The Shanghai authorities recently issued several policies governing the new practice of social security collection and the contribution of employment injury insurance. We summarize the key points of these policies and their implications below.
I. Transition of social security collection from the Social Security Bureau to the Tax Authority
Announcement on the Optimization and Adjustment of the Process of Declaration and Payment of Social Security Premiums, Announcement No. 2 of 2023, by the State Administration of Taxation Shanghai Municipal Tax Authority, jointly with other competent authorities in Shanghai Municipality (effective from 1 December 2023)
According to the announcement, from 1 December 2023, employers shall make social security declaration and payment directly with the tax authority. In the past, the declaration and payment were handled separately with the social security bureau and the tax authority.
This is a further step in the transition of the collection authority from the social security administration to the tax authority, which has been under discussion nationwide for years.
In addition to Shanghai, authorities in some other municipalities and provinces in China also made similar announcements to implement the new practice in their justifications from December 2023.
The new practice divides the responsibilities as follows.
The Social Security Bureau is in charge of:
- Social security registration for employers;
- Social security registration for employees;
- Social security contribution records;
- Verification of social security benefits (e.g. pension, work-related injury insurance).
The Tax Authority is in charge of:
- Social security declarations by employers;
- Social security payments by employers.
However, in most areas, the transition of certain crucial responsibilities such as the determination of the social security contribution base and the conduct of social security inspection, is still pending. The exception is Guangdong Province (excluding Shenzhen and Dongguan), which has taken a regulatory step further by assigning the entire chain of social security responsibilities from social security information registration, declaration, determination of contribution base, collection, inspection, dispute settlement etc. to the relevant tax authorities.
What are the implications of this new practice?
- Late payment interests
Let’s take Shanghai as an example. In the past, supplementary social security declarations and payments were handled by the social security authority and were not subject to late payment interest. With the integration of social security declaration and payment into the tax system, supplementary social security payments will be subject to a late payment interest at a daily rate of 0.05%.
- Social security inspection
In the long term, the transition of social security collection function to the tax authority implies the possibility that the tax authority will be able to identify irregularities in the social security contribution base on the basis of the income information collected in the tax system and thus, if necessary, carry out a social security inspection. This may result in further restrictions on the flexibility of the social security arrangement for certain employers.
II. Work-related injury insurance relationship is effective upon successful registration by the employer
Opinions of the Shanghai Municipal Bureau of Human Resources and Social Security on Several Issues Concerning the Implementation Measures for Work-Related Injury Insurance of the Shanghai Municipality, Announcement No. 28 of 2023, by Shanghai Municipal Human Resources and Social Security Bureau (effective from 1 December 2023)
The Opinions aim to clarify the uncertainties and resolve the problems in the implementation practice of the work-injury insurance in Shanghai.
According to the Opinions, the work-related injury insurance relationship of the employees shall take effect from the time the employer registers them for work-related injury insurance.
This implies a potential liability for work-related injuries in the period upon employment start before the registration with the social security authority, despite the fact that the full social security declaration for the first employment month can be made in the month following the start of employment. This can be seen as an indication that employers shall make the registration for onboarding employees as early as possible.
III. Work-injury insurance for Overage Employees and Interns in Shanghai
Opinions on the Trial Implementation of Participation in Work-Related Injury Insurance by Employees Beyond the Statutory Retirement Age and Interns in Shanghai, Announcement No. 30 of 2023, by the Shanghai Municipal Human Resources and Social Security Bureau, jointly with other competent authorities in Shanghai Municipality (effective from 1 December 2023)
According to the Opinions, from 1 December 2023, employers within the jurisdiction of Shanghai Municipality may register their overage employees (not over 65 years old) and interns (enrolled students in Shanghai) for the work-related injury insurance under a specific type of insurance.
Adapting to the needs in the practice of the new era, this will further strengthen the work-related injury insurance system, protect the legitimate rights of employees and diversify the work-related injury risks at the employers.
In the context of these new regulations, we recommend that employers conduct regular compliance checks to review their social security declaration practice and make corrections where appropriate and necessary.
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