In the latest step to protect workers’ rights and the steady job market, China’s top court has pushed to mandate social insurance payments, clarifying that any employment contract that excludes them is invalid.

In the judicial interpretation issued Aug. 1, the Supreme People’s Court outlined that if an employer fails to pay social insurance, employees can request authorities to order back payments, and may resign while claiming severance. The central-level interpretation will take effect on Sep. 1 and standardizes how lower courts should rule in such cases.

In China, some employers exclude workers from the social insurance scheme to cut costs, while younger employees may opt out voluntarily to take home more cash, according to a press briefing held by the Supreme People’s Court on Aug. 1. 

Social security contributions to pension, medical, and other funds are mandatory for employees in China under the Labor Law and the Social Insurance Law. Workers contribute about 10% of their wages, while employers pay 20% to 28%.

A typical ruling case released alongside the judicial interpretation detailed how a security guard surnamed Zhu had signed a contract with a clause waiving his right to social insurance. The court found the waiver invalid, upheld Zhu’s right to terminate his contract over the company’s nonpayment, and ordered the employer to provide severance.

The judicial interpretation will help protect workers’ rights, Wu Jingli, deputy head of the top court’s First Civil Division, explained at the press briefing.

“In practice, it is more common for employers to, for cost-control reasons, agree with workers — or have them pledge — not to pay social insurance, leaving employees in a weak position with no choice in the matter,” Wu said.

China has raised the minimum threshold for social insurance contributions in recent years. In cases where wages may fall below the threshold, such as at smaller-sized firms and family-run businesses, they must still be topped up to meet it, pushing up labor costs.

In July, China’s State Council began allowing companies to apply for a temporary deferral of social insurance contributions, with no late fees, if “facing business hardship.”

Hong Guibin, senior partner at Huiye Law Firm in Shanghai, told Southern Weekly the latest interpretation could drive more flexible hiring models, such as outsourcing or daily-paid gig work. These flexible hiring models, without standard labor contracts, fall outside the scope of labor law, and thus skirt social insurance obligations.

The government has also moved to improve benefits for employees involved in emerging gig jobs, such as food delivery couriers.

Those who opt out of social insurance voluntarily reflect shortcomings in the current system, such as difficulties in transferring benefits across regions, Zhang Hao, associate professor at Renmin University of China’s School of Labor and Human Resources, told business news outlet Caixin.

The judicial interpretation will help promote compliance, but a lasting impact will require broader reforms to the system, Zhang added.

Editor: Tom Arnstein.

(Header image: A social security card of Chinese residents is displayed. VCG)