Lawyer Analysis

Employee education funds were first proposed in the early 1980s. Over the past 40 years, they have been adjusted many times, resulting in enterprises not unfamiliar with employee education funds. However, errors often occur in the extraction, use, and financial and tax processing, resulting in penalties from tax authorities.

The earliest prescribed employee education expenses can be controlled within 1.5% of the total salary, directly included in production costs (circulation fees), reported on an actual basis, and no funds are withdrawn. During the investigation, it was found that there are still enterprises implementing it accordingly. However, the latest regulations require that "enterprises generally withdraw education and training funds in full at 1.5% of the total wages of their employees, and enterprises with high technical quality requirements, heavy training tasks, and good economic benefits can withdraw funds at 2.5%, which can be included in cost expenses. It is necessary to ensure that the funds are specifically used for the education and training of employees, especially front-line employees, and it is strictly prohibited to misappropriate them for other purposes." In addition, Article 47 (3) of the Employment Promotion Law of China Article 67 also clearly stipulates that "An enterprise shall, in accordance with the relevant regulations of the State, withdraw funds for employee education and provide vocational skill training and continuing education and training to employees." "If an enterprise violates the provisions of this Law, fails to withdraw funds for employee education in accordance with the provisions of the State, or misappropriates funds for vocational education, the labor administrative department shall order it to make corrections and impose penalties in accordance with the law.", Extracting and using employee education funds according to law is a legal obligation of enterprises. If there is a violation, it may also incur penalties from the labor administrative department.

Despite the new regulations mentioned above, it is not difficult to find that there are many uncertain issues regarding the withdrawal of employee education funds, in addition to the relatively clear withdrawal ratio and withdrawal base. For example, whether to withdraw by year or by month, whether to take the total wages of employees of the previous year as the base or the total wages of employees of the current month as the base, whether to withdraw according to the regulations every year, and what situations may not be withdrawn temporarily, etc. In response, the Ministry of Finance issued the "Notice on Strengthening the Financial Management of Enterprise Employee Education Funds (Draft for Comments)" in 2019, intending to regulate these issues. Unfortunately, the notice has not been issued since it was publicly solicited for comments, leading to many ambiguities in the withdrawal of employee education funds by enterprises.

During the investigation, I have consulted the human resources and social security departments and their subordinate employment promotion departments in Shanghai, Guangzhou, Shenzhen, and other places by phone, and found that their staff are not very familiar with employee education funds, unable to provide any effective guidance, and even mistook employee education funds for education surcharges, requiring consultation with the tax authorities. However, during the investigation, it was found that individual counties and cities in Anhui, Fujian, Guangxi, Guangdong, Jiangxi, Guizhou, Heilongjiang, Inner Mongolia, and other provinces have included in their official websites the behavior of "enterprises failing to withdraw employee education funds in accordance with national regulations, or misappropriating employee education funds," in the administrative penalty directory in accordance with the provisions of the Employment Promotion Law, However, at present, there have been no cases of punishment for failing to withdraw employee education funds according to law.

Regarding the issue of pre tax deduction of employee education expenses, in 2018, the Ministry of Finance and the State Administration of Taxation issued the "Notice on the Pre tax Deduction Policy for Enterprise Employee Education Expenses" (CS [2018] No. 51), which stipulates that from January 1, 2018, the portion of employee education expenses incurred by an enterprise that does not exceed 8% of the total salary is allowed to be deducted when calculating the taxable income of enterprise income tax; The excess amount is allowed to be carried forward and deducted in subsequent tax years.

Based on the above investigation, in practical operation, enterprises should maintain communication with local human resources and social security departments, withdraw and use employee education funds in accordance with the requirements of local human resources and social security departments, and conduct pre tax deductions in strict accordance with the requirements of the State Administration of Taxation to avoid administrative penalties from the human resources and social security departments and tax authorities.