Payroll/HR Alert: China Lowers Social Security Contribution Rates
Beginning May 2016, corporations doing business in China can lower their contribution to Pension Insurance, Unemployment Insurance and Housing Provident Funds. The new policy, announced by the China’s Ministry of Human Resources and Social Security, aims to relieve corporate burden and increase employee cash income.
According to the “Notice on the Interim Reduction of Social Insurance Contribution Rates,” in the next two years:
- Employers can reduce contribution rate to Pension Fund to 20% or even 19% if the accumulated balance of the pension fund in the location is at least sufficient for the payment of pension benefits for the next nine months.
- Employers can reduce contribution to Unemployment Insurance, which varies by locality, to a range of 1% to 1.5% from 2%. Employee contribution of 1% will be capped at 0.5%.
- Employer contribution to housing provident funds should stay below 12%.
In China, provinces generally administer the social security system and set specific social tax rates and thresholds but the basic guidelines are set by the federal government. Some locations have already reduced social insurance contribution rates:
- Shanghai: Employer contribution to Unemployment Insurance reduced from 1% to 0.5%. In addition, employer contribution to Pension Fund was reduced from 21% to 20% and to medical insurance from 11% to 10%.
- Guangdong: Employer contribution to Unemployment Insurance reduced from 1.5% to 0.8%. Employee contribution reduced from 0.5% to 0.2%
- Tianjin: Employer contribution to Unemployment Insurance reduced from 2% to 1%. Employer contribution to Maternity Insurance reduced from 0.8% to 0.5%
- Hangzhou: Employer contribution to Maternity Insurance reduced from 1.2% to 1%
The notice also announced that maternity insurance and basic medical insurance likely will be combined in the future. China has a long standing “five insurances and one fund” format covering: Pension Insurance, Medical Insurance, Unemployment Insurance, Maternity Insurance, Occupational Injury Insurance, and a Housing Fund.
The government estimates that China employers can save a total of over 100 billion yuan ($15.48 billion) each year with the reduced contributions.
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