New Social Insurance Requirements for Hong Kong, Macau, and Taiwan Employees

The central labor authority of China, the Ministry of Human Resources and Social Security, promulgated the Provisional Measures for the Participation by Hong Kong, Macau and Taiwan Residents in Social Insurance on the Mainland on Nov. 29, 2019 (“Provisional Measures”). Effective on January 1, 2020, the Provisional Measures require residents of Hong Kong, Macau and Taiwan employed by enterprises registered or incorporated under the laws of Mainland China (“Mainland”) to participate in basic pension insurance for employees, basic medical insurance for employees, work injury insurance, unemployment insurance and maternity insurance (“Social Insurances”) pursuant to the law, and such employees and their employers also are required to contribute to social security premiums, unless such employees can demonstrate that they already participate in the local social insurance schemes of their respective home jurisdictions.

In principle, under Article 2 of the Provisional Measures, the Provisional Measures should only cover Hong Kong, Macau and Taiwan residents who are directly hired by employers in Mainland China, together with other categories (e.g. Hong Kong, Macao and Taiwanese students studying in the Mainland and unemployed Hong Kong, Macau and Taiwan residents who are self-employed in Mainland China). In other words, in theory, Hong Kong, Macau and Taiwan residents who are employed by overseas entities and seconded to Mainland China are not subject to the Provisional Measures.

Prior to the Provisional Measures going into effect, the participation of Hong Kong, Macau and Taiwan residents in Social Insurances and social security had largely been dictated by the rules of the local municipality or province where the employees work, and the rules were inconsistent, making it difficult for multinationals with several locations in China to adopt a consistent practice.

The Provisional Measures, while requiring participation, do leave some room for local interpretation on the local enforcement of social insurance contribution for the period before Jan. 1, 2020.

For example, in Beijing, employers and employees are required to pay their respective shares of the Social Insurances in accordance with the Provisional Measures. Furthermore, the practice in Beijing is that all Hong Kong, Macau and Taiwan residents should have been paying into the Social Insurances starting from the effective date of the PRC Social Insurance Law on July 1, 2011, with some discrepancy, as at least one local social insurance center in Beijing appears to be requiring social insurance payments for HK, Macau and Taiwan employees only from Oct. 2012.

In Shanghai, the local labor authorities confirmed that all employers in Shanghai must contribute Social Insurances on behalf of HK, Macau and Taiwan employees who are directly hired by the companies starting from Jan. 1, 2020 in accordance with the Provisional Measures. Previously, employers in Shanghai were allowed to contract with their non-Mainland employees to agree on an arrangement under which companies would only contribute three types of social insurances (i.e., pension, medical and work-related injury insurance). Starting from Jan. 1, 2020, this option to contribute to only three types of social insurances is no longer available to HK, Macau and Taiwan employees who are directly hired by the Shanghai entities.

Pursuant to Article 13 of the Provisional Measures, social security administrative authorities or social security premiums collection agencies shall, pursuant to the provisions of the Social Security Law, supervise and inspect participation in social security by Hong Kong, Macau and Taiwan residents. Article 13 further stipulates that employers who failed to complete social security registration for Hong Kong, Macau and Taiwan residents employed by them or failed to contribute social security premiums for them pursuant to the law shall be dealt with pursuant to the provisions of the Social Security Law and related laws, administrative regulations and rules. Under Article 86 of the Social Insurance Law of the People’s Republic of China which was recently amended by the Standing Committee of the National People’s Congress on Dec. 29, 2018, “employers who failed to promptly contribute social security premiums in full amount shall be ordered by the social security premium collection agency to make or supplement contributions within a stipulated period, and shall be subject to a late payment fine computed from the due date at the rate of 0.05% per day”. Article 86 further stipulates that where payment is not made within the stipulated period, the relevant administrative authorities shall impose a fine ranging from one to three times the amount of the amount in arrears.

Given the above differences in local enforcement as noted above, it is prudent for multinational companies operating in China to check with counsel and to determine how best to comply with the local labor authorities enforcement of the PRC Social Insurance Law and the Provisional Measures, particularly if local rules appear to be different from the requirements under the PRC Social Insurance Law or the Provisional Measures.