Do you employ people in multiple locations? (Part 3)

Maggie Jia

Maggie Jia is a partner and heads the firm’s Employment & Compliance practice. She holds a bachelor’s degree from the East China University of Political Science and Law in Shanghai (China) and a master’s degree in Economic Law from the Friedrich Schiller University Jena, in Germany. She passed the China Bar examination in 2012. Prior to joining DaWo Law Firm, she worked in Shanghai and gained experience at a well-known Chinese law firm and at De Wolf Law Firm Shanghai.

In the act of a special insurance contractual relationship, apart from the individuals and companies, the state finance, social insurance funds and social insurance departments are also important parties in a social insurance relationship.

A fictitious labor relationship can affect the overall operation of the social insurance system and can also have a negative impact on the state finance. Currently, at the national level, the central government has started to implement the policy that social insurance expenses are collected uniformly by taxation departments. As “One province transfers when the situation is mature”, the space for Non-local Social Insurance Contribution will gradually disappear in the future. Additionally, medical insurance which is now supported by cross-regional network settlement, is a part of the motivation for Non-local Social Insurance Contribution which has also decreased significantly.

Under the circumstances of increasingly tightened policies, the compliance risk of Non-local Social Insurance Contribution is getting higher and higher. In the actual situation of employment where the performance place of the employment contract is different from the registration place of the company, so how do you address the issue of social insurance contributions in accordance with the laws and regulations?

In principle, we always recommend that companies pay social insurance contributions for their employees locally. In other words, no matter where the employee actually works, he/she shall pay social insurance in the registration place of the employer. In the event such an arrangement fails due to various reasons, the following methods are often available in practice for companies to refer to according to their actual needs:

1. Establishing Branches in Other Locations

A company with demands for cross-regional employment is advised to set up branches in other locations, open social insurance accounts normally, establish labor relationship with employees, and pay social insurance legally.

2. Labor Dispatch and Labor Outsourcing

If the nature of employment complies with relevant requirements for labor dispatch or labor outsourcing, companies may perform cross-regional employment by means of labor dispatch or labor outsourcing, which can avoid the issue of Non-local Social Insurance Contribution.

Under such a model, the local labor dispatch company or labor outsourcing company (the “Third-party Company”) is the actual employer, and can properly perform the obligation of social insurance contribution on the site of employment; as the accepting entity, the company shall only pay relevant expenses pursuant to the service agreement with the Third-party Company. However, it is required to comply with the normative requirements on labor dispatch and labor outsourcing in practice to avoid other compliance risks such as illegal labor dispatch, “False labor outsourcing, real labor dispatch” and even de facto labor relationship.

DaWo Law Firm has helped numerous companies understand and address their specific Social Insurance needs and minimize the related compliance risk. Please feel free to contact us if you have any questions.

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