The PRC Social Insurance Law was considered and adopted at the seventeenth meeting of the standing committee of the eleventh National People’s Congress on 28 October, and will come into effect on 1 July 2011. This is the first piece of national legislation China has enacted which provides for a social insurance scheme. It establishes a fundamental framework for the creation of a social insurance scheme in both urban and rural areas.
Insurance types and coverage
The Social Insurance Law defines five categories of social insurance: basic pension insurance, basic medical insurance, industrial injury insurance, unemployment insurance and maternity insurance.
Different parties will join different types of social insurance. Employees should join all five categories; individual businesses and uninsured part-time employees, as well as other casual employees, can join the basic pension insurance and basic medical insurance; and urban and rural residents who do not join the basic pension insurance or basic medical insurance can join the social pension insurance scheme, basic medical insurance scheme for urban residents, new rural social pension insurance scheme or new rural cooperative medical care scheme.
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Three groups on the margins of existing social security provision, namely migrant rural residents working in cities, landless farmers and foreigners working in China, are also included as insured parties under the Social Insurance Law.
‘People-oriented’ insurance benefits
The Social Insurance Law sets out the rights and obligations of employers and employees, as well as the insurance benefits employees are to enjoy within the five categories of social insurance. Many of these provisions are new, and are to the benefit of employees.
Pension insurance: when an employee reaches the statutory retirement age, he or she is not entitled to any pension benefits under the existing rules if he or she has made cumulative pension insurance contributions for less than 15 years. The Social Insurance Law offers more flexibility. An individual may make contributions for less than 15 years and receive a monthly basic pension, or may switch to the new rural social pension insurance or social pension insurance for urban residents. The level of basic pension insurance benefits will be revised and raised in line with increases in the average wages and commodity prices.
Medical insurance: the medical insurance fund will not pay medical costs which should be paid out of the industrial injury insurance fund or should be borne by third parties or by the public health sector, or which are incurred by medical treatment sought outside China. However, the Social Insurance Law also provides that if medical costs should be borne by a third party, but the third party does not pay or it is not possible to determine who the third party is, the costs will be met in advance by the basic medical insurance fund.
Industrial injury insurance: under the Social Insurance Law, the following three cost items should be borne by employers instead of the industrial injury insurance fund:
(1) wages and benefits during the treatment of employees’ industrial injuries;
(2) disability allowances received monthly by employees with a specified degree of disability; and
(3) lump-sum disability and employment subsidies which employees are entitled to upon the termination of their labour contracts. The Social Insurance Law also stipulates that if an employer fails to pay industrial injury insurance premiums and benefits to its staff and as a result a third party fails to pay medical expenses for industrial injuries suffered by staff or it is not possible to determine who the third party is, the industrial injury insurance fund should pay the appropriate industrial injury insurance benefits to the staff in advance.
Unemployment insurance: if an employer and an employee have made contributions for a whole year, and if the employee becomes unemployed, he or she is immediately entitled to unemployment insurance benefits. The level of unemployment insurance benefits
must be not lower than the minimum amount necessary to ensure a basic living standard for urban residents. While jobless workers are receiving unemployment insurance benefits, they will still be entitled to basic medical insurance benefits, without having to pay basic medical insurance premiums. Employers should promptly present proof of the termination of the employment relationship with their laid-off workers, and notify the social insurance operating agencies of a list of laid-off workers within 15 days of terminating their employment relationships.
Maternity insurance: staff working for employers which have paid maternity insurance premiums are entitled to maternity insurance benefits (including maternity medical expenses and maternity allowances), and the unemployed spouses of such staff are also entitled to maternity medical expenses.
Collection of premiums and enforcement measures
Under the Social Insurance Law, employers are required to complete social insurance registration within 30 days from the start of employment, and for their staff within 30 days from the date of employment. Each citizen’s social insurance number will be the same as his or her identity card number.
Basic pension insurance, basic medical insurance and unemployment insurance premiums are to be paid jointly by employers and staff. Industrial injury insurance and maternity insurance premiums are to be paid by employers only. Employers should make their own declarations, and pay social insurance premiums on time and in full. They should not defer or reduce such payments, except in cases of force majeure or other statutory reasons. Social insurance premiums to be paid by staff will be withheld and paid by employers.
The Social Insurance Law applies stringent enforcement measures against employers which fail to pay, underpay or owe social insurance premiums:
• if an employer fails to declare a payable social insurance amount in accordance with rules, its payment amount will be calculated at 110% of the amount paid in the previous month;
• if an employer does not make a social insurance payment on time, the collection agency can make an enquiry with banks or other financial institutions about its deposit accounts;
• the collection agency may apply to the relevant administrative departments for a decision to allocate money as social insurance premiums, or notify the banks or other financial institutions in writing to allocate money as social insurance premiums;
• if the balance of the employer’s account is less than the social insurance premiums payable, the collecting agency may also require the employer to provide security and enter into a deferred payment agreement;
• If the employer fails to pay its social insurance premiums in full and also fails to provides security, the collection agency can apply to a people’s court for the property of the employer to be detained, seized or auctioned to offset the outstanding social insurance premiums.
The transfer and continuity of insurance relationships
Under the existing social insurance scheme, the transfer and continuity of social insurance between different regions are not smooth. It is expressly provided in the Social Insurance Law that if employees work in different regions, their basic pension insurance, basic medical insurance and unemployment insurance relationships will move with them, with the years of contribution calculated on a cumulative basis. When they reach the statutory retirement age, the basic pension will be calculated by phase and paid on a consolidated basis.
Investment and operation
The Social Insurance Law stipulates that the social insurance fund must operate and invest pursuant to the rules of the State Council under the premise of ensuring safety. The social insurance fund must not make illegal investment or otherwise operate illegally, and must not be used for balancing other government budgets, for the construction or alteration of office premises or for the payment of staff expenses, operating expenses or management fees, or be diverted to other purposes in violation of laws or administrative regulations.
Information disclosure and regulatory measures
The Social Insurance Law has proposed higher requirements for information disclosures by social insurance agencies, which must make available to the public on a regular basis details of social insurance as well as the income, expenditure, balances and earnings of the social insurance fund. They must keep records of individual benefits such as payments to individuals and employers as well as the social insurance benefits individuals are entitled to; and mail statements of individual benefits to the concerned individuals free of charge and on a regular basis. Employers and individuals can freely make enquiries with social insurance operating agencies to check their contributions and social insurance entitlement records.
The Social Insurance Law provides that the legislature and relevant administrative authorities have the power to supervise the social insurance fund, and that representatives of employers, the insured and trade unions, as well as experts, should form a social insurance supervisory committee to carry out public supervision over the income, expenditure, management, investment and operation of the social insurance fund.
Liability and dispute resolution
The Social Insurance Law defines specific liability for offences committed by employers as well as the social insurance service, operating and premium collection agencies. For instance, if an employer fails to pay social insurance premiums on time and in full, it will be subject to an additional 0.05% overdue fine on a daily basis from the overdue date; if it still fails to pay after a further period of time, it will be subject to a fine of between one and three times the outstanding amount.
Pursuant to paragraph 3 of article 83 of the Social Insurance Law, where an individual staff member has a dispute over social insurance with his or her current employer, he or she can apply for mediation or arbitration or institute legal action in accordance with the law. However, it is not certain whether this provision will expand the scope of cases for “labour disputes over social insurance” in the Supreme People’s Court Several Issues Regarding the Application of Laws to the Hearing of Labour Dispute Cases Interpretation (III).
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