New Interpretation on Labor Laws: Voluntary Waiver of Social Insurance are Void

On September 1, 2025, the highly anticipated Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases (hereinafter referred to as “Interpretation (II)”) officially came into effect. Among its provisions, Article 19, with its distinctive position and clear legal consequences, has aroused widespread concern among employers and employees alike.

This Article directly addresses the common practice of “social insurance cash-out” or “voluntary waiver of social insurance”, reiterating the mandatory nature of social insurance contributions. This judicial interpretation puts an end to the long-standing judicial divergence among courts across different regions regarding the legal effect of “voluntary waiver of social insurance” agreements, providing a unified legal application standard.

1. Background to the Provision

Social insurance is a core element of the social insurance system, and it is the legal obligation of employers and employees to participate in social insurance in accordance with the law. In practice, however, many employers, in order to reduce labor costs, do not go through the social insurance procedures or pay the social insurance fees for their employees; some give cash to employees in the form of “social insurance subsidies”, so that they can purchase urban and rural residents’ pension insurance on their own, and so on.

At the same time, some employees, especially young employees, are not strong enough to participate in social insurance, and in order to obtain more cash benefits during their working lives, they voluntarily sign agreements with their employers, such as a commitment to forgo payment of social insurance, and do not participate in social insurance.

Previously, there were inconsistencies in the standard of judgement of courts around the country as to whether or not an employee could claim economic compensation after voluntarily giving up social insurance. The Supreme People’s Court issued the following typical case concerning the “invalidity of an agreement not to pay social insurance premiums and the right of an employee to request the employer to pay economic compensation when terminating an employment contract” on this ground, and has made the principles of this judgement uniform throughout the country by means of this judicial interpretation.

2. Typical Case Published by the Supreme Court: The Labor Dispute Case between Zhu and a Security Company

Basic Case Details

In July 2022, Zhu was employed by a Security Company, and the parties agreed that the Security Company would not pay social insurance premiums for Zhu but would instead pay the relevant costs directly to Zhu in the form of a subsidy. Thereafter, the Security Company did not pay social insurance premiums for Zhu. Zhu believed that the agreement on non-payment of social insurance premiums was a form clause printed by the Security Company in advance, depriving him of his legal rights, contradicting the current laws and regulations, and having no legal effect. On this ground, Zhu terminated the employment contract and applied for arbitration to the Labor and Personnel Dispute Arbitration Committee, proposing that the Security Company pay economic compensation for the termination of the employment contract and other requests. The Labor and Personnel Dispute Arbitration Committee did not support the request for payment of economic compensation for termination of labor contract. Zhu did not accept, sued to the People’s Court.

Final Judgement

The Court held that the payment of social insurance premiums is a legal obligation of the employer and the employee, which is not exempted by agreement of both parties except for the reasons stipulated by law, and that the agreement of both parties on non-payment of social insurance premiums is invalid. The Security Company did not pay social insurance premiums for Zhu in accordance with the law, and Zhu used this as a reason to terminate the labor contract, which was in line with the legal situation that the employer should pay economic compensation. The Court ruled that the Security Company should pay Zhu economic compensation for the termination of the labor contract.

In this case, the People’s Court clarified the rule that the agreement between the employer and the employee not to pay social insurance premiums is invalid because it is illegal, which is a comprehensive embodiment of the key rules of Article 19 of Interpretation (II).

3. Key Rules of Article 19

• Any agreement or employee “waiver” promising no social insurance contributions is invalid.
• If an employer fails to make statutory social insurance contributions, the employee may terminate under Article 38 of the Labor Contract Law and claim statutory severance.
• Where the above occurs and the employer later retroactively contributes, the employer may seek the return of any “social insurance fee compensation” it previously paid to the employee.

On the basis of confirming that “the agreement is invalid”, Article 19 further provides employees with a powerful remedy, lowering the threshold for employees to defend their rights. At the same time, preventing employees from benefiting twice from the same social insurance benefits, reflecting the delicate balance between judicial protection of employee’ rights and interests and the maintenance of fair-trade order.

The mandatory obligation to pay social insurance is reiterated in Article 19. It is further clarified that paying social insurance is a mandatory provision expressly stipulated by law and does not fall within the scope of party autonomy. Article 72 of the Labor Law stipulates: “Employers and employees must participate in social insurance and pay social insurance premiums according to the law.”

4. Substantive Impact

Article 19 helps to urge employers to spread the risks of employment by paying social insurance premiums in accordance with the law, guides employees to focus on their long-term interests, and gives full play to the role of the social insurance system in safeguarding and improving people’s livelihood.

For employees, their legitimate rights and interests are better safeguarded. Even if they have previously agreed with employers not to pay social insurance contributions, when employers fail to pay social insurance premiums in violation of the law, employees can still terminate the labor contract in accordance with the law and claim economic compensation. This provides employees with a clear legal basis and pathways for rights when facing unlawful acts by employers.

For employers, this provision increases the cost of non-compliance. Once it is found that an employer has failed to pay social insurance premiums in accordance with the law, it will not only have to face the obligation of back – paying social insurance contributions but also have to pay corresponding economic compensation. Moreover, it may even face situations where employees demand the return of social insurance subsidies. This will prompt employers to pay greater attention to the issue of social insurance premium payment, strengthen internal management, regulate employment practices, and avoid losing more for the sake of minor gains.

In judicial practice, this provision provides people’s courts with a clear standard for adjudicating related labor dispute cases, helps unify the adjudication scale, improves judicial efficiency, and makes the handling of labor dispute cases more just and reasonable, thereby further enhancing judicial credibility.

5. Conclusion

Participating in social insurance is both a right and a statutory obligation that both employers and employees must fulfill. The introduction of Article 19 of the Interpretation (II) strengthens the mandatory attribute of social insurance, unifies the standards for judicial adjudication, and helps guide employers and employees to focus on long-term interests, jointly building harmonious and stable labor relationships.