Why are the ceiling and floor limits of the contribution base established?

What are the ceiling and floor limits of the social insurance base in different cities this year? Why do we need to adjust the ceiling and floor limits of the social insurance base? What is the impact of the adjustment on employers and employees? What should you do if your income is less than the floor limit of the social insurance base? These are, more or less, the concerns that a few investors in China may have. For this reason, we as a result of this specifically discuss the issue of the social security base.

• DEFINITION

The social insurance base is the base of an employee’s contributions for one social insurance year. Except for some areas, the social insurance base generally does not change within a year. An employee’s social insurance base is determined based on his or her average monthly salary for the previous year.

The level of this base is directly related to the amount of social insurance contributions that insured employers and employees need to pay, which in turn affects the social security insurance they can enjoy in the future.

• MAIN PURPOSE FOR THE LIMITS

Affects the amount of social insurance contribution

The State ensures the fairness and reasonableness of contributions by setting the ceiling and floor limits of the contribution base.

• If the employee’s salary is lower than the floor limit of contribution, the floor limit is used as the base of contribution salary.
• If the employee’s salary exceeds the ceiling limit of contribution, the exceeding part is not counted as the base contribution salary.

This ensures that the basic livelihood of the low-income group is not affected and avoids unreasonably high contributions from the high-income group due to excessive income.

Determines the level of pension

Basic pension insurance follows the principle of “pay more and get more, pay longer and get more”. The higher the contributory wage base of an insured employee, the higher the amount of money stored in his or her personal account, and the higher the pension he or she receives upon retirement.

• IMPACT FOR EMPLOYER/EMPLOYEE

Whether you are an employer or an employee, when the social insurance base is adjusted, the amount of social insurance contributions will change.

• If there has been an increase in income in the previous year and the social insurance base is adjusted upwards, the amount of social insurance contributions that need to be made will increase. The employees’ net salary will also decrease.
• If the previous year’s income is less than the floor limit or higher than the ceiling limit, the adjustment of the ceiling and floor limits of the social insurance base, the social insurance costs to be paid will increase accordingly.

In the meantime, some cities will require “social insurance base adjustment to make up the difference”, which will also affect the salary income of the month.

• COMPLIANCE

Since 2023, a few provinces and municipalities across the country have begun to implement the optimization and adjustment of the process of declaring and paying social insurance, with employers directly declaring and paying the contribution to the tax authorities on their own. According to incomplete statistics, the regions that have carried out the adjustment of the social insurance declaration and payment process include:

The optimization and adjustment of the process of declaring and paying social insurance not only changes the process of declaring social insurance but also represents the official implementation of the “social insurance tax collection” model. Based on this, the tax department will take care of the collection of social insurance, at the same time as the individual income tax and corporate income tax. Therefore, for companies, any information that doesn’t match may lead to tax risks. The compliance management of social insurance payments also requires companies to pay sufficient attention.

• LATEST CEILING AND FLOOR LIMITS (YR24 Jul ~ YR25 Jun)

As seen in the table above, Shanghai’s social insurance ceiling and floor base currently jump to the first level. People from other provinces and cities who come to Shanghai to look for job opportunities, including expatriates who come to work in Shanghai, will pay social insurance at a higher benchmark. There are, of course, many other factors that affect the base, such as their wages, incomes, etc. These should all be carefully calculated and declared to the local social insurance bureau and as well the local tax office.

To summarize, China’s setting of ceiling and floor limits for the social insurance base has multiple important significance. This initiative not only protects the basic rights and interests of the insured and ensures the sustainability of the social insurance system, but also balances social equity and efficiency to a certain extent.

Should you have any questions on the topic, please feel free to contact us.