Companies using payroll agents to employ Beijing staff must act fast to set-up new social benefits payments arrangements
Regulatory update 3 minute read

Companies using payroll agents to employ Beijing staff must act fast to set-up new social benefits payments arrangements

24 August 2020

The Beijing social insurance authorities have taken action to prevent local agents from processing SI&HF withholding payments for other companies. Employers should act now to ensure continuance of employee social benefits payments and compliance with the Labor Law.

Chinese authorities have been promising a levelling up of social insurance administration since the introduction of the new Individual Income Tax (IIT) reforms at the end of 2018. There has been little change to date in any of the major employment centres, but an internal notice by the Beijing social insurance authorities on 30 June 2020 means things are about to change and companies need to act quickly to avoid serious issues with Social Insurance and Housing Fund (SI&HF) payments for Beijing-based employees.

What’s happening?

It is mandatory for employers and employees in China to contribute into a social insurance and housing fund and for the employer to withhold employee payments from salaries. Payments are then remitted by the employer to the local authorities where the company is registered. 

If the company (employer) is registered in one city (eg Shanghai) and it has no branch office registered in other cities in China, but it needs to hire an employee working in another city (such as Beijing) it must make SI&HF contributions for the employee in Beijing. The question is, how can this be achieved without registering a legal entity in Beijing?

To date it has been the common practice for the company to sign the employment contract with the employee directly, but to engage a Chinese HR agent, such as FESCO, CIIC or China Star, to handle the withholding payment of SI&HF for the employees in Beijing under the HR agent’s consolidated pooling account.

From September 2020 that will change in Beijing.

What has been announced?

The Beijing Social Insurance Authorities issued an internal notice on 30 June 2020 to the local social insurance department at district level, regarding the administration management of SI&H payments handled by HR agents on behalf of their clients.

According to the notice, when the HR agent enrols the employee under its account for SI & HF contribution purpose, it is mandatory for the relevant employment contract information to be input. This includes the employee type (dispatching or your own staff), employee position, monthly salary, the start and end date of the employee’s employment contract and the actual employer’s business registration code.

Based on feedback from Beijing HR agents in July 2020, with the new notice issued and subsequent upgrading of the SI&HF system, they are unable to either enrol the new employee or continue to handle the SI&HF payment for existing enrolled employees if the employer in the employment contract is different to the employee’s SI&HF withholding party (ie the HR agent).  Therefore the agent has no choice but to cease providing the SI&HF withholding payment service for their clients.

How does this affect me?

If you have employees in Beijing and use an HR agent to manage payments of SI&HF through their consolidated pooling account, you must take immediate action to ensure that the social insurance and housing fund payments for your Beijing employees can continue uninterrupted.

If you already have a legal business entity registered in Beijing then you must open your own SI&HF accounts with the authorities and, starting with the September payroll, submit employer and employee contributions directly through the new account in the company’s name.

If you do not have a legal entity registered in Beijing you will need to put in place one of three alternative options:

  1. Set up a local entity in Beijing - The ideal solution is to set-up a new legal entity in Beijing through which to employ all local employees and then open a local SI&HF account with the authorities through the new entity. This will ensure continuity of payments for local employees, but it will take some time and expense to establish a new branch entity, usually taking around  1- to 2-months, plus additional time to open bank accounts and register with the local social insurance and housing fund authorities.
  2. Transfer employee’s SI&HF contributions to a city where the company is currently registered - If you do not wish or are unable to establish a new legal entity in Beijing, you can opt to transfer any affected employees to your main registered company. However, employees may not agree to this type of change in conditions as it will make it difficult for them to claim medical insurance reimbursement for hospitalisation, injury, housing, car loan etc, as their contributions would then be in a different city/province from where they are actually located.
  3. Use a dispatch arrangement - Certain HR agents are able to provide a dispatch service.  Under a dispatch arrangement, the employee needs to sign an employment contract with the HR agent.  However, such dispatching arrangement can only be implemented if the company has a local entity in Beijing already. According to China Labor Contract Law and regulations, the percentage of dispatch employees should not exceed 10% of the total number of employees and is only applicable for employees with temporary, auxiliary or substitute job positions so it does not resolve the issue of long term or permanent employment.

In summary

This recent reinforcement rule from Beijing Social Insurance authorities requires immediate action to ensure that you comply with the Labor Law and also continue to pay social benefits to and for your employees in Beijing. It should also be recognised that this may only be the first step towards achieving the social security insurance reforms intended and companies must continue to be alert to future disruptive change. Other regional authorities may also follow suit at some stage so you should also consider planning for any remote employees across China.

Talk to us

TMF Group can help you navigate all HR and payroll and company secretarial hurdles raised by these changes. Whether you are considering incorporating a new legal entity in Beijing, or need help to establish your own SI&HF accounts for your existing entity, and need help managing the administration of the social benefits payments as a part of a complete payroll processing service, TMF China’s expert team can help. We provide local expertise across the spectrum of HR and payroll, accounting and tax, corporate secretarial and stay ahead of regulatory issues affecting your business.

Want to know more about our services? Enquire now.

Written by

Brenda Qin

Senior Manager, HR & Payroll services

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