How are social insurance contributions in respect of an employee made?
Social insurance contributions in respect of an employee are made by both the employer and the employee on a monthly basis. The employee’s contributions are withheld by the employer from his or her monthly salary, and are contributed by the employer to the local social insurance centre (which is an entity affiliated with the local labour department and which is in charge of the fund) together with the employer’s contributions (generally via a bank transfer).
Subject to local practice, the amount of the employer’s contributions is generally around 35% of the employee’s monthly salary (which is generally capped at three times the local average monthly salary during the previous year). The amount of the employee’s contributions is generally around 11% of the employee’s monthly salary (also with a cap).
If an employee does not want to be enrolled in the social insurance schemes, can the employer avoid the payment of the social insurance contributions with such employee’s wavier or agreement?
No. The payment of social insurance contributions is a statutory requirement for both the employer and the employee and, therefore, cannot be avoided by any agreement between the parties.
Is there any penalty imposed on the employer if it fails to make full contributions to the social insurance schemes in respect of its employee?
Yes. Strictly speaking, the employer may be exposed to serious legal risks depending on the situation.
The employee may be able to successfully claim immediate termination depending on local practice. In such circumstances, the employer will be required to back pay the underpaid amount in respect of the employee, and to pay economic compensation of one month’s salary for each year of service to the employee.
Once the local social insurance centre is involved in the investigation against the employer, the centre will order the employer to make retrospective contributions for the underpaid amount in respect of the employee, and impose a fine of between 100% and 300% of the underpaid amount. The directly responsible personnel of the employer (e.g., general manager or HR manager - as may be decided by the centre) may be exposed to a personal fine of between RMB1,000-RMB10,000 depending on the circumstances of the case.