mARCH 2012 www.lawyer-monthly.com Legal Focus HJM offers a full range of corporate related legal

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must then apply for a local temporary residence permit. Only once the employment licence and temporary residence permit have been issued, may the employee apply for a work permit.

Q

China’s new Social Insurance Law came into effect on July 1st, 2011. what are its main effects?

The Social Insurance Law is China’s first comprehensive law in the area of social insurance. The key issue for expats living in China is the requirement that lawfully registered foreign employees (i.e. that hold a valid work permit or permanent resident permit) must now contribute to the Chinese social insurance scheme. Contributions had always previously been voluntary.

The national social insurance

comprises of five schemes, namely: the pension fund, medical insurance, unemployment insurance, occupational injury insurance and maternity insurance. The Social Insurance Law does not specifically provide which amount must be contributed to the scheme and every city will therefore have its own pricing scheme. It does, however, provide that both the foreign employee and the employer must contribute to the above schemes, and employers who employ foreign employees must complete the social insurance registration for foreign employees within thirty (30) days after finalising their employment permits.

In Beijing, employers must contribute 32.1% of an employee’s salary per month,

with a maximum payable amount of RMB 4,045. In Shanghai, employers must contribute 32% of an employee’s salary with a maximum payable amount of RMB 4,325. Foreign employees must contribute 10.2 % and 11% with a maximum amount of RMB 1,285 and RMB 1,286 in Beijing and Shanghai, respectively.

Eligible foreign employees who join the

social insurance schemes are entitled to all the benefits offered by the scheme. However, practically they may have little benefit. A foreigner will be entitled to unemployment insurance only if he/she has first a valid work permit to enjoy these benefits, which can only be attained through employment. Foreigners may also face difficulties with the medical insurance as international hospitals are excluded from medical insurance re-imbursement and foreigners usually do not choose to go to a local hospital. Foreigners will be entitled to claim a monthly pension once they reach retirement age if they have contributed to the social insurance for a minimum of fifteen continuous years.

If a foreign employee leaves China

before he reaches retirement age, there are two options available. Firstly, his social insurance account may be retained, and in the event that he is re-employed in China, the account shall be renewed and continued with the previously accumulated amount. Alternatively, he may request, upon submitting a written application, that the account be terminated and that the balance be paid to him in a lump-sum.

Employers may incur a fine of up to three times the value of unpaid social

contributions and late payment interest of 0.05% per day, and executives and relevant managers can also be held personally liable and may be penalized with a fine of between RMB 500 and RMB 3,000.

A foreign employee may be exempt

from contributing the social insurance scheme if his home country has entered into a bilateral or multi-lateral social insurance agreement with China. Currently, China has only entered into such an agreement with Germany and South Korea. LM

Contact: 65

Caroline Berube

HJM Asia Law Co LLC 46, Unit 104,

hamian Main Street, Guangzhou, Guangdong, China 510133

Tel: +8620 8121 6605 Fax: +8620 8121 6505 Website: www.hjmasialaw.com