China

Employees in China traditionally care most about their accident benefits and medical insurance. However, as a wider range of benefits becomes more commonplace, medical benefits and life insurance are increasing in priority for employees. Employers are generally surprised by the low demand for benefits with much greater emphasis placed on salaries and bonuses. However, this is changing for most ‘white collar’ positions, where a demand for medical benefits is increasingly common.

Asinta Partner
Tienmann Chau

Ximco

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Salaries in Shanghai and Beijing are now comparable to those in many Western cities so companies can no longer just increase salaries to compete in the market for talent.

Mandatory employee benefits in China are state administered and they include retirement, medical care, unemployment, workers compensation, and maternity benefits. Supplemental employee benefits in China include three types of retirement benefits, life insurance and ADD, and healthcare. The average benefit costs vary by province.

Mandatory Employee Benefits in China

Mandatory benefits in China are based around the State Social Insurance System, which is administered by the municipal government. They are not purchased from the private market, but administered as a social welfare system. Employers and employees contribute to the system in proportion to the employee’s salary (percentages vary by municipality, and the maximum contributions are capped). 

Retirement Benefits – State Administered

  • Normal retirement age is 60 for males and 55 for female workers. Benefits: Designed to meet the basic needs of retirement life. Basic retirement benefits are made up of three portions:
    • Base pension, equal to (the average of Social Average Annual Salary ofthe year prior to retirement time and the insured’s indexed salary) × years of contributions (including those regarded as contribution period) × 1%;
    • Individual account pension, equal to his/her individual retirement account balances/number of months stipulated by the Government;
    • Transitional pension based on the age of insured employees and accumulation period of his/her individual retirement account (different regions have different standards).

Medical Care Benefits– State Administered

  • Individual Medical Account: Used for normal clinical expenses, copayment of critical illness and hospitalization expenses.
  • Pooled Public Medical Funds: Used for reimbursement of critical illness and hospitalization expenses.
  • Threshold of Pooled Public Medical Funds Reimbursement: 10% of local social average annual salary.
  • Maximum Benefits from Pooled Public Medical Funds: Four times local social average annual salary.

Unemployment Benefits– State Administered

  • Unemployed monthly salary subject to local governmental regulation standard.
  • Medical care according to social medical insurance policies.
  • Lump-sum death benefits for the employee’s dependents.
  • Occupational training allowance, job introduction allowance, etc.

Time Limit: Two months’ benefit for each year of membership, up to a maximum of 24 months’ benefit

Work-Injury and Disability Benefits (a.k.a Workers’ Compensation)

The obligation to provide benefits are split between those paid by the Social Insurance Scheme.

  • Social Insurance Obligations
    • Medical benefits during treatment period:
      • Reimbursement of medical expenses
      • Medical rehabilitation expense reimbursement
      • Allowance for room and board
      • Allowance for medical care expenses
    • Death benefits
      • Lump-sum funeral allowance
      • Monthly dependent living allowance
      • Lump-sum death benefit
    • Disability benefits after disability appraisal:
      • Lump-sum disability benefit disability appraisal grades 1-4 (most serious, likely not able to work in a normal capacity in the future)[1]
      • Monthly salary allowance before retirement age, or retirement
      • monthly salary allowance after retirement age
      • Monthly living allowance, if needed
      • Other allowances, such as occupational training allowance, job introduction allowance, etc.
  • Employer Obligations
    • Sick leave monthly salary during the medical treatment period:
      • Paid by employer; same monthly salary as earned during
    • Employer is obligated to continue to employ the employee until normal retirement age (or until the employee chooses voluntarily terminate employment).
    • Disability benefits after disability appraisal:
      • Lump-sum disability for disability appraisal grades 5-10 (less serious, can return to work eventually)[2]
      • To be paid when the employee voluntarily ends the employment relationship (waived if the employee works until normal retirement).
    • The above can be covered by an Employer’s Liability Insurance policy.

Maternity Benefits

  • Maternity Leave: Normally 98 days, additional 15-30 days in case of complicated delivery.
  • Maternity Leave Monthly Salary: Actual monthly salary, jointly paid by maternity pooled funds and employer.
  • Medical Care Expenses/Allowance: Used for medical expenses associated with the delivery and/or related birth control treatment and/or related female illness treatment, in the form of medical allowance (such as RMB 3,000 in Shanghai) or medical expense reimbursement (such as in Guangdong).
  • Following the “Opinions of the General Office of the State Council on Comprehensively Advancing Combined Implementation of Maternity Insurance and Basic Medical Insurance for Employees” (No. 10 [2019] of the General Office of the State Council), Maternity Benefits is combined with the Basic Medical-care Insurance, with unified registration, fund payment and management.

