China Employment Law Update - December 2017

1. Publication of the "China Social Security Development Annual Report 2016"
2. Repeal of "Measures on Economic Remedies for Breach and Termination of Employment Contracts"
3. Signing of a social insurance treaty between China and Luxembourg

In November, the Chinese Ministry of Human Resources and Social Security ("MOHRSS") published the 2016 China Social Security Development Annual Report. This report comprehensively and systematically assessed the construction, management and operation of various social insurance systems in China up until the end of 2016. This is the third annual report released by MOHRSS to the public concerning the development of social insurance systems.

The essential data in the 2016 annual report are as follows:

• The number of insured people
  
  In 2016, MOHRSS continued to promote the implementation of the People's Insurance Registration Scheme, ensuring precise management and expansion throughout the country. All sets of figures for the five insurance participants increased compared with the previous year. Notably, the number of endowment insurance participants was recorded as RMB 887.77 million, the number of basic medical insurance participants was RMB 743.92 million, the number of employment injury insurance participants was RMB 215.89 million, the number of unemployment insurance participants was RMB 180.89 million and that of maternity insurance was RMB 184.51 million.
  
  
• Income and expenditure
  
  In 2016, the total income of China's five social insurance funds was RMB 5,356.4 billion, an increase of 14.1% compared with the previous year. The total expenditure was RMB 4,688.8 billion, an increase of 20.3% compared with the previous year, and the fund's accumulated balance was 6,635 billion yuan, an increase of 11.5% compared to the 2015 figures.
  
  
• Average Pension
  
  The average pension for retired workers in companies was RMB 2,373 (approximately USD 358) per month. Compared to the 2015 figures, this marks an increase of 5.4%, or RMB 122 per month (approximately USD 17).
  
  
• Average unemployment insurance payment
  
  The average unemployment insurance payment was RMB 1051 per month (approximately USD 159). Compared to the 2015 figures, this constitutes an increase of 9.5%, namely RMB 91 (approximately USD 14).
  
  
• Supplementary insurance
  
  The role of supplementary insurance is increasingly prominent. By the end of 2016, there were 76,000 businesses that had already established business annuity throughout the country, with 23.25 million participating employees. Together they accumulated funds of RMB 1.1 trillion and 290.22 million workers received supplementary medical insurance.

Recently, the MOHRSS and Social Security decided to abolish several measures, including the "Measures on Economic Remedies for Breach and Termination of Employment Contracts" (MHRSS [1994] No. 481, which was referred to within the industry as "Document No. 481").

Document No.481's repeal has a number of important consequences:

• The provision concerning economic compensation for violating and terminating labour contracts without reasonable cause is now invalid. Previously, the work unit was supposed to pay an additional 25% or 50% (as stipulated in the document) on top of base salary to employees in certain situations. Now, however, the amount of economic compensation shall be determined by Article 85 of the Labour Contract Law of the People's Republic of China. Accordingly, employees could now receive an additional 50%-100% on top of their salary if the work unit breaches or terminates their employment contract without reasonable cause.
• The current status of the medical subsidy system is unclear. Document No. 481 stipulates that when the employment contract is terminated, any employee who is ill or is suffering from non-work related injuries shall benefit from medical subsidies. Such medical subsidy shall not be less than 6 months' salary, rising to not less than 9 months' salary in the case of serious illness and not less than 12 months' salary for terminally ill employees. Since Document No. 481 has been abolished and the Labour Contract Law does not mention the subsidy system, disputes on whether the medical subsidy system is still valid may arise. Although Document No. 481 has been repealed, there are still some enforceable documents which include provisions requiring payment of the medical subsidy, such as Notice on Several Issues in Implementing the Labour Contract System (1996). This point requires further clarification from the government.

China and Luxembourg signed a bilateral treaty regarding social insurance on 27 November 2017. The treaty deals with social insurance related issues, such as relief for paying endorsement insurance when nationals of one country are sent to work in the other. China has entered into negotiations with other countries on these issues and has at present signed treaties covering similar matters with Germany, Korea, Denmark, Finland, Canada, Switzerland, France and Spain.