As an international metropolis, Shanghai is attracting more and more excellent talents from all over the world. According to the Science and Technology Commission of Shanghai Municipality, over 215 thousand foreigners have already obtained work permits in Shanghai. Of course the question rises whether it is mandatory to pay social insurance by the relevant parties.
Many companies are under the impression that they do not have to pay social insurance for their foreign employees in Shanghai. However, please be advised that based on the recent communications with the social insurance department and our experience with cases from our own practice, that might not always be the right policy.
1.Do foreign employees need to pay social insurance?
Generally, the answer is YES.
The Social Insurance Law which came into effect in 2018 clarifies that foreigners employed in China have to participate in social insurance policies. Interim Measures for the Participation in Social Insurance of Foreigners Employed in China (“Interim Measures”) which were issued in 2011 give us more details: foreigners employed in China and foreigners who are dispatched by an overseas employer to a domestic entity have to participate in social insurance, which includes basic endowment insurance for employees, basic medical insurance for employees, work-related injury insurance, unemployment insurance and maternity insurance. The social insurance fee has to be paid by the employers or the domestic entities and the employees in accordance with the provisions.
It is noteworthy that the foreign employees from the countries that have signed bilateral agreements on mutual social insurance exemption with China do not need to participate in all five types of social insurance. The scope of mutual exemption refers to the notification documents issued by the General Office of the Ministry of Human Resources and Social Security. Currently, China has signed bilateral agreements with German, Korea, Denmark, Canada, Finland, Switzerland, Netherlands, Spain, Luxembourg, Japan and Serbia.
In addition, commercial insurance purchased by the employers for the employees will not replace the payment of social insurance.
2.Where does the misunderstanding come from?
In practice, most employers do not pay social insurance for foreign employees based on the Circular of the Shanghai Municipal Human Resources and Social Security Bureau on Several Issues concerning the Participation in Social Insurance for Urban Employees by Expatriates, Personnel Having Obtained Foreign Permanent (Long-term) Right of Abode and Residents of Taiwan, Hong Kong and Macao Working in Shanghai (Hu Ren She Yang Fa No. 38, “Circular”).
The Circular stipulates that foreign employees in Shanghai may, in accordance with the relevant provisions, participate in the basic endowment insurance, basic medical insurance for urban employees and work-related injury insurance, and it can be stipulated in the labor contracts. Because the clause uses the word “may” instead of “shall”, and the payment of social insurance have to be stipulated in the labor contracts in advance, it easily causes the misunderstanding that foreign employees in Shanghai do not need to pay social insurance.
However, the Social Insurance Law is superior to the Circular, and it came into effect later than the Circular, so therefor there is no dispute that foreign employees have to participate in social insurance in accordance with the Social Insurance Law.
3.Is it good for foreign employees to pay social insurance?
It is obvious that paying social insurance is good for foreign employees.
According to the Interim Measures, foreigners participating in social insurance may get benefits such as endowment insurance, medical insurance, maternity leave and work-related injury insurance. If a foreign employee leaves China before reaching the required pension age, his/her social insurance individual account shall be preserved, and the number of years for social insurance payment may be calculated on an accumulative basis when he/she comes back and works in China again afterwards. When the employee applies to terminate the social insurance relationship in writing, he/she can withdraw the balance of the social insurance individual account.
4.Can foreign employees make a supplementary payment of social insurance?
The answer is YES.
The foreign employees have the right to request their employers to make a supplementary payment of social insurance. Tax authorities can also demand the social insurance payment from the employers and the foreign employees. The supplementary payment may be retroactive to the establishment date of the labor relationship, which will be determined by the tax authorities through labor contract, work permit and other documents. However, when the labor relationship was established before the effectiveness of the Social Insurance Law issued in 2011, then the supplementary payment may be retroactive to the effective date of the Social Insurance Law.
Please do not hesitate to contact us if you have any questions or comments regarding the payment of social insurance in Shanghai. We are happy to assist you.