Social Security: Rules and Costs for Foreign Employers in China

There are so many questions we received in the meetings about recruitment in China: Social Insurance. HR and managers from overseas companies expanding into China are always confused by the following questions:
· How should social security be calculated and paid when hiring employees in China?
· What are the differences between Chinese and foreign employees in the social security system?
· How should social security contributions be handled if my company and employees are located in two regions?
· Should I separate social security from employee salaries?

......

This article provides a quick guide to China's social security system, addressing common challenges faced by foreign companies entering China, such as WEOF, EOR, PEO, and other models.

Core Rule: Social Obligations of Corporate

Foreign Investment Guide of the PRC, published by the Ministry of Commerce in 2024, clearly specify that in the labor contracts, foreign-invested enterprises must include social insurance and housing provident fund.

So, what’s the structure of Chinese social security?

In China, it is called "social insurance and housing provident fund," （五险一金） which are collectively referred to as the "Five Insurances and One Housing Fund."

According to the Social Insurance Law, the five mandatory insurances are jointly paid by the employer and the employee, including pension insurance, medical insurance, unemployment insurance, work injury insurance, and maternity insurance.

The housing provident fund is established under the Housing Provident Fund Management Regulations, and is also jointly paid by both the employer and the employee.

For Foreign-invested companies, failure to make the contributions will result in a penalty of 1-3 times the unpaid amount, and may even affect credit and reputation.

Labor Costs: Varies by City

Chinese social insurance cost = Employee's salary base × Contribution rate (as publicly announced by the government).

Salary base number is determined by employee's annual pretax salary, and it cannot be lower than the local minimum base or higher than maximum base, which varies by city and has different upper and lower limits. Generally, the total corporate cost ≈ 28%-44% of employee's monthly salary.

The table below estimates the contributions for an employee with a monthly salary of ¥10,000 (using common contribution rates):

Type	Business		Employee
	Contribution (RMB)	Proportions	Contribution(RMB)	Proportions
Pension	1600	16%	800	8%
Medical	600-1000	6%-10%	200	2%
Unemployment	50-100	0.5%-1%	100	1%
Work Injury	20-190	0.2%-1.9%	/	/
Maternity	80-120	0.8%-1.2%	/	/
Housing Fund	500-1200	5%-12%	500-1200	5%-12%
Total	2850-4210	28.5%-42.1%	1600-2300	16%-23%

The company’s monthly social security cost is approximately ¥2,850.

The employee’s monthly social security deduction is approximately ¥1,600.

The total labor cost for the company (including salary and social security) is approximately ¥12,850, while the employee's take-home salary is ¥10,000 - ¥1,600 = ¥8,400.

Each city has different upper and lower limits for the local minimum salary base. If the employee’s salary base is lower than the local minimum base, social security contributions are calculated based on the minimum local base.

For example, in 2025, the minimum social security contribution base in Shanghai is ¥7,384. If an employee's salary is ¥5,000, the calculation will be as follows:

The total labor cost for the company (including salary and social security) is approximately ¥7,232, while the employee's take-home salary is ¥5,000 - ¥1,125 = ¥3,875.

This means that when hiring employees in China, social security contributions will be a key factor in the company’s labor costs.

Common Compliance Risk

• Contribution Base

Prohibited from paying social security on the minimum base (unless the employee's actual salary is ≤ the local minimum).
The social security base = the employee's monthly salary on average from the previous year (including bonuses and allowances).

Key focus: Some foreign companies are often fined for separating part of salary in the form of reimbursement to avoid paying social security.

• Housing Provident Fund Policy

The mandatory contribution rate for the housing provident fund is a minimum of 5% (strictly enforced in first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen).

In some cities (such as Shanghai), foreign companies are allowed to negotiate an exemption from paying the housing provident fund for foreign employees.

• Employee Benefits

All registered companies in China must pay social insurance from the employee's probation period.

Social insurances cannot be replaced by commercial insurance (such as supplementary medical insurance); the latter is considered a staff welfare.

Suggestions & Checklist

Compliance First: Ensuring full payment of social insurance is key to avoiding labor arbitration.

Consult Local Agents: Confirm the latest contribution rates and bases for each city through professional agencies (e.g., in Shenzhen, the employer contribution rate for unemployment insurance should reach 0.7% in 2025).

Audit Report: Retain payroll and payment documentation (labor inspections often review up to 3 years).

Contract items: Clearly explain salary deductions to employees.

Registration: Choose a reliable EOR (for companies without a Chinese entity) or PEO (for WFOEs) provider.

Welcome to Contact

Need more help? Out2China can provide further assistance for specific city policies or cost estimation templates. Feel free to leave any questions regarding China’s social security in the comments below. 

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