In recent years, labor disputes over social insurance, non-compete clauses, and employee benefits have been on the rise. On August 1, the Supreme People’s Court (SPC) held a press conference to announce the release of the Interpretation (II) on the Application of Law in the Trial of Labor Dispute Cases, which addresses several key issues of public concern. The new interpretation will take effect on September 1, 2024.
Social Insurance Contributions Are a Legal Obligation
Under China’s Labor Law and Social Insurance Law, both employers and employees are legally required to participate in the social insurance system. The latest judicial interpretation makes it clear:
Any agreement to waive social insurance contributions—whether mutually agreed upon or stated unilaterally by an employee—is legally invalid.
In practice, some companies try to reduce labor costs by paying cash subsidies instead of making the required contributions, while some employees voluntarily give up coverage to increase their take-home pay. Both practices are prohibited and have no legal effect.
Failure to Pay Social Insurance Means Compensation
The interpretation further specifies that if an employer fails to pay social insurance as required by law and the employee terminates the labor contract as a result, the court should support the employee’s claim for economic compensation.
The compensation standard is:
- One month’s salary for each full year of service
- Half a month’s salary for service of less than six months
If the employer has already paid the employee the equivalent amount as a subsidy, they may recover that sum after being ordered by authorities to make back payments.
Safeguarding Employee Rights and Promoting Compliance
According to the SPC, clarifying the rules on economic compensation will encourage companies to fulfill their legal obligations, protect the integrity of the social insurance system, and safeguard employees’ entitlements to medical care, pensions, unemployment benefits, work injury protection, and maternity benefits.
Paying social insurance not only secures long-term protection for employees but also helps employers share risks. For example:
- Work injury insurance provides compensation in the event of workplace accidents
- Pension insurance ensures retirement income
- Medical insurance covers most medical expenses
Key Reminders for Employers
Employers should:
- Pay all “five insurances” in full and on time, as required by law
- Calculate contributions based on employees’ actual wages
- Meet monthly withholding and payment obligations to avoid back payments and late fees
Noncompliance can result in mandatory back payments, late fees, additional compensation to employees who terminate their contracts, and potential reputational damage.
Key Reminders for Employees
Employees are advised to regularly check their social insurance payment records. If contributions are missing, underpaid, or interrupted, they can request an audit and back payment from the social insurance authority. In serious cases, they have the right to terminate the labor contract and claim economic compensation.
