Companies that have employees in Guangdong but do not have a subsidiary or branch set up in the province need to be aware of a campaign launched by the provincial government recently. Since companies are only permitted to enroll their employees into social insurance in their registered location, in order to recruit or retain talent in Guangdong, these companies may have been contributing social insurance for their employees in Guangdong indirectly through a staffing agency or payroll company. However, there is now heightened compliance risk with this practice.

The Human Resources and Social Security Department of Guangdong Province has launched a campaign to crack down on non-compliant social insurance practices. This includes clamping down on “false employment relationships” in the contribution of social insurance. If a company outside of Guangdong, which cannot open a local social insurance employer account, is using a staffing agency or payroll company to contribute social insurance in Guangdong, the employer account used for social insurance for the relevant employee will be that of the staffing agency or payroll company. This is now considered a “false employment relationship” in social insurance as the employment contract and labour relationship is with the company outside of Guangdong while the employer shown on social insurance records is that of the staffing agency or payroll company in Guangdong. Companies adopting this practice is ordered to rectify by the end of this year.

In addition, Guangdong is also clamping down on the following practices: (1) human resource service providers, labour dispatch companies or similar entities or individuals organizing, introducing, acting as agent, falsifying materials or providing similar services to companies or individuals; (2) forging employment relationship for participation in Unemployment Insurance, and falsifying proof materials for termination or separation to commit social insurance frauds; (3) flexible-employment personnel approaching statutory retirement age fabricating employment relationships to participate in basic pension scheme.

The recent campaign in Guangdong is a continuation of a trend we have seen starting from 2020. A number of provinces and cities have already implemented policies to ban similar practices and arrangements, including but not limited to Beijing, Hangzhou and Jiangsu. Go to this link for information on earlier developments and corrective solutions that can be taken in response to the new requirements. In considering their options to address the compliance risks, companies need to consider other issues such as whether it may trigger co-employment, unlicensed business operation and tax issues.

It’s expected that more and more provinces and cities will publish similar policy to regulate social insurance contribution. Companies are suggested to keep an eye of rules and practices of the places where the company has staff.