In March 2019, the government of China released social insurance policies that reduced the employers’ contribution to basic pension insurance from 20% of an employee’s salary down to 16%. This change takes effect 1 May 2019.

China has one of the highest social security payment rates in the world, which has long been criticized by employers for significantly decreasing profit margins. The basic pension contribution rate differs in every region; some regions already apply a 16% rate or less while others currently apply a rate of 20% of an employee’s earnings. Contributions are limited to 300% of provinces’ average wages, which are published annually. Between 1 May 2019, and the end of 2019, all local governments are required to lower employer contributions to basic pension insurance to a maximum of 16% of an employee’s salary.

Additionally, in an effort to reduce employers’ administrative burden, maternity insurance and medical insurance will now be paid together into one single fund. The fund integration is effective as of 6 March 2019, and all local governments are required to comply by the end of 2019.

Next steps

These social insurance reforms are part of a broader agenda to stimulate the economy and stabilize employment by reducing social security costs, taxes and administrative hurdles for employers in China. Employers should review these new policies with their payroll providers to ensure they are making the correct contributions and be alert for forthcoming national and local policies with further social insurance reductions.