Is It Risky to Ignore the Social Insurance of Foreigners?

In the past many years, foreign-invested companies would purchase commercial insurance for foreigners instead of participate in social insurance, because China had not set any requirements in any laws or regulations, and normally, the offshore parent companies would participate in social insurance for foreigners in their own countries.

The “Social Insurance Law” has come into force on July 1, 2011, in which it stipulates that foreigners employed within the territory of the People’s Republic of China shall participate in social insurance analogically in accordance with this Law. And soon afterwards, the “Interim Measures for Social Insurance System Coverage of Foreigners Working within the Territory of China” (hereinafter referred to as the “Interim Measures”) was implemented from October 15, 2011, in which Article 3 prescribes that foreigners lawfully recruited by foreign-invested companies, and foreigners who, after having signed labor contracts with overseas employers, are dispatched to work in foreign-invested companies, foreign-invested companies shall participate in social insurance for those foreigners. Suddenly, whether foreign-invested companies shall participate in social insurance for foreigners became a hot topic.

However, because the “Social Insurance Law” uses the word “analogically”, in practice, many people interpret that this is not a mandatory requirement. Although the “Interim Measures” sets it as a mandatory requirement, since its legal level is lower than the “Social Insurance Law”, normally it shall not set a stricter requirement. In practice, different local human resources and social security bureaus have different enforcement standards, and the majority bureaus take laissez-faire on this issue. In addition, it is hardly to find an administrative punishment on such issue. As a result, from the perspective of cost management, many foreign-invested companies would not participate in social insurance for foreigners.

But the warning clock is ringing.

The Chinese government has signed agreements on the exemption of social insurance with a dozen countries, and it is predictable that the bureaus’ attitude towards this issue will be changed. Article 86 of the “Social Insurance Law” has prescribes where an employer fails to pay social insurance premiums on time or in full amount, the collection agency of social insurance premiums shall order it to pay or make up the deficit of premiums within a prescribed time limit, and impose a daily late fee at the rate of 0.05% of the outstanding amount from the due date. Considering that this article has not been enforced for many years, and local bureaus might not implement this article in a short period, it is not possible for the local bureaus to require foreign-invested companies to make up and pay the late fee; however, it is highly recommended to take this issue seriously.

Foreign-invested companies have to increase the labor costs, but some of those companies could review the agreements signed between the Chinese government and their own countries, and check whether any exemption circumstances could be applied. Take Japan for example, the two countries have signed the “Social Security Agreement” which will come into force from September 1, 2019. According to this agreement, the basic endowment insurance of the foreigners dispatched by Japanese parent companies could be exempted in China, which means the highest proportion of the social insurance in China could be exempted, but the rest insurances, such as the medical insurance, work-related insurance and etc., are still required.