China’s Disabled Persons’ Employment Security Fund

disabled-2When should an enterprise pay?

China protects disabled persons’ rights to work and adopts a mandatory system of pro rata hiring of these citizens. According to the PRC Disabled Persons Security Law, which became effective on 1st July, 2008, enterprises are obliged to hire disabled persons as a specified ratio of their total staff. Jeanette Yu, Counsel at CMS, breaks down the law and outlines the obligations that companies operating in China must fulfil.

Historically, a considerable number of enterprises in China have neither hired disabled employees nor made contributions to the Disabled Persons’ Employment Security Fund (Fund).[1] In order to strengthen implementation of the PRC Disabled Persons Security Law, on 9th September, 2015, the Ministry of Finance, the State Tax Bureau and the China Disabled Persons Federation jointly issued the Methods on Levying, Use and Management of Disabled Persons’ Employment Security Fund (Methods‌). The Methods stipulate that all enterprises in China must make contributions to the Fund if they do not hire a sufficient number of disabled persons.

Statutory requirements of hiring disabled persons

The term ‘disabled persons’ refers to those who hold a PRC Disabled Person’s Certificate, which indicates that the holder has visual impairments, hearing disabilities, speech disabilities, physical handicaps, intelligence disabilities, mental disabilities or multiple disabilities, and to those persons holding a PRC Disabled Army Person’s Certificate (Grade 1 to Grade 8). Enterprises that employ disabled persons must sign an employment contract with them for a term of at least one year, pay a salary of no less than the minimum monthly salary of employees as announced by the local government, and pay social insurance and housing fund contributions in accordance with the law. Disabled persons holding a PRC Disabled Person’s Certificate of Grade 1 or Grade 2 or a PRC Disabled Army Person’s Certificate of Grade 1 to Grade 3 are counted as two disabled persons. Disabled persons hired by an enterprise at locations other than its registered address will also be counted towards its overall obligations.

As required by the Rules of Employment of Disabled Persons, which became effective on 1st May, 2007, the total number of disabled persons hired by an enterprise should be no less than 1.5 per cent of its total staff, with the exact proportion applicable being subject to the decision of the local provincial government where the enterprise is located. In the majority of locations the proportion required is no less than 1.5 per cent, such as in Jiangsu, Zhejiang and Guangdong provinces. In other locations, the proportion is higher. For example, in Shanghai, the proportion is no less than 1.6 per cent,[2] and in Beijing it is no less than 1.7 per cent.[3]

Contributions to the fund

According to the Methods, if an enterprise does not hire disabled persons in the ratio required by the local government, it will be obliged to pay contributions to the Fund, with the number of disabled persons which have been hired being taken into consideration. Fund contributions are calculated as follows:

Payable amount = (number of total staff employed in the previous year x rate required by the local government – number of hired disabled persons) x average annual salary of the enterprise’s employees in the previous year

While the Methods stipulate that the calculation should be based on the average annual salary of  an enterprise’s employees, which should be calculated on the basis of the total payroll of all staff, in many locations this provision has historically not been strictly implemented in practice.

disabled-1For example, in Shanghai, up until this year, the calculation for contributions to the Fund is still based on social insurance contributions of the employees paid in the previous year rather than the actual average annual salary of the employees in the previous year. This means that currently, for an employee whose annual salary is higher than the threshold of three times the average annual salary of employees as announced by the Shanghai government, when concluding the contribution amount the threshold will apply.

As another example of how the calculation varies across different jurisdictions, in Nanjing the fund contribution amount for 2015, which is levied in 2016, is calculated using the average 2013 annual salary of employees of non-privately-owned companies located in the city.[4]

In both of these examples, the basis for calculating contributions is lower than the standard as required by the Measures. It is still unclear whether the respective local governments will adjust the calculation criteria in the future in order to comply with the provisions of the Measures. However, if the local governments decide to do so the costs for enterprises will increase considerably, especially those enterprises whose employees earn salaries higher than the national average.


According to the Methods,[5] small and micro businesses, which have 20 employees or less, are exempt from paying to the Fund for three years after they have been established if they do not hire a sufficient number of disabled persons. Further, any enterprise that incurs direct and serious economic losses due to force majeure or other unexpected crises, may apply to delay the payment for a certain period of time, or benefit from a reduction in the amount payable, or even be exempted from paying into the Fund altogether, according to the policies provided by the competent finance bureau of the local provincial governments. Currently, in some locations such as Beijing, the relevant policies have already been announced.[6]

Liabilities for breach of law

Although Fund contributions must be levied by the competent local tax bureau on a monthly basis, in practice, in most locations, contributions are usually paid in a lump sum once a year. According to the Measures, enterprises have a duty to declare to the competent local tax bureau every year their status regarding the hiring of disabled persons. If an enterprise fails to make this declaration within the prescribed time limit it will be deemed as not having hired any disabled employees. In practice, such declarations are be made to the competent disabled persons’ employment service institute, such as the local Disabled Persons’ Federation at the district level.

The competent local tax bureau is entitled to inspect enterprises. If an enterprise neither hires disabled persons nor pays contributions to the Fund, the competent administrative authority may issue a warning and ask for rectification within a specified time. If an enterprise still fails to pay contributions to the Fund as required, in addition to outstanding payments, the enterprise may be required to pay late payment fees at the rate of 0.5 per cent of the total for every day that payment is delayed.[7]

Jeanette Yu is Counsel and Head of Employment & Pensions Practice Area Group of CMS, China. She has more than 16 years’ experience in advising clients on a wide range of PRC labour law issues.

CMS advises clients in the areas of corporate and M&A, distribution and commercial, employment, banking and finance, insurance, competition, real estate and construction, IP, dispute resolution as well as tax and customs. CMS has been active in China for several decades.

[1] The Report of the Inspection Group on Implementing Laws of the Standing Committee of the National People’s Congress about Implementation of the PRC Disabled Person Protection Law, 30th August, 2012.

[2] Measures for Decentralized Arrangements on Employment of Disabled Persons in Shanghai, 20th December, 2010.

[3] Methods on Levying, Use and Management of Disabled Persons’ Employment Security Fund of Beijing, 1st January, 2016.

[4] Announcement of Nanjing City on Levy of Disabled Persons’ Employment Security Fund of 2016 issued by the Nanjing Local Tax Bureau, 22nd July, 2016.

[5] Article 16 of the Methods on Levying, Use and Management of Disabled Persons’ Employment Security Fund, 9th September, 2015.

[6] Article 15 of the Methods on Levying, Use and Management of Disabled Persons’ Employment Security Fund of Beijing, 1st January, 2016.

[7] Article 27 of the Rules of Employment of Disabled Persons, 1st May 2007.