Meaning
Settlement of unpaid historical social insurance contributions required for employees to maintain their retirement and healthcare benefits. Corporate audits often identify the need for social security deficit clearance when an entity prepares for closure or a change of ownership. This procedure involves calculating the gap between the mandatory statutory contributions and the amounts actually paid by the employer.
Payment Component
Total amounts due include the principal missing contributions for pension, medical, unemployment and work injury insurance. The social security deficit clearance also requires the payment of daily late fees which can accumulate to a substantial sum over several years. Employers must also settle the individual portion of the contributions that they failed to withhold from the employee salaries.
Documentation of these payments is essential for obtaining a clean bill of health from the local human resources bureau.
Regulatory Oversight
Local bureaus monitor these records and can freeze company bank accounts if substantial arrears are discovered. The Social Insurance Law provides the legal authority for these collection actions.
Operational Risk
Unresolved deficits prevent the company from completing the deregistration process or transferring staff to a new entity. Potential buyers in a merger or acquisition will discount the purchase price based on the estimated cost of this clearance. Employees may also file collective complaints if they discover their accounts have not been fully funded according to the law.
