Shenzhen Wage Guarantee Fund has advanced over 70 million yuan for two consecutive years. Who should be held responsible for companies' wage arrears?

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Reporter from @E0@|Kong Zesi    Editor for @E0@|Zhang Yiming

In early April, Shenzhen issued its annual report on the inflows, outflows, and ending balance of the wage arrears protection fund. In 2025, Shenzhen used the wage arrears protection fund to advance unpaid wages for 3,965 employees, totaling 72.42 million yuan, and recovered 4.0205 million yuan of the advanced unpaid wages. Meanwhile, the balance for that year was -65.4909 million yuan, becoming the year with the lowest balance since publicly available data began.

Shenzhen’s wage arrears protection system has once again attracted attention—around this year’s Spring Festival. In early February, the Human Resources and Social Security Bureau of Bao’an District in Shenzhen made a decision to advance over 290,000 yuan in wages for 15 employees of a certain company; subsequently, the bureau would pursue and recover the advanced funds from the company. This move won many netizens’ praise.

However, behind the applause, the fund has been “running at a deficit” for many years. When wage arrears protection systems are set up in multiple places using fiscal funds, another deeper question emerges: who should “pay the bill” for a company’s wage arrears behavior?

Shenzhen’s wage arrears protection system is not a new thing; it is a local system that has been explored for nearly 30 years.

In 1996, Shenzhen issued the《Shenzhen Special Economic Zone Wage Arrears Protection Ordinance》 (hereinafter referred to as the《Ordinance》). According to the content of the latest documents, there are three sources of funds for the wage arrears protection fund: first, a wage arrears protection fee (employers must pay 400 yuan in wage arrears protection fees in the first quarter of each year); second, fiscal subsidies; and third, the lawful interest of the wage arrears protection fund and any lawful donations received.

On April 6, Lian You, the director of Beijing Jingben Law Firm, told reporters from 《The Daily Economic News》 that the《Ordinance》 sets two limited scenarios for advances: either the company has an application for bankruptcy accepted by a people’s court according to law, or the legal representative or the main person in charge hides or flees. After employees receive the advanced unpaid wages, the district-level human resources department obtains the right to pursue reimbursement for the portion that has been advanced.

Lian You believes that this system belongs to an independent category between social insurance and administrative relief. It is a “system gap-filling” for the post-event relief route prescribed in the《Labor Contract Law of the People’s Republic of China》. When the employing entity’s main body becomes “obscured” (through bankruptcy or fleeing), intervention by public authority takes the lead in safeguarding workers’ right to subsistence.

From a practical perspective, Shenzhen’s wage arrears protection fund has played the role of a “stabilizer.” In a report by a Guangdong media outlet in 2018, as of December 31, 2017, Shenzhen used the fund to handle 1,199 wage arrears advance cases, involving 105,500 employees, and advanced a total of 344 million yuan in unpaid wages. The fund account had an excess balance of 938 million yuan.

A policy turning point also occurred in 2018. To reduce the burden on enterprises, Shenzhen decided to suspend the collection of wage arrears protection fees from 2018 to 2022. Estimated based on the 2017 collection amount of 171 million yuan, the official estimate is that the 5-year suspension period could reduce the burden on enterprises by about 855 million yuan.

After the 5-year suspension period ended, Shenzhen decided again in 2023 to suspend the collection of wage arrears protection fees for three more years. In other words, from 2018 to 2025, Shenzhen has not collected this fee from employers.

Data show that in recent years, Shenzhen’s wage arrears protection fund has paid out more than 30 million yuan per year, and in 2024 and 2025 it exceeded 70 million yuan. Because the recovered amounts are far lower than the amounts advanced, from 2018 onward, most years the fund’s balance has been negative, with only 2023 achieving a surplus of 95.9009 million yuan. However, the relevant departments have not published the detailed sources of funding for that year.

