a HR agency to handle social insurance contributions in Beijing. This approach was feasible due to the simplicity of the social insurance filling process - the HR agency could open an account for the individual through the online insurance system and then simply contribute social insurance for the individual accordingly, without the need for any labour contract information or supporting documentation.

While this cross-city social insurance filling service does not strictly comply with the law, it has been tolerated by the government for quite a long time, because, to some extent, it can promote cross-city human resource movement. However, this option is no longer a possibility following the issuance of a new rule by the Beijing Human Resource and Social Security Bureau in July 2020.

According to the new rule, when opening a new insurance account for an individual, Beijing HR agencies will be required to provide the labour contract information of the individual, including (i) the type of the employee; (ii) the employee's work position; (iii) salaries under the labour contract or labour dispatch agreement; and (iv) the term of employment or labour dispatch agreement. Such information will need to be provided into the online service portal. Further, the individual’s employment contract or labour dispatching agreement will need to be uploaded onto the online social insurance system for further check. As such, the contribution of social insurance via HR agencies will be strictly restricted to three types of employees - HR agencies' own employees, labour dispatch employees (劳务派遣员工), and labour outsource employees (劳务外包员工).

As a result, companies that have employees based in Beijing but do not have a registered branch there (who previously used a third-party agency to file social security for their Beijing-based staff) will now need to find an alternative solution. The most legally-compliant approach would be to set up a branch in Beijing to account for the Beijing-based employees.

At the time of writing, it is only the local Beijing government that has raised and implemented such requirements. It is not yet known whether other local governments will follow, but we will keep you informed of further developments.

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