Is it Legal to Pay Social Insurance in the Name of a Third Party?

Company A is headquartered in Shanghai. The employees who are working in the Hangzhou office of Company A, and they require Company A to pay social insurance in Hangzhou. Since Company A has not establish a branch in Hangzhou, it could not obtain an independent social insurance account, it has to entrust a third party to sign labor contracts with those employees and pay social insurance for them. The HR department is still worried about this arrangement.

In practice, due to many reasons, it is not rare for a company to entrust a third party to pay social insurance for its employees. This entrustment is different from the “social insurance agency service”. The “social insurance agency service” refers to an employer entrusts an agency to pay social insurance under the name of the employer, and it is a principal-agent relationship between the employer and the agency. So, is it legal to the behavior like Company A?

Article 72 of “Labor Law” prescribes that both employer and employee must pay social insurance premiums. Article 10 and 58 of “Social Insurance Law” prescribe that employees shall participate in the basic endowment insurance, and the basic endowment insurance premiums shall be jointly paid by employers and employees; and an employer shall, within 30 days from the date of employment, apply to the social insurance agency for social insurance registration for the employee. In view of the above articles, it is a mandatory responsibility for employers to register a social insurance account and pay the premiums under their own names. However, there is no article prohibiting employers from entrusting a third party to pay the premiums under the third party’s name, so many enterprises and third parties would behave like Company A.

We have investigated the opinions of some social insurance authorities on such behaviors.

Some local regulations have issued a clear prohibition. For example, Article 15 of “Several Provisions on the Regulation of the Social Insurance Participation of Employers in Changsha City” stipulates that the social insurance agency could conduct the social insurance issues on behalf of employers,…… but shall not pay the premiums under the name of the agency. “The Circular of the Changsha Municipal Bureau of Human Resources and Social Insurance on the Activities of Clearing and Reorganizing the Regulations for the Violation of Social Insurance Matters” further clarifies that where an agency has paid the premiums under its name, it shall immediately amend the behavior, and pay the premiums under the name of employers.

From the perspective of judicial judgments, the majority courts did not explain the legitimacy of such behavior. Only a few judgments state that such behavior has violated the relevant laws and regulations. (For example, (2017) Chuan 06 Min Te No.98, (2016) Yue 01 Min Zhong No.19371), (2016) Xiang 0104 Min Chu No. 2085). However, there are also some judgments state that such behavior has not violated the mandatory provisions, even employees and the agency don’t have a labor relationship, the premiums could be paid under the name of the agency.((2015) Shen Zhong Fa Lao Ending No. 40).

Therefore, strictly speaking, such behavior fails to meet the requirements as stipulated in the relevant laws and regulations, it is still risky. If an employee dissolves a labor contract and asks for economic compensation, by the excuse that the employer failed to pay the premiums, or an employee requires the agency to undertake the responsibilities of an employer, although the employer could provide the entrustment agreement to prove that it has paid the premiums, (for example, (2016) Shanghai 02 Min Zhong No.10102, (2016) Wan 02 Min Zhong No.182); or in most cases, the relationship between the employee and the agency would not be deemed as a labor relationship, (for example, (2018) Jing 01 MinZhong No.789, (2015) Hu Yi Zhong Min San (Min) Zhong No.238,(2015) Zhe Jia Min Zhong No.766, etc.), the employer and agency still have to spend time and money in dealing with such disputes.