Social insurance payments through a third-party agent without establishing a labour relationship is deemed as fraud and illegal.
Several Articles issued by the Human Resources and Social Security authorities stipulate that utilising a third-party agent to pay social insurance without establishing a labour relationship between the agent paying the social insurance and the relevant individual(s) is illegal.
Measures for Administrative Supervision of Social Insurance Fund
The Articles were simultaneously released with the Measures for Administrative Supervision of Social Insurance Fund ('Measures'), effective from 18 March 2023. The Measures clearly state that employers or individuals who pay social insurance by the following:
- fraud, forgery of certification materials; or
- fictitious labour relations
Shall be deemed as fraud and subject to legal liabilities.
Social Insurance Law of the People's Republic of China
Before the Measures and Articles, similar provisions are found in the Social Insurance Law. Specific articles of the Social Insurance Law are outlined below.
Social Insurance Law of the People's Republic of China,
Article 88 For any offence of making fraudulent claims for social insurance benefits through cheating, fake documentation or other means, the social insurance administrative authority shall order a return of the social insurance benefits defrauded, and levy a fine larger than double but less than quintuple of the amount defrauded.
The above clearly states that utilising agents to pay social insurance for employees is illegal.
Article 63 When an employer fails to pay on time and in full social insurance contributions, the social insurance contributions collecting agency shall compel the employer to pay or replenish the deficiency within the prescribed period.
When social insurance payables by the employer remain unpaid or deficient at the expiry of the prescribed period, the social insurance contributions collecting agency has the right to inquire from banks and other financial institutions regarding the employer's bank accounts, and may apply to the relevant administrative department at or above the county level for a decision on capital transfer for social insurance contributions...
Article 86 When an employer fails to pay social insurance contributions on time and in full, the social insurance contributions collecting agency shall place an order with the employer demanding full payment within a prescribed period, and an overdue payment fine at the rate of 5 per 10,000 shall be levied as of the date of indebtedness. When the payment is not made at the expiry of the prescribed period, a fine above the overdue amount but less than its triple shall be demanded by the authoritative administrative department.
Measures Establish Stricter Compliance
Although the Social Insurance Law was effective from 1 July 2011, enforcement of such provisions were weak. Many enterprises utilised third-party agents to handle social insurance for their employees. Especially, for those who primarily work in another city than the location of the employing company.
The adoption of the Measure coupled with examinations and penalty enforcement paves stronger legal obligations. Specifically, such a rigorous governmental attitude reflects a robust move to regulate social insurance violations. Additionally, penalties can exceed administrative fines as violators can be blacklisted and affect personal credit.
Therefore, employers shall rectify any illegal social insurance payments and adhere according to the provisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.