China: Labor Dispatch - Restricted Social Security Participation in Beijing

published on 31 October 2020 | reading time approx. 2,5 minutes

by Christina Gigler and Monica Chen

Recently, the notice regarding several issues on participation of Labor Dispatch Companies and Human Resource Service Companies in Social Insurance Scheme ("Notice"), issued by the Beijing Municipal Human Resource and Social Security Bureau on 30 June 2020 attracted wide attention.

With immediate effect of the Notice since 5 July 2020, companies without officially registered address in Beijing cannot pay social securities for their employees in Beijing via a third-party agent anymore, which has been a commonly adopted practice by many companies so far. To pay the social insurance in Beijing is in general interesting for employees, as the respective contribution bases of the social insurance in Beijing are comparatively high. Moreover, the social insurance in Beijing impacts employees in many other areas, e.g. an employee without a Beijing household registration cannot buy a house in Beijing unless a consecutive five-years social insurance has been paid. Apart from this, there are impacts on the purchase of a car in Beijing, the application for the Beijing household registration and many other areas.

The "trigger" for this restriction has been the local filing system of the Beijing social security. Under the upgraded online system, any third-party agent, such as Foreign Enterprises Service Corporation (FESCO) and China International Intellectech Group Co., Ltd. (CIIC), who wants to register a new employee to participate in the Beijing social security scheme, must now input the information of the company, for which the new employee actually works. If such company is not registered in Beijing, the system would not accept the registration of the new employee.

As a result, employees who are dispatched or outsourced to work in a company which is not registered in Beijing cannot participate in Beijing social security anymore, even if via a third-party agent.

In fact, legally speaking such practice, which is now restricted by the Notice, has always been a grey area. In 2014, the Ministry of Human Resources and Social Security (MOHRSS) released the "Interim Provisions on Labor Dispatch" ("Interim Provisions"), which stipulates that cross-city dispatched employees should pay social security at the place where the labor using company is located, instead of where the dispatching company is located. Also, according to the PRC Social Insurance Law, a company shall provide social insurance contributions for employees at the place where the company is registered regardless of the actual work places or home addresses of employees. The current restriction set out in the Notice is therefore only an implementation of the abovementioned Interim Provisions.

It seems that the restriction is now merely set for employees, who are newly registered in the filing system, which would also apply to already existing employees, who's social insurance shall be transferred to Beijing, as they would have to be newly inserted into the filing system of Beijing as well. If existing employees are also covered by the Notice, cannot be said with certainty at present. Nevertheless, it is likely that the Beijing social security authority may also "clear" the abovementioned existing employee step by step.

For affected companies, the following options may be taken into consideration:

Set up a branch in Beijing and transfer the employees to such branch (As a matter of fact, this results in certain additional costs and administrative expenses.);
If setting up a branch in Beijing is not suitable or practicable based on the actual circumstances, try to discuss with the current employees proactively for possible solutions in terms of transferring the social security to the location where the employer is registered.

Although the Notice has been in effect since 5 July 2020, we have been informed that based on official notices from the government, some big HR agencies in Beijing are required to provide the abovementioned information of the existing employees only by 30 September 2020. Thus, it seems currently not quite clear to what extent the Notice at this time has and will in the near future have direct consequences for affected employees and companies. We will continue to observe the development of this issue and keep you informed.

In any case, it is advisable that affected companies act now and communicate with the respective employees in order to find a suitable solution, as a break in the social security of the employees in question should be avoided.

For now, only the local Beijing government issued the above restriction. However, other local governments might follow this restriction in the future. We will also keep you up to date with any news on this topic.