Shanghai could be delaying the introduction of a controversial new social insurance scheme to appease foreign workers and businesses, local reports suggest.
On October 15 2011, legislation came into effect which requires all foreign workers, and the firms which employ them, to pay a proportion of their salary to the Chinese government.
The tax, which can be up to 11 per cent for employees and 37 per cent for employers, is split between five separate insurance funds, covering pensions, health care, unemployment, maternity and work-related injuries.
The South China Morning Post has reported however that while officials in Beijing have drawn up guidelines as to exactly how the money should be paid into pension funds, Shanghai labour authorities have not yet done the same. Compulsory arrangements for the other insurance programmes also appear to have not yet been finalised.
According to the newspaper, company executives close to the regulators believe that Shanghai has deliberately “slowed down the compilation of the guidelines” in response to anger about the change.
The tax has proved unpopular among foreign staff because they believe they will not benefit from the money they have paid in; many expats, for example, do not use China's state-run health care facilities, and they are expected to leave the country if they become unemployed. It has also concerned businesses, as the cost of employing foreigners in China will significantly increase.
A spokesperson for the Shanghai office of Paul Hastings LLP, confirmed that Shanghai had not yet mandated that expats enroll in all five social insurance programmes, though she added that many districts permitted them to contribute voluntarily to some.
“It appears that Shanghai is not yet ready to accept foreigners into all five schemes, [and] the government has not released an official announcement or reason as to why there is a delay or as to when foreigners can expect to have to enroll,” she said. “Most companies did not budget for the additional expense in 2011, and they have already enrolled their expats into the home country pension and international medical plans.
“As soon as the national government mandates that all localities comply with the national regulations, then Shanghai will follow suit and mandate that all companies enroll all of their foreigners. We expect this to take place by the end of the first quarter of 2012.”
A Shanghai-based expat and CEO of a company based in China, said that the scheme seemed to be “an initiative that may have been announced by Beijing's central government without due consideration or consultation with the various regional governments, and as a result there has been a mixed reaction with some regions adopting it immediately, some regions planning to adopt it in due course and back date it to the announcement date last year, and others seeking to delay its implementation.
“If Shanghai is pushing back, it is primarily due to the fact that it is the international commercial capital of China and as such has the highest number of foreign employers and employees. It therefore has the most to lose from any exodus of expats, whose employers are no longer able to justify the costs of employing foreigners in key roles. “
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