On 30 June 2020, the Beijing Social Insurance Fund Management Center issued a notice prohibiting third-party human resources (HR) agencies from filing social insurance payments for Beijing-based staff of companies not registered in Beijing.
The notice entered into effect on 30 September 2020.
The notice enforces the People’s Republic of China (PRC) Social Insurance Law, according to which companies should provide social insurance contributions for their employees in the location where the company is based regardless of where the employees are physically located. For example, employees with a company based in Shanghai would remit social insurance contributions in Shanghai even if the employees are physically located in Beijing.
Companies not registered in Beijing have never been allowed to enroll employees in Beijing social insurance. However, some companies based in one city with employees in Beijing have been hiring HR agencies (such as FESCO and CIIC) to file social insurance regardless of their registration status in Beijing. This common practice was preferred by Beijing-based employees as it allowed them to utilize their social benefits (medical, housing, etc.) at the place of their permanent residence rather than the company’s location.
In order to ensure compliance with the notice, employers have the following options:
- Establish a legal entity (branch or subsidiary) and transfer Beijing-based employees to the new entity based in Beijing.
- Pay social insurance premiums for Beijing-based employees at the location where the company is based. This option would force employees to consider moving to the city where the company is located to be able to enjoy social insurance benefits. This difficult choice may make retention of Beijing-based employees challenging. Changing a person’s Hukou (individuals’ local legal registration) is complicated and, as a result, employers should be aware that transferring employees from one province to another may not be an easy method to address this issue.
- Consider outsourcing the services to a third-party company that has a registration in Beijing. This option, however, does not solve the problem of long-term employment as it applies only to temporary services.
To retain employees in Beijing on a long-term basis, creating a local legal entity to sponsor the employees may be the best option and is, indeed, the likely goal of the crackdown. Companies should take legal and tax advice to determine the best option for their individual situations.
Although the notice is only applicable in Beijing, it is very likely that other cities will decide to follow suit. Employers located in cities other than Beijing should review whether they have similar arrangements in place and plan accordingly.