Supplemental Employee Benefits in China

Retirement Benefits

Type I: Enterprise Annuity (Company Self-Administered)

Updated Briefing on Government Policies

  • Must have participated in the mandatory social pension program
  • Must have a corresponding financial capacity
  • Must have established collective negotiation mechanisms among employees
  • Typically seen with State Owned Enterprises (or privatized/restructured former State Owned Enterprises). Also giving way to Type III (see below).

Type II: Entrusted Management Pension Program: Updated Briefing on Government Policies

To promote the active participation of the insurance industry, to build a multilevel old-age security system, and to promote the professional development of pension insurance, the China Insurance Regulatory Commission (CIRC)  decided to delegate trust managed pension business to pension companies.[3]

  • Currently, only a very limited number of insurers in the market are able to provide such products.
  • Not very popular with Employees due to low rates of investment return that are much lower that what are widely available banking products.

Type III: Pension Program for Employees of State Organizations and Public Institutions:

Updated Briefing on Government Policies

  • In order to coordinate the building of the urban and rural social security system and establish a more fair and sustainable pension insurance system, the State Council decided to reform the pension insurance system for employees of state organizations and public institutions. The following regulation issued by the State Council is regarded as its guidelines:
    • Decision of the State Council on the Reform of the Pension Insurance System for Employees of State Organizations and Public Institutions.
    • This is not relevant for Private Enterprises.

Accidental Death & Disability Insurance  (AD&D)

  • AD&D is historically the most pervasive employee benefit provided by employers.
  • The benchmark sum insured for AD&D is usually somewhere between from 24 to three times annual salary (24 to 36 months).
  • A certain percentage of the insured amount under the group AD&D policy will be payable, if the employee suffers one of the following losses due to accident. Can be structured 2 ways:
    • Type I: Insurer defined levels of disability and/or dismemberment
    • Type II: Government defined Levels of Disability (1 -10)
      • Same classification used for Work Injury Benefits (Worker’s Compensation).
      • Requires Disability

Life Insurance, aka. Death/Total Permanent Disability due to Illness

  • Life insurance is an increasing popular employee benefit. Intended to fill the gap left by Accident Insurance, which does not cover Death or Disability caused by illness.
  • The benchmark sum insured for Group Life Insurance can vary from anywhere between from one to three times annual salary (12 to 36 months).

Medical Benefits

China’s Social Security System includes medical benefits. However, group health plans are necessary in order to supplement the inadequacies of the Social Security Plan. To develop diversified health insurance services is emphasized in the Opinions of State Council on Accelerating the Development of Modern Insurance Industry [29] 2014 and the Opinions of State Council on Accelerating the Development of Commercial Health Insurance [50] 2014.

Insurance companies will be encouraged to develop products such as medical insurance, disease insurance, disability income insurance and long-term care insurance to supplement basic medical insurance. At the same time, tax policy concerning health insurance should be improved. Steps should be taken to implement and improve the corporate income tax policy regarding the premium of supplementary medical insurance paid by businesses for their employees.

These measures pave the way for faster growth of commercial health insurance.

____________________

[1],2  A new standard was jointly released by the Insurance Association of China (IAC) and the Chinese Forensic Medicine Association on June 8, 2013 for classification and gradation of functions and disabilities. The degree of life insurance disability is assigned to ten levels, with Level 1 as the highest severity level and Level 10 as the lowest severity level.

[3] For retirement Pensions, the following regulations issued by CIRC are regarded as its guidelines:

  • Notice About Trial Old-Age Security Entrusted Management Business Related Issues (CIRC No. 43, 2013)
  • Notice About Trial Old-Age Security Entrusted Management Business Related Issues (CIRC No. 129, 2009)
  • Pension Business Management Regulation (CIRC No. 4, 2007)
  • Bond Investment of Insurance Institutional Investors’ Trial Measures (CIRC No. 72, 2005)
  • Risk Control Guidelines for the Use of Insurance Funds (CIRC No. 43, 2004)
  • Life Insurance Product Approval and Filing Management Approach (CIRC No. 6, 2004)

 

This information about employee benefits in China is provided by Ximco, Asinta’s employee benefits consulting Partner in China.

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