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Legal Update

Additional Costs due to Expanded Coverage of the Urban Social Insurance Scheme in Shanghai

31 July 2009
Mayer Brown JSM Legal Update


From July 2009, certain "Non-Shanghai Employees" must be enrolled in the Shanghai Urban Scheme. Such a change will bring additional costs for both Shanghai employers and employees.

Full Update

The New Notice

The Shanghai Human Resources and Social Security Bureau recently promulgated a Notice regarding Certain Issues in relation to the Enrolment of Migrant Employees in the Urban Staff's Basic Pension Scheme (the "Shanghai Notice") which came into effect on 1 July 2009.

According to the Shanghai Notice, from 1 July 2009, certain Non-Shanghai Employees (explained below) must be enrolled in the Shanghai Urban Staff's Basic Pension Scheme, as well as the Shanghai Urban Staff's Basic Medical Insurance Scheme, Unemployment Insurance Scheme, Work-Related Injury Insurance Scheme and Maternity Insurance Scheme (together, the "Urban Scheme").

Who is a Non-Shanghai Employee?

A Non-Shanghai Employee is an employee who:

  • does not have a Shanghai permanent domicile (i.e. Shanghai Hukou);
  • has an urban "Hukou" (i.e. permanent domicile) with another city (such as Beijing);
  • does not have a Shanghai Residence Certificate for Talent (this certificate is issued by the Shanghai Human Resources and Social Security Bureau to migrant individuals with high degree or special skills and an employee who has this certificate is covered by the Urban Scheme); and
  • is below 45 years old.

While not specifically addressed, the Shanghai Notice does not appear to apply to expatriates (including foreign/Hong Kong/Macau/Taiwan individuals) working in Shanghai.

What is the Change?

Prior to July 2009, a Non-Shanghai Employee was required to be enrolled in the Shanghai Migrant Employees' Comprehensive Insurance Scheme (the "Comprehensive Scheme"). They are now required to be enrolled in the Urban Scheme as long as their Shanghai employer is required to, or is able to, contribute to the Urban Scheme.

The difference between the Comprehensive Scheme and the Urban Scheme is set out in the table below:

Calculation Basis of Contribution
(from 1 April 2009 to 31 March 2010)

Total Rate
Comprehensive Scheme
RMB1,975 (i.e., 3,292 x 60 percent)
12.5 percent (5.5 percent for construction industry only)
Urban Scheme
the employee's average monthly salary for the previous year, capped at RMB9,876 (i.e., 3,292 x 300 percent), and the lower limit is RMB1,975 (i.e., 3,292 x 60 percent)
37 percent
11 percent

The main differences between the Urban Scheme and the Comprehensive Scheme are:

  • there is a higher contribution by the employer of 37 percent under the Urban Scheme compared to 12.5 percent (the only exception is 5.5 percent for construction industry) under the Comprehensive Scheme; and
  • employees are required to make contributions under the Urban Scheme while there is no such requirement under the Comprehensive Scheme.

Consequence of Breach

The Shanghai Notice is silent on the legal consequences for an employer's failure to enrol its Non-Shanghai Employees in the Urban Scheme. Generally speaking, if a breach occurs, the labour authority may order the employer to supplement the contributions within a prescribed period. In addition, a Non-Shanghai Employee may be entitled to claim constructive dismissal and severance pay.

For inquiries related to this Client Alert, please contact:

Lihui Zhou ( )

Rachel Zhang ( )

Learn more about our PRC offices and Employment & Benefits practice.

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