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

Ask AI · How should fiscal advance payments for unpaid wages balance fairness and sustainability?

The Paper reporter: Kong Zesi The Paper editor: Zhang Yiming

In early April, Shenzhen released its annual report on the revenue, expenditures, and remaining 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 year’s remaining balance was -65.4909 million yuan, making it the lowest remaining-balance year since publicly available data began.

Shenzhen’s wage arrears protection system has drawn renewed attention again, around this year’s Spring Festival. In early February, Shenzhen’s Bao’an District Human Resources Bureau made a decision to advance more than 290,000 yuan in wages to 15 employees of a certain company; afterward, the bureau would pursue repayment of the advanced funds from the company. This move won praise from many netizens.

However, behind the applause, this fund has been “running at a deficit” for many years. In many places, when governments use fiscal funds to establish wage arrears protection systems, a deeper question emerges: who should “foot the bill” for an employer’s unpaid-wage behavior?

How Shenzhen protects the rights of workers owed wages

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 the “Ordinance”). According to the latest document, the wage arrears protection fund has three sources of funding: first, the wage arrears protection fee (employers must pay 400 yuan of the wage arrears protection fee in the first quarter of each year); second, fiscal subsidies; and third, the fund’s lawful interest and any lawful donations it receives.

On April 6, Lian You, chief of Beijing Jingben Law Firm, told The Paper reporter that the “Ordinance” restricts advance payments to two situations: either the company has its bankruptcy application accepted in accordance with law by the people’s court, or the legal representative or the main responsible person has hidden or fled. After employees receive the advanced unpaid wages, the human resources department at the district level obtains the right to pursue recovery for the portion that has been advanced.

In Lian You’s view, this system belongs to an independent type situated between social insurance and administrative relief. It is a “system-based supplementation” to the post-event relief measures stipulated in the “Labor Contract Law of the People’s Republic of China.” When the employer’s subject becomes “blurred” (through bankruptcy or flight), public authority steps in first to protect workers’ right to survival.

In practice, Shenzhen’s wage arrears protection fund has played the role of a “stabilizer.” Guangdong media reported in 2018 that, as of December 31, 2017, Shenzhen used the fund to handle 1,199 cases of wage arrears advance payments, involving 105,500 employees, with a total of 344 million yuan advanced in unpaid wages, and a surplus of 938 million yuan in the fund account.

A policy shift also occurred in 2018. To reduce the burden on enterprises, Shenzhen decided to suspend collecting the wage arrears protection fee from 2018 to 2022. Estimated based on the 171 million yuan collected in 2017, the official estimate is that the five-year fee suspension period could reduce enterprise burdens by about 855 million yuan.

After the five-year fee suspension period ended, Shenzhen decided again in 2023 to suspend collecting the wage arrears protection fee for three years. That is to say, from 2018 to 2025, Shenzhen did not collect this fee from employers.

Data show that in recent years, Shenzhen’s wage arrears protection fund has advanced payments of over 30 million yuan per year; in 2024 and 2025, it exceeded 70 million yuan. Because the recovery amounts are far lower than the advanced expenditures, since 2018 most years have had a negative remaining balance, with only 2023 achieving a remaining balance of 95.9009 million yuan. However, the relevant departments have not disclosed the detailed sources of funds for that year.

Revenue, expenditures, and remaining balance of Shenzhen’s wage arrears protection fund Data source: Shenzhen Municipal Human Resources and Social Security Bureau The Paper reporter charting

Overall, the rate at which Shenzhen’s wage arrears protection fund is consumed has been faster than the rate at which it is replenished. With eight consecutive years of suspension of collecting related fees, does this mean the fund has lost its ability to “self-generate” on a regular basis? The good news is that, based on the 938 million yuan balance at the end of 2017, the fund balance by the end of 2025 should still exceed 700 million yuan.

Who should pay for wage arrears caused by employers

When the perspective is widened to the entire country, it becomes clear that in mainland China, perhaps only Shanghai and Shenzhen have established “wage arrears protection funds” mechanisms, where employer contributions are the main source and fiscal funds serve as a backup.

Recently, a person related to Shenzhen told The Paper reporter that establishing a systematic wage arrears protection mechanism is a test for local fiscal capacity and multiple other aspects.

In many places, a more common arrangement is to set up a wage arrears emergency protection fund and a revolving fund, using fiscal funds as the guarantee. The “Regulations of Guangdong Province on Wage Payment” require that city-level people’s governments and above establish a wage arrears emergency revolving fund system, but that ordinance does not specify the sources of funds or the operating approach in detail. Hainan, Qinghai, Ningxia, and others have developed mechanisms for ensuring migrant workers’ wage payments from the provincial level.

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

Recently, Lin Jiang, a professor of economics at Lingnan College of Sun Yat-sen University, told The Paper reporter that he offered views from the two dimensions of “sustainability” and “fairness.” In terms of sustainability, if the deficit in wage arrears advance payments relies on fiscal subsidies, it may impose a burden on local public finances. In terms of fairness, using tax revenues paid by law-abiding enterprises and taxpayers to cover the unpaid-wage actions of some bankrupt or poorly run enterprises would make the burden fall unevenly; if accountability for illegal enterprises and those responsible is weak, it would dampen the enthusiasm of law-abiding businesses.

Lian You believes that Shenzhen’s wage arrears advance-payment system conforms to the “last resort principle” and the “fund safety principle.” It has already reached a leading domestic level in protecting the right to survival of employees whose wages are withheld, but if it is to be promoted nationwide, issues such as the sustainability of funding sources and its deep alignment with bankruptcy law still need to be addressed.

Therefore, in recent years, Shenzhen’s wage arrears protection fund has “been spending more than it takes in.” Together with the fact that many places generally rely on fiscal funds to advance unpaid wages for enterprises, this has pushed the problem to the forefront: where should the funding for advanced unpaid wages come from?

Lin Jiang argues that a differentiated, floating fee-collection standard should be implemented based on indicators such as enterprise size, the industry risk rating to which it belongs, and historical credit records for wage arrears. And appropriate relief should be granted to small and micro enterprises with the weakest risk-resistance capabilities, so as to reflect fairness while precisely reflecting risk costs. Fiscal authorities should be defined as the occasional “last replenisher” for emergencies, used to respond to extreme situations, and must not become a backstop that routinely replaces enterprise responsibility as the subject.

“Beyond that, there is also a need to open up multiple alternative supplementation channels. For example, explore a wage guarantee deposit system: require enterprises in high-risk sectors for wage arrears, such as construction, to prepay guarantee deposits; store them in dedicated accounts for later disbursement. Introduce a market-based insurance mechanism: encourage the development of commercial ‘wage arrears protection insurance,’ forming a multi-layer risk-sharing pattern of ‘commercial insurance + government funds.’ And allocate, in proportion, income such as administrative fines and late-payment penalties from employers with wage arrears into the protection fund.” Lin Jiang said.

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