China Employment Law Update on Labor Costs 

The Chinese government has been focused on reducing the labor costs of companies in the past several years. Unfortunately because of the continuous increase of the living costs in the society, it is not easy for the Chinese government to achieve its targets. Some new rules and regulations issued by the Chinese national and local governments in the first half year of 2018 brought some effects to the labor costs of the companies.

1. National policies further decreasing the social insurance contribution ratesOn 20 April 2018, the PRC Ministry of Human Resources and Social Security together with the PRC Ministry of Finance, jointly issued a Notice on Continuous Phased Decrease in Social Insurance Contribution. According to this notice, as of 1 May 2018, the contribution rate of the pension payable by the employer in the provinces where the cumulative balance of the pension funds is sufficient to afford for 9 months’ expenditure by the end of 2017, can remain as 19% or to be reduced to 19% until 30 April 2019. Further, the contribution rate of the unemployment insurance payable by the employer can remain as 1% until 30 April 2019 in the provinces where such 1% rate has been implemented since 2017. Thirdly, according to this notice, the contribution rate of the work-related injury insurance can be decreased by 20% in the places where the cumulative balance of the work-related injury insurance funds is sufficient to afford the insurance expenditure for the next 18~23 months, and if the insurance expenditure for the next 24 months or a longer period can be afforded, the contribution rate of the work-related injury insurance can be decreased by 50%. These policies on the decrease in the work-related injury insurance contribution can be implemented until 30 April 2019. After the promulgation of the aforesaid notice, we noticed that some provinces, e.g. Jiangsu, Anhui, Shandong and Fujian, have introduced and released its local rules to implement the national policies.
2. National policies further decreasing the housing fund contribution ratesOn 28 April 2018, the PRC Ministry of Housing and Urban-Rural Development and the PRC Ministry of Finance, together with the People’s Bank of China, jointly issued the Notice on Further Improving the Housing Fund Contribution Scheme to Reduce Enterprises' Costs.According to the notice, the calculation basis for the housing fund contribution payable by both the employer and the employee shall not exceed a threshold of 3 times of the average monthly salary of employees for the previous year as announced by the local government at the place where the employee works (“Threshold”). The calculation basis adopted by the locations which is higher than the Threshold shall be adjusted down accordingly. The notice also specifies that the contribution rate can be between 5% and 12% subject to the decision of the local governments. The company which adopted the higher rate in the past, when encountering economic difficulties, can reduce the rate after consulting with the trade union or the employees’ representative congress. Practically speaking, it is not easy for an existing company to reduce the rate. Based on this notice, starting from this year, some local authorities such as the Management Committee of Housing Fund in Beijing and Shanghai already issued the detailed implementing rules by reducing the statutory minimum contribution rate to 5%.
3. Local governments further increasing the statutory minimum wageIn the past 6 months of 2018, we noticed that the statutory minimum wage in some locations have been increased around 3% to 10%. Hereinafter are some examples. According to PRC labor law, companies are obliged to pay the employees the salaries higher than the statutory minimum wage. Further the amount of the statutory minimum wage is related to the calculation of the employee’s remuneration in some respects. For instance, in many locations, sick leave pay of the employees shall not be less than 80% of the statutory minimum wage. Or, if the average monthly salary of an employee over the 12 months preceding to the termination of his/her employment contract is less than the applicable statutory minimum wage, the statutory minimum wage shall be a base for calculating statutory severance payments of the employee. Further, the statutory minimum wage can also be related to the calculation of employee’s overtime payments. Therefore, the raise in the statutory minimum wage will definitely increase the labor costs of the employers to a certain degree.
4. Local governments further increasing the minimum and maximum amounts of calculation basis for social insurance and housing fund contributions In China, the minimum and maximum amounts of calculation basis for social insurance and housing fund contribution are adjusted by the local governments every year according to the change of the average monthly salary of employees for the previous year at the locations. From the statistic figures published by the Chinese statistic bureau, in general, the average monthly salary of employees in China has been increased by around 10% in the year 2017. This means that the minimum and maximum amounts of calculation basis for the social insurance and housing fund contributions in the year 2018 also increase accordingly. For instance, in Shanghai, the average monthly salary of employees in 2017 is RMB 7,132, which has increased by 9.2% comparing that of 2016. As a result, the minimum and maximum amounts of calculation basis for the social insurance and housing fund contributions in Shanghai for 2018 are adjusted to RMB 4,279 and RMB 21,396. Similar cases also apply to other locations. In Beijing, the average monthly salary of employees in Beijing in 2016 was adjusted from RMB 7,706 to RMB 8,467 with 9.9% increase. Accordingly, the minimum and maximum amounts of calculation basis for the social insurance and housing fund contributions in Beijing in 2018 are adjusted to RMB 3,387 and RMB 25,401.

The above mentioned policies indicate that the Chinese government’s intention and willingness to continuously ease enterprises’ labor costs by reducing the social insurance and housing fund contribution rates. However, with the increase of the statutory minimum wage and average monthly salary of employees every year, the actual labor costs are not reduced but increased constantly. Such situation is expected to continue in the future. Companies, when planning the budget for the next year, must take it into consideration.

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