Essential Guide to Social Insurance When Hiring in China!

Social insurance is such an important aspect to consider when hiring someone in China. You are probably reading this article because you have decided to hire someone in this country – congratulations! Every country has their complex way of installing employer contributions, and China is no different. Working out your social insurance requirements when working on your hiring budget is essential – because, in China, this can be anywhere between 10 and 40% of the salary.

Why is there such a range? This variation depends on where you employ someone in China and what salary you pay to your employee. This article will help you understand what you should look for and will delve into China’s core social insurance principles.

An Overview – The Five Insurances and one Fund (五险一金)

China’s social insurance program comprises of five insurance types and the housing fund. Both Employer and Employee must contribute to these programs, and here is an overview:

• Pension (Endowment Insurance) –Employers and employees pay into this scheme, which is part of China’s national pension system to provide for labourers in retirement. The required employer contribution can range from up to 20% of an employee’s salary.

• Medical Insurance – This is another insurance paid by both employers and employees and pays medical expenses if an individual is injured. The employer’s contribution can be 6-12% of the salary, whereas the employee contributes 2%. This fund partly goes into the individual’s medical account and the health system’s public accounts.

• Unemployment Insurance – Should the individual become unemployed, they can claim unemployment benefits from the state if they have paid their unemployment premiums for at least a year. This insurance is another type which needs to be contributed by both employer and employee.

• Maternity Insurance –The employer pays this and contributes towards a fund to cover maternity-related medical expenses and the employee’s salary during maternity.

• Work Injury Insurance – This is another insurance solely the employer pays. The contribution required can vary depending on the nature of work carried out by the employee, but usually below 0.5% of the salary. If an injury happens at work, this fund covers various costs, and the employer will have to cover the injured employee’s wages. This fund differs from Employer Liability Insurance – which you can check out here.

• Housing Fund – The employer and employee must contribute to the statutory house fund. The ministry administers the fund for housing, and each eligible candidate has an individual account. Those eligible can use the funds in this account as a down payment for a house or a mortgage.

How to calculate Social Insurance

So, now you know what ‘Social insurance’ is, but how do you calculate what you need to pay? The payable amount all depends on the salaries and the location. Almost every city has their own policy on social insurance, complicating matters. Therefore, the employer contributions for your team member in Guangzhou will differ from Tianjin, even with the same salary*.

Here is an example for you:

Say your team member in Guangzhou has a monthly salary of 16000 rmb.

Guangzhou	Amount	% Salary
Salary	16000
Pension (Endowment Insurance)	2240	14%
Medical insurance + Maternity Insurance	1096	6.85%
Unemployment Insurance	76.80	0.48%
Work Injury Insurance	51.20	0.32%
Housing Fund	1920	12%
Total Employer contribution	5384	33.65%

Calculated January 2023

Here you can see that the total employer contributions to social insurance and housing fund are 33.65%.

Now let’s look at Tianjin – a city in the northern part of China.

Tianjin	Amount	% Salary
Salary	16000
Pension (Endowment Insurance)	2560	16%
Medical insurance + Maternity Insurance	1680	10.5%
Unemployment Insurance	80	0.50%
Work Injury Insurance	32	0.20%
Housing Fund	1920	12%
Total Employer contribution	6272	39.2%

Calculated in January 2023

See the difference between Guangzhou and Tianjin. There are differences across China like this, and the rates are subject to change, so you must seek professional advice to ensure you are paying the right amount.

How do you pay Social Insurance?

If you have an entity in China, you must open a local bank account (such as the Bank of China or ICBC). You then sign agreements with all the relevant insurance bodies, which will debit your account each month. You must ensure enough funds for the direct debit if it is not your main account.

If you do not have an entity – you can employ your team member via The China Desk to organize all payroll and Social Insurance for you, with total transparency.

Key things to note

Along with the overview and calculations, remember these key points:

• Some cities have caps – for example, Tianjin currently has a social insurance calculation salary cap of 22,434 rmb, so for any salary above this – the social insurance premium would not increase.
• You cannot pay Social Insurance in a city where you are not incorporated.
• The rate and salary caps change regularly, so you must check this.
• The state can alter the housing fund rate.
• A general rule of thumb (n.b, not a specific policy) is that social insurance rates tend to be higher in cities where average salaries are lower. Beijing is a notable exception, where social insurance rates and wages are high.
• Paying Social Insurance is mandatory by law.

These warnings might all feel like a lead weight wrapped around your aspirations for hiring in China, but if your budget for your role and seek advice on social insurance calculations, you will be fine.

If you need support on this, get in touch with us here!