Meituan to Pay Social Security for Food Delivery Riders as Required by Chinese Government, Share Price Plummets

China’s State Administration for Market Regulation, along with seven other governmental departments, jointly issued “Guiding Opinions on Implementing the Responsibilities of Online Catering Platforms and Effectively Protecting the Rights and Interests of Food Delivery Staff” (hereinafter referred to as the Opinions) on July 26, which contained comprehensive requirements for protecting the legitimate rights and interests of food delivery staff.

Affected by the policy, domestic life services platform Meituan saw its share price plummet by 13.76% that day, while its market value shrunk by nearly 200 billion yuan ($30.77 billion) – the biggest decline since its listing.

This storm originated from a dialogue in the first half of the year. In April, Wang Lin, Deputy Director of Beijing Municipal Bureau of Human Resources and Social Security, experienced the work of food deliverymen in a TV program. After 12 hours of hard work, the official said that only five food delivery orders were completed in one day, making just 41 yuan ($6.31). After the program was broadcast, it quickly attracted significant public attention.

After that, a disciplinary inspection organized by the government held a dialogue with Meituan officials, which involved the labor relations and the social security of food deliverymen. This dialogue caused a further stir across society.

In the dialogue, a representative of Meituan said: “At present, the registered number of food delivery riders on the platform is close to 10 million, and they are outsourced, not employees of Meituan. Therefore, only the daily commercial insurance of 3 yuan ($0.46) can be paid for each food delivery rider. The cost would be deducted from the rider’s commission. The specific contents of their commercial insurance include death and disability insurance of 600,000 yuan and medical expenses of 50,000 yuan. We are not able to be directly responsible for the riders at work, which may increase the burden on us.”

To put it simply, although a rider is registered on the Meituan platform, he or she only creates a rider account. These nearly 10 million food delivery riders actually signed labor contracts with third parties, and they have an outsourcing relationship with Meituan. In other words, Meituan does not need to be directly responsible for any problems with the riders.

The “Opinions” issued by the government clearly pointed out that the platforms and third-party cooperative companies should provide social insurance for those food delivery riders who signed contracts with the platform. Those riders who have outsourcing relationship with the platforms should also have social insurance bought by platforms. Finally, platforms should have pilot projects of occupational injury protection for unregistered employees, according to national regulations.

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It is worth noting that enterprises have the responsibility to pay social insurance for food delivery riders, whether they are employed or outsourced.

Business Media reported that Meituan had to pay at least 32% in extra labor costs, due to the revised social security policy. The financial report released by Meituan indicated that the overall labor outsourcing cost of the platform’s catering and non-catering food delivery business in 2020 was 54.3 billion yuan. Based on this number, Meituan is estimated to pay about 17 billion yuan in extra labor costs.

In 2020, however, the annual revenue of Meituan was 114.8 billion yuan. In this year, its food delivery business accounted for more than 50% of the total revenue, but the net profit was only 4.7 billion yuan. This shows that Meituan‘s annual profit is not even enough to support the payment of social security for all food delivery riders.

Once the policy is implemented and Meituan is required to pay social security for its food delivery riders, it will obviously become very difficult for the firm to bear this extra cost in its current operation mode. Whether it is the increase in commission, delivery fees or direct food prices, consumers may have to bear the brunt in the end.