COVID-19 and Social Security Exemptions


The Executive Conference of the State Council (the “Executive Conference”) was held on February 18, presided over by LI Keqiang, the Premier of China’s State Council. The Executive Conference decided to 1) reduce or exempt social security fees temporarily and 2) defer payment of the housing fund of enterprises temporarily (the “Policy”). Since we have received many inquiries about the situation, we decided to share some general answers for your reference below. More implementation measures related to the Policy will be announced by local authorities in the near future.

First, the Policy temporarily reduces or exempts micro, small and medium-sized enterprises (“MSMEs”) from paying endowment insurance, unemployment insurance and work injury insurance fees. This is meant to decrease the negative impacts of the COVID-19 epidemic (the “epidemic”), and also to decrease the pressure on enterprises after resuming work. In addition to enterprises in Hubei Province, those in other provinces can 1) exempt the above three insurance fees for MSMEs from February to June, and 2) reduce the three insurance fees by half for large-sized enterprises from February to April. Enterprises in Hubei Province can exempt the three insurance fees for all kinds of enterprises from February to June.

Second, before the end of June, enterprises can apply for housing fund deferral. During this period, employees will not be treated as overdue when they fail to pay the housing fund loan due to the epidemic. The implementation of the Policy takes aspects of the current situation into consideration, such as the balance of social security fund, which ensures the full payments of all social security benefits, and ensuring that endowment insurance benefits are paid on time

Third, the Policy is meant to guarantee the basic life of the unemployed by ensuring the full, timely payment of unemployment insurance benefits, and provide more temporary posts related to the public interest in cities seriously impacted by the epidemic. The Policy also makes clear to take advantage of the unemployment insurance fund to pay unemployment benefits to the unemployed.

Frequently Asked Questions:

  1. Along with the reduction or exemption of endowment insurance, unemployment insurance, and work injury insurance fees, will medical insurance and birth insurance fees be exempted?

According to the latest Policy, only endowment insurance, unemployment insurance and work injury insurance fees will be reduced or exempted. The Policy does not apply to medical insurance or birth insurance fees.

  1. Should the individual payment portion be exempted together with the enterprise part?

There is no exemption for individual payment portion. According to the State Council’s notice, only the enterprise portion is exempted.

  1. Is this a temporary Policy? How long will this last?

This preferential Policy is temporary.

In all provinces except Hubei Province, MSMEs may be exempted from February to June; large-sized enterprises may be exempted 50% from February to April.

For Hubei Province, all kinds of insured enterprises may be exempted from February to June.

  1. Will social insurance benefits be affected during this exemption period?

No, they will not be affected.

  1. If an enterprise performed layoffs or dismissals, can it enjoy the preferential Policy during this period?

The State Council did not attach any conditions to the reduction or exemption Policy, so enterprises that performed layoffs or dismissals can still enjoy the Policy.

However, it is recommended that enterprises and employees work together to overcome difficulties during this time to avoid layoffs or resignations, especially since production needs to resume in the near future, and recruitment of skilled employees would be troublesome and costly. At present, it is suggested that companies arrange flexible working models, such as shift work, remote office, adjustment of working hours, etc.

  1. Is the preferential Policy applied for the dispatching employees?

Dispatching employees are considered the employees of the labor dispatching companies themselves. Accordingly, their social insurance fees can be reduced or exempted.

Should the employing unit (the unit where dispatching employees actually work) still need to pay the social insurance fees?

If there is any agreement between the employing unit and the labor dispatching company in this regard, the agreement shall be performed. If there is no such agreement, since the labor dispatching company would either be exempted from, or only partially paying the social insurance fees under the Policy, the employing unit would likewise not be required to reimburse the dispatching company the full amount.

  1. Can companies who pay social security through a third company enjoy the preferential Policy?

Legally, social security should be paid by the employer itself. Therefore, behaviors like paying on behalf of others, or through other affiliations (“third party”) are all not compliant.

However, should the third party charge the employer for the reduced or exempted part of the social insurance? We believe that in principle the employer should only pay for the actual amount eventually charged by the social security fund.

  1. How are MSMEs and large-sized enterprises distinguished?

They are distinguished according to the <Provisions for Classification Standards of Small and Medium-sized Enterprises> (Gong Xin Bu Lian Qi Ye [2011] No. 300) issued jointly by four national departments: the National Bureau of Statistics, Ministry of Finance, Ministry of Industry and Information Technology, and National Development and Reform Committee.

Who is responsible for the identification and confirmation? Is it a self-declaration and self-commitment performed by the company, or a confirmation handled by authorities upon reviewing relevant materials (such as profit situation) submitted by companies, or is it decided by the competent authority based on an information shared among other authorities?

In practice, it depends on the regulations of different local departments. A simple method may be the “exclusion method”, which by default excludes large-sized enterprises and then deems the rest to be MSMEs which can be fully exempted from the social security fees. What we can confirm now is that in cities where the tax bureau is responsible for collecting social insurance and medical insurance, the determination is mainly based on the tax system.