Employment and labour compliance in Vietnam is an area that can cause confusion and uncertainty to foreign investors entering and operating in Vietnam. In this article we cover the key steps, practical processes and procedures which companies need to follow when employing staff in Vietnam.
What do you need to know about Employment in Vietnam as a foreign investor?
General Requirements for Employment and Contracts
Employees can initially be engaged by a Company using a probation agreement (generally limited to 30 days or 60 days for positions with technical qualifications). When an employee successfully passes the Probationary period, the Company will proceed to sign a Labour contract, which is the most important agreement between employee and employer. The labour contract lays out the key terms of the employment relationship, including the location of work, scope of work, work and rest hours, length of the employment term, salary, and details of social insurance, and matters relevant to preserving health and safety.
The company has the right to sign two Definite Labour Contracts with an employee, with these contracts not to exceed 36 months, after which Indefinite contract term will automatically apply. There are still some disparities in the legal framework regarding labour contract terms, especially regarding foreign employees, as foreign employees are only allowed to enter labour contracts for a maximum period equivalent to the validity of their Work Permit – which by law is a maximum of 2 years – therefore, moving a foreign employee from a definite to an indefinite contract is deemed non-compliant by the authorities.
Read more about Work Permits in our article here: https://www.domicilecs.com/index.php/blog/80-work-permits-salaries-taxes-and-banking-the-challenges-for-foreign-individuals-working-in-vietnam
Specified Salary packages includes the salary which is based on the work specifications and title, any allowance(s) and other additional payments that they are entitled to. An employee’s salary must not be lower than the minimum wage set by the Government.
Read more about minimum wages and salary scale in our release here, updated for 2020: https://www.domicilecs.com/index.php/blog/452-vietnam-tax-accounting-update-november-2019
The employer is under a statutory requirement to withhold and pay Personal Income Tax for employees, based on the progressive rate from 5 to 35 percent, depending on employee's salary. Note that the first 9,000,000VND is exempt from Personal Income Tax for an individual, and this amount can be increased depending on the number of dependents registered by the employee
More details about Personal Income Tax in our article here: https://www.domicilecs.com/index.php/services/taxation-services/personal-income-tax
Social Insurance, Heath Insurance and Unemployment Insurance is to be contributed by both the employer and employee as follows:
- Social Insurance: 17.5% (for employers) and 8% (for employees) on salary; capped at a maximum of 20 times the “basic wage”
- Health Insurance: 3% (for employers) and 1.5% (for employees) on salary; capped at a maximum of 20 times the “basic wage”
- Unemployment Insurance: 1% (for employers) and 1% (for employees) on salary; capped at a maximum of 20 times the “minimum monthly salary”.
More details on insurance contributions in our quick payroll guide updated for 2020 here: https://www.domicilecs.com/index.php/blog/455-2020-vietnam-payroll-quick-guide
Trade Union contributions are to be paid by the employer (2% of salaries) to the Trade Union authority, or to the internal Trade Union at the employer (following a prescribed ration), regardless of whether or not such employers have their own internal trade union. Contributions are capped at 20 times the “basic wage”. Trade Union contributions are also to be paid by employees (1% of salary) if they are a trade union member (of the internal trade union), with contributions capped at 10 times the “basic wage”.
Don’t overlook the Initial Registrations with the Authorities
Upon the establishment of a new company in Vietnam, within 30 days from the date of commencement of operation, the company is required to submit a first-time Employment Declaration to the Department of Labour, War Invalids and Social Affairs (“DoLISA”).
A Collective Labour Agreement represents a written document stating the company’s regulations for their staff, as it relates to their benefits and duties. Where the company employs more than 10 staff, it is generally required to establish a Trade Union (unless the staff and the Company mutually agree not to), which creates a framework for protecting employee and employer rights, in compliance with the Vietnamese law.
