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

In early April, Shenzhen released its annual report on the inflows, outflows, and remaining balance of the wage arrears protection fund. In 2025, Shenzhen used the wage arrears protection fund to prepay back wages for 3,965 employees totaling 72.42 million yuan, and recovered 4.0205 million yuan of the prepaid wages. Meanwhile, the balance for that year was -65.4909 million yuan, making it the year with the lowest balance in the available publicly disclosed data.

Shenzhen’s wage arrears protection system has again drawn attention, especially around the time of this year’s Spring Festival. In early February, the Human Resources and Social Security Bureau of Bao’an District, Shenzhen, issued a decision to prepay salary for 15 employees of a certain company totaling more than 290k yuan. Subsequently, the bureau would pursue reimbursement of the prepaid funds from the company. This move won many netizens’ praise.

However, behind the applause, the fund has been “facing a deficit” for many years. When many places establish wage arrears protection systems using fiscal funds, a deeper question is raised: who should “pay the bill” for a company’s wage arrears?

**How Shenzhen protects the rights of workers owed wages **

Shenzhen’s wage arrears protection system is not a new development; it is a local制度 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 latest document, there are three sources of funds for the wage arrears protection fund: first, the 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 legally earned interest of the wage arrears protection fund and legally accepted donations.

On April 6, Lian You, director of Beijing Jingben Law Firm, told a reporter from The Economic Daily that the Ordinance limits the circumstances for advance payments to two scenarios: either the company is依法受理d bankruptcy application by a people’s court, or the legal representative or primary responsible person conceals or absconds. After employees receive the prepaid back wages, the district-level human resources department gains the right to pursue recovery for the portion that has been prepaid.

Lian You believes that this system is an independent type located between social insurance and administrative relief. It serves as a “system-level补位” for the post-relief measures stipulated in the Labor Contract Law of the People’s Republic of China; when the employer entity is “obscured” (through bankruptcy or absconding), government public power intervenes first to secure workers’ right to subsist.

In practice, the wage arrears protection fund in Shenzhen 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 wage arrears payment prepayment cases involving 105.5k employees. The fund prepaid wage arrears totaling 344 million yuan, and the balance in the fund account was 938 million yuan.

A policy turning point also occurred in 2018. To reduce the burden on enterprises, Shenzhen decided to suspend the collection of the wage arrears protection fee from 2018 to 2022. Based on the 171 million yuan collected in 2017, official estimates suggested that the 5-year suspension period could relieve enterprises by about 855 million yuan.

After the 5-year suspension period ended, Shenzhen again decided to suspend the collection of the wage arrears protection fee for three years in 2023—meaning Shenzhen did not collect this fee from employers from 2018 to 2025.

The data show that in recent years, Shenzhen’s wage arrears protection fund has prepaid more than 30 million yuan each year, and in 2024 and 2025 it exceeded 70 million yuan. Because the recovery amounts are far lower than the prepaid expenditures, most years’ balances have been negative since 2018, with only 2023 achieving a balance of 95.9009 million yuan. However, the relevant departments have not公布ed the detailed sources of funds for that year.

Shenzhen’s wage arrears protection fund: inflows, outflows, and remaining balance; data source: Shenzhen Municipal Human Resources and Social Security Bureau; figure design by reporter from The Economic Daily

Overall, the consumption pace of Shenzhen’s wage arrears protection fund has been faster than the pace of replenishment. With a consecutive 8 years of suspension of collecting related fees, does this mean the fund has lost its ability to generate funds on a regular basis? 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.

**Who should pay for employers’ wage arrears **

When the view is broadened to the whole country, it becomes apparent that in Mainland China, only Shanghai and Shenzhen have established “wage arrears protection fund” mechanisms, which mainly rely on employers’ contributions, with fiscal funds as a back-up source.

Recently, a person from a relevant department in Shenzhen told a reporter from The Economic Daily that to build a systematic wage arrears protection mechanism is a test for multiple aspects, including local financial capacity.

In many places, the more common arrangement is to set up a wage arrears emergency protection fund and a turnover fund, backed by fiscal funds. The “Guangdong Provincial Regulations on Wage Payment” require that municipal people’s governments at or above the prefecture level establish a wage arrears emergency turnover fund system, but the regulations do not provide specific explanations on the sources of funds or operating methods. Hainan, Qinghai, Ningxia, and others have formulated mechanisms to ensure migrant workers’ wage payments at the provincial level.

However, the fiscal-funding advance-payment model is also accompanied by controversy. Recently, a provincial media outlet reported that some voices believe that using public finance funds to prepay employers’ wage arrears is no different from taking on responsibility on behalf of enterprises—i.e., “using all taxpayers’ money to provide a backstop.”

Recently, Lin Jiang, a professor of economics at the Lingnan College of Sun Yat-sen University, told a reporter from The Economic Daily his views along two dimensions: “sustainability” and “fairness.” In terms of sustainability, if the deficit of the wage arrears advance-payment funds 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 shoulder responsibility for the wage arrears actions of some bankrupt or poorly performing enterprises would mean, if accountability for illegal enterprises and their responsible persons is not effectively enforced, it would undermine the willingness of law-abiding operators.

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 subsist of workers whose wages are withheld. But if it is to be promoted nationwide, it still needs to address issues such as the sustainability of the sources of funds and the deep integration with the Bankruptcy Law.

Therefore, in recent years, Shenzhen’s wage arrears protection fund has been “spending more than it takes in,” and together with the widespread reliance on fiscal funds to prepay employers’ wage arrears in many places, a problem is brought to the forefront: where should the funds used to prepay wage arrears come from?

Lin Jiang believes that, based on indicators such as the size of the enterprise, the risk level of the industry it belongs to, and its historical credit record for wage arrears, the collection standards should be implemented in a differentiated and floating manner. The smallest and micro enterprises with the weakest risk-hedging ability should also receive appropriate exemptions, reflecting fairness and accurately reflecting risk costs. Fiscal funds should be defined as a “last补充者” that supports emergencies only occasionally—to deal with extreme situations—and must not become a backstop that routinely replaces enterprises’ primary responsibilities.

“Beyond that, it is also necessary to expand multiple supplemental channels—for example, exploring a wage guarantee deposit system, requiring enterprises in construction and other high-risk industries for wage arrears to prepay guarantee deposits, storing them in dedicated accounts for transfer; introducing market insurance mechanisms, encouraging the development of commercial ‘wage arrears protection insurance’ to form a multi-layer risk-sharing framework of ‘commercial insurance + government fund’; and allocating, in proportion, revenues such as administrative fines and late fees imposed on wage-arrears enterprises into the protection fund.” Lin Jiang said.

（Source: The Economic Daily）