Calculation of Maternity Benefits to Change in Dalian

August 30, 2011 Posted by China Briefing Reading Time: 3 minutes

Aug. 30 – In addition to amendments to the social insurance system in Dalian (explained here yesterday), the northeast city has also implemented an amendment to the maternity benefit policy.

From this month, employees on maternity leave will no longer enjoy their full salary during the period of maternity leave (normally five months in Dalian). Instead they will receive a figure equal to the average monthly salary earned by the employees during the previous fiscal year at the company they are working for.

This has a couple of consequences:

Women on maternity leave earning more than the average salary at the company they work for will receive less money than they currently do. Therefore senior-ranking workers will lose out.
Conversely, those that earn relatively low salaries will actually be incentivized to have a baby and take maternity leave, as their income will temporarily increase during this period.
The amount received during maternity leave will not be related to one’s individual salary, but to the company that the individual works for. Therefore there will be a big difference between the amount which can be received by a woman working at an employer paying high salaries (those with a smaller number of highly skilled workers) and those working for companies that pay low salaries (for instance low-end manufacturers). We can see that this may lead to a form of maternity arbitrage, where women recently married or soon to be married will seek work with an employer paying high average salary rather than a senior position at an employer with a low average salary. The implementation of this policy could distort their motives.

For companies, the most worrying aspect of this new regulation is that employees on maternity will find out what is the average salary in the company they are working for. The general knowledge of this figure among the workforce could lead to increased problems with individual staff demanding increases, especially in smaller organizations. It will also allow headhunters and other companies to easily put together “league tables” of average salary at the various employers in Dalian, and for potential candidates for employment at those companies to have a prior understanding of the salary levels.

This policy is interesting in concept, allowing junior employees to enjoy higher benefits at the expense of their more senior colleagues, and in that sense it can be considered progressive. Indeed this concept is included into the new Social Insurance Law that became effective nationwide in July – Dalian is simply among one of the first cities to start official implementation of the system. However, the side effects mentioned above may cause some unexpected problems for cities like Dalian as the system is rolled-out in an uneven fashion across the country.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, Vietnam and India. For further information and clarification on Dalian’s new social insurance policies or on China’s new Social Insurance Law, please email payroll@dezshira.com.

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