Read more about post-establishment initial registrations here: https://www.domicilecs.com/index.php/downloads/200-checklist-for-newly-established-companies-in-vietnam
Where a Company has at least 10 employees, the Company is to register its Labour Regulations, Disciplinary Regulation and Salary Scales with the District level administrative authority, in order to comply with Vietnamese labour regulations. If the company has less than 10 employees, it is not required to register the internal labour rules,. however, the company may choose to issue the internal labour rules in writing. If written internal labour rules are not issued, the contracts of the labour contract will be the fallback for compliance and enforcement of labour obligations.
The company is required to put in place policies and regulations which clarify the cash or non-cash benefits employees are entitled to, such as petrol, parking fees, phone allowances, meals, etc.
Lastly, the Company will proceed to register a Social Insurance Code. Social Insurance contributions are imposed on both employees and employers, according to current requirements and thresholds set by the government.
Additional read regarding social insurance for foreign employees in our article here: https://www.domicilecs.com/index.php/blog/312-client-alert-october-2018-social-insurance-for-foreign-employees
Notes on Employee Onboarding and Probationary Contracts
After the recruitment processes finalised and the employee has accepted the hiring proposal and offer, the Company will proceed to acquired information from the employee using a thorough Data Collection procedure, for the purpose of signing the Offer Letter and subsequently the Labour Contract:
- Notarized Identity Card copy;
- Notarized Household Book copy;
- Education Certificate(s) (if needed);
- Medical Certificate;
- Application Form;
- Reference Check.
With the required data and the offer letter signed, the Company will issue the Probationary Contract, where the probation period must be based on the nature and complexity of the job. Probation can only be applied once for each job and the period must not exceed 60 days, with the wage for the employee during probation must be equal to at least 85% of the offered wage for the specific position.
Compulsory Statutory Reporting
In order to manage the usage of foreign workers in Vietnam, the Vietnam state authority requests employers to provide explanation for such need to use foreign workers. The company has to directly submit the Report on Employment of Foreign Employees Quarterly before 5th of the month to the Department of Labour – Invalids and Social Affairs where the employer is headquartered.
The Companies in Vietnam must submit as well half-yearly the Report on Safety & Hygiene and Labour Accidents to Department of Labour, War Invalids and District and Department of Health before 3rd of July. Additionally, businesses in Vietnam must submit the Mid-Year Report on Changes to Employment, where employers must make a report on the employment situation of the first 6 months and the last 6 months of the year, submitted the latest before May 25 and November 25 according to the forms issued by the authorities.
Vietnamese Labour Laws are drafted with a core concept of protecting employees, and the ability to cease employment relationships in Vietnam is not always straight forward (or even permissible) in many cases. However, employers and employees can follow the regulations and to achieve their desired outcomes.
Labour Contracts come to an end when:
- A Labour Contract expires, and either party notifies that they will not be renewing the contract
- The specific tasks stated in the Labour Contract have been completed
- Mutual agreement on the termination of the contract
- Employee is sentenced to a prison term, prevented from working by a court, dies or is declared missing by a court.
There are no specific periods before the above take effect, but specific processes must nonetheless be followed. Severance allowances will also arise where employees have not been part of contributions to the Unemployment Insurance scheme.
Employees can unilaterally terminate their employment by providing notice in writing to their employer. This requires:
- Not less than 45 days’ notice for indefinite contracts
- Not less than 30 days’ notice for definite term contracts
- Not less than 3 days’ notice for seasonal contracts
More details about Employee termination in our article: https://www.domicilecs.com/index.php/blog/451-terminating-employment-in-vietnam-what-you-need-to-know
Employees who fail to provide the above notice periods to employers may be required to compensate their employers for the failure to provide appropriate notice periods. Lesser periods can apply during periods of extended illness.
This advice is general in nature, and is based upon laws and regulations in place at the time of publication. Vietnamese Labour Laws are very specific in nature and application, and employers and employees are encouraged to fully research and understand their specific options and courses of actions before making decisions.
Domicile Corporate Services provides payroll outsourcing and professional HR advisory and assistance for employers in Vietnam, with a focus on foreign invested companies and those companies seeking to operate at international best practice in Vietnam.
For further assistance or any inquiries, contact:
Matthew Lourey, Managing Partner
Tran Huynh, Head of Payroll & HR Consulting