By Jeremy Chu
This article describes the changes ahead or already in place in 2020 for employers in the People’s Republic of China.
1. 2020 legislative agenda
Firstly, the Law on Protection of Personal Information and the Data Security Law have been included in the 2020 legislative agenda (‘LA 2020’) of the National People's Congress of PRC (‘NPC’). In addition, the NPC Standing Committee stated that the amendment of the Law on Protection of Women’s Rights and Interests along with formulation of a law on labour protection of female employees may be brought into the LA 2020 if the conditions are mature, and that further research and debate should be undertaken regarding amendments of the Labor Law, the Employment Contract Law (‘ECL’), and the Social Insurance Law, etc. Furthermore, ‘Interpretation (V) of the Supreme People's Court of Several Issues on the Application of Law in the Trial of Labor Dispute Cases’ is expected to be promulgated in 2020, which will clarify the judicial position on a number of labor dispute-related issues.
2. Reform of social insurance
As required by the Plan for Reform of the State and Local Tax Collection and Administration Systems, the collection of social insurance premiums will be taken over by the tax authorities. As the PRC State Administration of Tax announced the establishment of the Department of Social Insurance Premium on 12 December 2019, transfer of this collection duty to the tax authorities is expected to complete in 2020. As a result, employers may need to make social insurance contributions to the competent tax authority and pay closer attention to compliance with these requirements.
In addition, Interim Measures for Participation in Mainland Social Insurance by Hong Kong, Macao and Taiwan (‘HMT’) Residents came into effect from 1 January 2020. These Measures require employers to make mainland China social insurance contributions for HMT employees, and establish that the social insurance application/contribution procedures for HMT employees are the same as those for mainland employees.
3. Reform of Employment Security Funds system for the disabled
The ‘Framework Plan for Improving the Employment Security Funds to Better Promote the Employment of the Disabled’ took effect from 1 January 2020. It aims to lower the burden of contributions to the employment security funds for the disabled (‘Employment Security Funds’) on employers. Specifically, if the employer is a small or micro-sized enterprise with not more than 30 employees (inclusive), it could be temporarily exempted from contributing to the Employment Security Funds; otherwise, the employer must contribute the Employment Security Funds but could enjoy preferential measures.
4. Potential disputes triggered by the 12-year cap on statutory severance
Roughly speaking, under Chinese law, an employee’s statutory severance payment corresponding to his or her service years after the effective date of the ECL (i.e. 1 January 2008) should be calculated at the rate of one month's salary for each full service year; however, if his or her monthly salary is higher than three times the local average monthly salary, the rate for the statutory severance payable is three times the local average monthly salary and for no more than 12 years of his or her employment (‘12-year Cap’).
As of 31 December 2019, the ECL had been in effect for 12 years, which means the severance calculation of well-paid senior employees is likely to trigger this 12-year Cap in 2020. As a result, employers should get ready for explaining its impact to the affected employees and coping with their potential dissatisfaction as well as possibly with associated disputes.