Under PRC law, employers are required to pay social insurance premiums for employees. The social insurance premiums cover basic endowment, medical, employment–related injury, unemployment and maternity insurance. Non-compliance with these requirements can result in administrative penalties, claims by employees and other measures taken by government authorities, and cause significant reputational damage. It was originally contemplated that from January 2019, responsibility for social insurance will be transferred to the tax bureau which is expected to bring more stringent collection and enforcement in this area. Although the plan has not been fully implemented according to the original timetable, employers still need to be increasingly cautious when dealing with social insurance payments and ensure full compliance.

Administrative penalties for non-compliance

Employers who fail to make full social insurance payments, or to withhold the employee’s portion of social insurance premiums in accordance with applicable laws and regulations, may find themselves with an order to pay the shortfall. The local labour administrative authority and the local social insurance administrative authority can order defaulting employers to pay the shortfall.

To enforce such payments, the administrative authorities may access the employer’s bank accounts and deduct the outstanding premiums. The administrative authorities may also apply to the court to seize or auction the employer’s other assets to settle the outstanding amounts.

Civil liabilities

If a company fails to fully pay social insurance premiums, its employees may unilaterally terminate their labour contract and claim severance payments. Additionally, if an employee suffers any losses due to an employer’s failure to make social insurance payments, which cannot be cured by making up the shortfall, the employee can claim against the employer for such losses.

Other measures available to government authorities and reputational damage

On 22 November 2018, 28 government authorities jointly issued a memorandum setting out a series of 32 measures that the authorities can take against both companies and individuals in cases of serious non-compliance with the social insurance requirements. These measures cover a broad spectrum of matters involving government authorities, and if enforced against a company or individual, could significantly impact business operations and result in serious reputational damage for those concerned.

Key takeaways

Employers should review their social insurance policies and rectify any non-compliance as soon as possible.