Shenzhen wage arrears protection fund: inflows, outflows, and ending balance  Data source: Shenzhen Human Resources and Social Security Bureau Chart made by reporter for @E0@

Overall, the speed at which Shenzhen’s wage arrears protection fund is consumed has been faster than the speed at which it is replenished. With 8 consecutive years of pausing the collection of the related fees, does this mean the fund has lost its ability to continuously “create liquidity” as a normal mechanism? The good news is that based on the 938 million yuan balance at the end of 2017, the fund balance at the end of 2025 should still exceed 700 million yuan.

When the lens is broadened to the entire country, it becomes clear that mainland China may only have Shanghai and Shenzhen that have established a “wage arrears protection fund” mechanism where enterprise contributions are the main source and fiscal funds serve as a backup source.

Recently, a person from a relevant department in Shenzhen told reporters from 《The Daily Economic News》 that to build a comprehensive wage arrears protection mechanism, it is a test across multiple aspects, including local financial capacity.

In many places, a more common arrangement is to set up a wage arrears emergency protection fund and a turnover fund, with fiscal funds used to provide support. The《Guangdong Provincial Regulations on the Payment of Wages》 require that municipal people’s governments at or above the county level establish a wage arrears emergency turnover fund system, while the regulations do not specify in detail the sources of funds or the operating methods. Hainan, Qinghai, Ningxia, and others have formulated mechanisms at the provincial level to protect migrant workers’ wage payment.

However, the model of advancing with fiscal funds is also accompanied by controversy. A provincial-level media outlet once reported that some voices believe advancing enterprises’ wage arrears with public finance funds is no different from taking on the responsibility of enterprises—i.e., “using the money of all taxpayers as a backstop.”

Recently, Lin Jiang, a professor of economics at the Lingnan College of Sun Yat-sen University, told reporters from 《The Daily Economic News》 that he offered views from two dimensions: “sustainability” and “fairness.” In terms of sustainability, if the advanced wage arrears funds run a deficit and rely on fiscal subsidies, it may place a burden on local finances. In terms of fairness, using taxes paid by law-abiding enterprises and taxpayers to assume responsibility for some wage arrears by bankrupt or poor-quality enterprises—if accountability against illegal enterprises and their responsible persons is not effective—will dampen the enthusiasm of law-abiding operators.

Lian You believes that Shenzhen’s system for advancing wage arrears aligns with the “last resort principle” and the “fund safety principle.” In safeguarding the right to subsistence of workers owed wages, it has reached a leading level domestically. However, if it is to be rolled out nationwide, problems still need to be solved, including the sustainability of funding sources and a deep linkage with the bankruptcy law.

Therefore, in recent years, Shenzhen’s wage arrears protection fund has been “putting out more than it has brought in.” Along with the fact that many places generally rely on fiscal funds to advance wage arrears, the issue has been pushed to the forefront together: where should the money used to advance unpaid wages come from?

Lin Jiang believes that based on indicators such as the scale of enterprises, the risk level of the industries they belong to, and their historical wage arrears credit records, we should implement differentiated and floating fee collection standards. Appropriate reductions should be granted to micro and small enterprises with the weakest risk resistance, so as to embody fairness and accurately reflect risk costs. Fiscal funds should be defined as the “last supplement” that is used only occasionally for emergencies—to handle extreme situations, not to become a backstop that replaces enterprise responsibility as a norm.

“Beyond that, it is also necessary to open up diversified supplementary channels: for example, exploring a wage guarantee deposit system—requiring enterprises in high-risk industries such as construction to prepay guarantee deposits, stored in a dedicated account for allocation; introducing a market insurance mechanism—encouraging the development of commercial ‘wage arrears protection insurance’ to form a multi-layer risk-sharing structure of ‘commercial insurance + government funds’; and allocating, in proportion, income such as administrative fines and late fees imposed on wage-arrears enterprises into the protection fund.” Lin Jiang said.

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Responsible editor: Guo Xutong