Beijing Strikes on Companies' Providing Social Insurance Contributions for Employees through HR Agencies

China

On June 30, 2020, the Beijing Social Insurance Fund Management Centre issued the Notice Regarding Several Issues on Participation of Labour Dispatch Companies and Human Recourses Service Companies in Social Insurance Scheme (“Notice”). In accordance with this Notice, labour dispatch companies and human recourses service companies (collectively, “HR Agencies”) in Beijing can only contribute social insurance premiums in their own names for their own employees (i.e. employees who are hired and work for HR Agencies), labour dispatch employees (i.e. employees who are hired by HR Agencies and dispatched to work for other companies) and labour outsourcing employees (i.e. employees who are hired by HR Agencies and outsourced to other companies to provide services).

In order to ensure the HR Agencies to comply with the Notice, as from 5 July 2020, when handling the social insurance registration for new employees or transferring the social insurance relationship of employees, the Beijing HR Agencies shall specify whether the employees belong to their own employees, labour dispatch employees or labour outsourcing employees, and submit the basic employment information of these employees in the online systems. Such basic employment information includes the type of employment, work position, salary, term of contract as well as the Unified Social Credit Number of the companies for which the employees actually work. Further, some big HR Agencies in Beijing such as FESCO and China Star have received official notices from the government and are required to provide the above-mentioned information of the existing employees by 30 September 2020. 

This means that after 5 July 2020 the Beijing HR Agencies shall not provide social insurance contributions in their names for any new employees who do not belong to the three types of employees, i.e. their own employees, labour dispatch employees or labour outsourcing employees. Until 30 September 2020, the Beijing HR Agencies shall conduct an internal check and make necessary rectification if they provided social insurance contributions for employees who do not belong to the above three types of employees.

According to the PRC Social Insurance Law, a company should provide social insurance contributions for employees at the place where the company is registered regardless of the actual work places of employees. However, in the past, some companies provided social insurance contributions for employees who worked at places other than the company’s location due to various reasons. Examples are some employees prefer to be provided with social insurance at their places of permanent residence which are different from the company’s location and their actual work place, or some employees, e.g. sales personnel, are hired at places other than the company’s location and prefer to enjoy social insurance at the place where they actually work. Under PRC law, a company is not able to open its own social insurance account and provide social insurance contributions for employees at place where the company did not register business premises. Therefore, in practice, companies provide social insurance contributions for employees who want to pay social insurance at places other than the companies’ location through HR Agencies, i.e. the HR Agencies provide the social insurance contributions for these employees at the designated place in the name of the HR Agencies.

Although such practice does not fully comply with the law, but in practice, it has been actually implemented for a long time.  However, with the implementation of the Notice in Beijing, in the future, a company which does not have registered business premises in Beijing is no longer able to provide social insurance contributions for its employees in Beijing in the usual way by engaging a Beijing HR Agency even if the employees require and agree to such method. This will also have an impact on foreign companies which do not have business premises in China but engage Chinese employees through the Beijing HR Agencies.  

Some companies may have already received notifications from the HR Agencies with suggested solutions. Legally speaking, there are not many solutions because the Beijing HR Agency can only dispatch employees to work for companies registered in Beijing and not every work position can fulfil the statutory requirements on labour dispatch. For those employees whose social insurance contributions cannot be continuously paid in Beijing, companies may have to discuss with the employees about the rearrangement of their social insurance, such as transferring the employees’ social insurance relationships to the locations where the companies are registered, or the companies will have to register a branch in Beijing.

Currently only the Beijing local government raised such requirements. We expect that other local governments might follow. Therefore, companies may wish to pay close attention to the change of local policies at the places where they have employees whom they provide with social insurance contributions through HR Agencies and duly make adjustment, if necessary.