According to the Methods on Levying, Use and Management of Disabled Persons’ Employment Security Fund issued by the Chinese government on 9 September 2015 (“Methods”), an enterprise is obliged to make contributions to the Employment Security Fund for Persons with Disabilities (“Fund”) on the basis of the average annual salary of its employees in the previous year. Starting from 2016, the new policies were implemented in around sixteen provinces such as Beijing, Anhui, Liaoning, Shanxi and Shaanxi. Many enterprises complained about the new policies because they had to pay much more contributions to the Fund than before.

On 15 March 2017, the Ministry of Finance issued the Notice on Relevant Policies about Cancellation and Adjustment of Some Governmental Funds (“Notice”). According to the Notice, the policies on the levy of the Fund are adjusted as follows: 

(1) An enterprise with no more than 30 employees can be exempted from paying the Fund for the first three years after its establishment.

According to the Methods issued in 2015, an enterprise with no more than 20 employees can enjoy exemption from paying the Fund in the first three years after its establishment. However, in the Notice issued in 2017, the exemption scope will be extended to all enterprises with no more than 30 employees.

(2) A cap will be set for the calculation basis of the contributions to the Fund.

Unlike the provisions mentioned the Methods, i.e. the calculation basis for the contribution to the Fund is the average annual salary of the employees of the enterprise, according to the new Notice, the calculation basis will be capped with a threshold of three times of the average annual salary of employees for the previous year at the location where the enterprise is registered (“Threshold”). If the average annual salary of the employees of an enterprise is lower than the Threshold, the Fund will be collected on the basis of the actual average annual salary of the employees of the enterprise. If the average annual salary of the employees of an enterprise is higher than the Threshold, the Fund will be collected on the basis of the Threshold.

The Notice became effective on 1 April 2017. However, since the levy of the Fund is subject to the decision of the local governments, therefore, how the new policies are executed in different locations is subject to the decision of the local governments.

The Beijing local government, which is spear heading this matter, finally issued the new Administration Methods on Levy of the Employment Security Fund for Persons with Disabilities of Beijing on 26 April 2017 to replace the old one issued in 2016.

(1) A cap of three times of the average annual salary of employees for the previous year in Beijing, i.e. currently RMB 23,118 will be adopted for calculating the contribution to the Fund. If the average annual salary of the employees of an enterprise is lower than RMB 23,118, the Fund will be collected on the basis of the actual average annual salary of the employees of the enterprise. If the average annual salary of the employees of an enterprise is higher than RMB 23,118, the Fund will be collected on the basis of RMB 23,118.

(2) The new policy of extending the exemption scope to all enterprises with no more than 30 employees is adopted, i.e. such enterprises can enjoy payment exemption for the first three years after its establishment. Specifically in Beijing, as long as an enterprise is registered for less than 3 years and has no more than 30 employees, even if it was already established before the policy is implemented, it can still enjoy the preferential policy during the remaining period.

(3) Starting from 2017, the declaration is changed to once a year rather than twice a year and the declaration period is from 1 August to 30 September. Enterprises are required to report to the competent employment service institute for persons with disabilities at the location about the numbers of the persons with disabilities hired by the enterprise.

(4) Such new policy is only implemented as of 2017. The obligations of the enterprises of paying the contribution to the Fund for the previous year shall follow the old policy applicable then. This means that if any enterprise failed to pay contributions to the Fund in 2016 on the basis of the actual average annual salary of its employees, it is still obliged to do so. The new policy will not waive the contribution obligations of the enterprises in 2016. Of course, the contribution made by enterprises in 2016 which is higher than the standard of the new policy will not be returned as well.

In addition to Beijing, until now, Jilin Province and Hefei City also issued similar policies. We expect that more locations will follow.