Social security tax on expats may boost local hires
Foreign companies operating on the mainland are set to hire more locals and reduce the number of expatriates employees after mainland cities start collecting social security insurance from foreigners and Hong Kong staff.
The policy allows each city to have their own implementation timetable for the new insurance scheme that includes pension funds, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance.
The amount of monthly contributions by the employees and employers varies from city to city but is capped at US$676 (HK$5,246) for employers and US$201 (HK$1,560) for staff.
'The new social security insurances have added costs for companies and led many companies into reviewing their staff policies. This would lead foreign companies to consider hiring more locals on a cheaper pay package and less expatriates who are usually on a higher salary,' said Becky Lai Song-xi, China tax partner of Ernst & Young.
Some major cities such as Shanghai have not yet implemented the new rule.
Of those cities that have introduced the tax Beijing, Tianjin, Xiamen, Qingdao and Guangzhou applied it to foreigners but excluded those from Hong Kong or Taiwan.
Chengdu, Suzhou and Zhuhai require all foreigners and Hong Kong and Taiwanese people working on the mainland to pay the tax. Shenzhen made it compulsory for foreigners and allowed Hong Kong and Taiwanese workers to voluntarily join the scheme.
Lai said previously foreigners were waived from having to pay the tax as the mainland wanted to attract overseas talent.
'But now, if both expatriates and local staff both have to pay the social security tax, it allows the local staff to compete with the expatriates for job opportunities on a more equal basis,' she said.
Kelvin Wong Tin-yau, chairman of the Hong Kong Institute of Directors, believes companies which need certain special talent and expertise would still hire expatriates. For companies which need to hire a large number of staff with no particular skill set, however, they may shift to hiring more locals.
'I hope companies would stick to hiring the best talent for their companies and not only eye the cost issue. Talented staff can contribute a lot to the company and companies should not change their staff policies just because of the new social security tax,'' Wong said.