Employees themselves contribute nearly 12 per cent of their monthly salary to social insurance.
While Ao himself pays social insurance for his employees, he has observed that in many workplaces, workers tend to prefer a higher salary over full benefits.
“If social insurance is paid, a worker’s take-home salary might be 2,500 yuan. Without it, (take-home pay) could be 3,500 yuan,” Ao explained.
“The choice was theirs and employees would often choose the latter.”
“But of course, employees can’t do that anymore,” he said.
Under China’s law, social security contributions to pension, medical and other funds are mandatory. Contribution percentages vary across different regions in the country.
“Workers with already modest salaries will see a larger share of their disposable income go toward contributions,” said Han Jian, a management professor at the China Europe International Business School (CEIBS) in Shanghai.
The minimum salary cap used to calculate social insurance contributions creates another layer of inequality, according to Liu Xiangqing, assistant professor at the International Business School Suzhou at Xi’an Jiaotong-Liverpool University (XJLTU).
In Suzhou for instance, social insurance contributions are calculated based on a minimum salary of 4,879 yuan – even for workers earning less.
For pension insurance, employers and employees contribute 16 per cent and 8 per cent respectively.
“In Suzhou, the minimum and maximum contribution base is 4,879 yuan and 24,396 yuan in 2024,” Liu said. “If your salary is lower than 4,879 yuan, your contribution should (still) be based on the 4,879 yuan contribution rate,” said Liu.
For a worker earning 2,000 yuan a month, that amounts to a monthly pension insurance payment of 1,171 yuan – nearly 60 per cent of the worker’s salary.
In contrast, a worker earning 10,000 yuan can also opt to contribute based on the minimum cap, making the total contribution just around 10 per cent of their income.
“For many low-income workers with no expectation of wage increase, it is not fair to them,” Liu said.
“Ideally the social security system should benefit the disadvantaged group more, but the current system does not give them enough incentive to participate.”
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