Social Insurance Compliance in China: A Non-Negotiable Obligation forEmployers

Introduction: A Renewed Emphasis on Employer
Accountability

Recent developments in China’s labor law landscape, including the publication of
typical labor dispute cases by the Supreme People’s Court (SPC) on August 1, 2025,
have sent a clear message to employers: social insurance compliance is a non-
negotiable obligation. These cases, combined with a noticeable increase in
enforcement activities in September, underscore the significant legal and financial
risks for companies that fail to make full and timely social insurance contributions
for their employees. For international businesses operating in China, these
developments serve as a critical reminder to review and fortify their HR and payroll
practices to ensure full compliance.

The issue of social insurance has long been a complex and challenging area for
employers in China. However, the recent pronouncements from the SPC and the
ramp-up in enforcement actions signal a new era of accountability. This article
examines the key takeaways from the SPC’s recent guidance, the implications for
employers, and the practical steps that companies should take to mitigate their
risks in this heightened enforcement environment.

The SPC’s Stance: Agreements to Waive Social
Insurance Are Void

The most significant takeaway from the SPC’s recent publication of typical labor
dispute cases is the unequivocal declaration that any agreement between an
employer and an employee to waive or reduce social insurance contributions is
legally void. This has been a common, albeit legally dubious, practice in the past,
with some employers and employees agreeing to a higher salary in lieu of social
insurance contributions. The SPC’s guidance makes it clear that such arrangements
are illegal and will not be upheld by the courts.

Furthermore, the SPC clarified that an employee who terminates their employment
contract on the grounds that the employer has failed to make social insurance
contributions is entitled to statutory severance pay. This significantly raises the
stakes for employers, as it not only exposes them to liability for the unpaid social
insurance contributions but also for severance payments, which can be substantial.

Practical Implications for Employers

The renewed focus on social insurance compliance has several important practical
implications for employers in China:

Increased Scrutiny and Enforcement: Employers can expect increased
scrutiny from local labor authorities and tax bureaus regarding their social
insurance contribution records. Audits and inspections are likely to become
more frequent and more thorough.

Higher Financial Risks: The financial risks associated with non-compliance
have increased significantly. In addition to being required to pay the
outstanding social insurance contributions and late fees, employers may also
be liable for severance payments if employees terminate their contracts due to
non-compliance.

Reputational Damage: Non-compliance with social insurance obligations can
also lead to significant reputational damage, making it more difficult to attract
and retain talent.

Best Practices for Social Insurance Compliance

To mitigate these risks, employers should adopt a proactive and comprehensive
approach to social insurance compliance. Best practices include:

Conduct a Compliance Audit: Companies should conduct a thorough audit of
their social insurance contribution practices to identify any potential gaps or
areas of non-compliance. This audit should cover all employees, including
those on non-standard employment arrangements.

Ensure Full and Timely Contributions: Employers must ensure that they are
making full and timely social insurance contributions for all eligible
employees, based on the correct contribution base. This requires a robust
payroll system and a clear understanding of the local social insurance
regulations in each city where the company operates.

Update Employment Contracts and Policies: Employment contracts and
employee handbooks should be reviewed and updated to ensure they are
consistent with the latest legal requirements. Any clauses that purport to
waive or reduce social insurance contributions should be removed.

Educate HR and Finance Teams: HR and finance teams should be provided
with regular training on the latest social insurance regulations and best
practices to ensure they are equipped to manage compliance effectively.

Conclusion: A Time for Proactive Compliance

The recent developments in China’s social insurance landscape are a clear signal
that the authorities are taking a much tougher stance on non-compliance. For
employers, the time for a “wait and see” approach is over. By taking proactive steps
to ensure full compliance with their social insurance obligations, companies can not
only avoid significant legal and financial penalties but also build a more sustainable
and responsible business in China.