This is especially true when employees come from different cities in China or have different working locations.

There are six categories of social security in China. They are:

• pension
• medical insurance
• maternity insurance
• unemployment insurance
• accident insurance
• critical illness insurance

As a general rule, employers should make a contribution to each of these types of social security on behalf of their employees. Employees are also required to make contributions to some of them. The contributions are set as a percentage of average monthly salary.

Because the funds are administered by divisions of local governments, the percentages that should be contributed by employee and employer differ depending on the town in which their employees are resident. In China this is known as the person?s hukou. Therefore the social security contribution that the employer should pay on behalf of two employees earning the same salary, one from Shanghai and one from neighboring Kunshan for instance, can be quite different. Similarly, the amount of individual income tax paid by these two employees will also be different, as social security contributions made by the employee are deductible against tax (up to a certain limit).
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