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Employment in Vietnam

Vietnam’s labour laws are heavily employee-friendly, particularly on issues related to the termination or dismissal of employees. As the following only aim to act as a guide in the broadest sense, it is still recommended that professional legal advice be sought when employing in Vietnam.

Key points on employment in Vietnam

Most employment matters in Vietnam are governed by the Labour Code. For further reading on the Labour Code, please refer here.

Many of the country’s statutory requirements, including those pertaining to leave and vacation, provide for rights to employees who work under “normal” conditions, as well as those under hazardous, strenuous, or dangerous conditions with the latter group having more favourable rights.

  1. Contracts

    Under the Vietnamese Labour Code, there are 3 types of labour contracts:

    • Indefinite term labour contracts (IDT);
    • Definite term labour contracts (DT) (from 12 to 36 months);
    • Less-than-12-months term labour contracts (also known as “seasonal contracts”). However, seasonal contracts may only be signed for tasks of a seasonal nature, except under the following circumstances: when temporary replacement is necessary for an employee who is i) called for military duty, ii) takes maternity leave or iii) is temporarily absent for other reasons.

    All labour contracts must be in writing and contain the following provisions:

    • The work to be performed
    • Hours to be worked and hours to rest
    • Salary/wages
    • Work location
    • Contract duration
    • Occupational safety and hygiene conditions
    • Employee insurance

    For DT contracts, in the case of  expiration of the first contract but the employee continues to work for the employer, both parties must sign a new labour contract within 30 days of its expiry. Otherwise, the first DT labour contract will automatically be regarded as an IDT contract.

    Employers are allowed to sign and extend one DT contract per employees, after which the two parties must enter into an IDT contract.

    All labour contracts must be in compliance with the Vietnamese laws and the collective labour agreement of the relevant company (if there is one). As the standard employment contract template of the Ministry of Labour, Invalids and Social Affairs (DOLISA) does not specific contain provisions designed to protect the interests of employers, foreign companies operating in Vietnam are often advised to create both a specific labour contract and a set of internal rules specifying employee rules and regulations (ILR).

    Employers with more than 10 employees are required to issue and register their ILRs with the DOLISA within 6 months of operation. In the absence of registered ILRs, companies operating in Vietnam will find it very difficult to discipline and dismiss employees.

  2. Probation Periods

    Probationary periods are not mandatory under the labour code but may be applied in labour contracts. However, an employee’s salary during the probationary period must not be less than 85% of the statutory/agreed salary. The probationary period must also not exceed 60 days for positions requiring college level qualifications; 30 days for positions requiring vocational level qualifications; and 6 days for any other positions.

    During the probationary period, either party is free to terminate the contract without prior notice.

  3. Termination Procedures

    Except where labour contracts are mutually terminated or automatically terminate (e.g. through expiry), there are three legal bases whereby the employer can terminate labor contracts:

    • Unilateral termination;
    • Dismissal;
    • Redundancy.

    Unilateral Termination

    While it is often difficult for an employer to unilaterally terminate an employee, the employer may still do so under the following circumstances:

    • The employee regularly fails to fulfil his contractual duties
    • The employee is ill and no recovery is in sight after having received treatment for a specific period (half of the term for a labour contract for seasonal jobs or a labour contract with a term of less than 12 months; six consecutive months for a labour contract with a term of 12-36 months; and 12 consecutive months for a labour contract with an indefinite term)
    • The employer is forced to make cuts in the production and workforce due to force majeure events such as fire or natural disaster; or
    • The company or organisation ceases operations.

    Procedure

    Employers are required to serve prior notice to the employee in the case of unilateral termination, with the notice period depending on the type of labour contract and the reason for termination. The employer may pay the employee the salary equivalent in lieu of the notice period as long as the latter so agrees. While the current Labour Code is not clear as to whether the employer has to consult with trade union in exercising its right to unilateral termination of labor contract, doing so would still be advised for the sake of prudence.

    Severance Allowance 

    Only employees who have been employed for at least 12 months are entitled to severance allowance. The statutory severance allowance is equivalent to a half-month salary, plus salary allowance, if there is any, for each year of service for termination of labor contracts in cases of unilateral termination.

    Dismissal 

    Dismissal is permitted only when the employee has committed one (or more) of the following acts:

    • The employee steals, embezzles, gambles, deliberately causes injuries, uses drugs at the workplace, discloses trade or technological secrets, infringes employer intellectual property rights, or commits other breaches causing serious damage or threatening to cause particularly serious damage to employer interests or assets;
    • The employee who has previously been disciplined by an extension of wage increase timing, recommits the same offense during the trial period; or recommits the offense after being demoted; or
    •  The employee has been absent for a total of five days per month, or 20 days per year, without any legitimate reason.

    Before dismissal, the employer must send at least one written warning to the employee, stating exactly when he has committed each of the above acts. The warning letter must be made in writing and with signature/stamp of the employer, to be acknowledged (not necessarily: accepted) by Employee. In practice it is recommended to have two (2) warning letters, in first of which employee is set a deadline to correct/adjust his wrong behaviour or actions.

    Procedure

    Firstly, the employer must collect all the evidence of the misconduct and conduct a disciplinary hearing in the presence of the concerned employee and the representative of the Union. The disciplinary hearing must be recorded in written minutes with the signatures of the attendees. After the disciplinary hearing, the employer is only allowed to issue the dismissal decision after consultations with the relevant Union.

    In practice, it may take several weeks to months for the dismissal process to be completed. A dismissal will be declared illegal if the employer does not strictly follow the procedures as required by law.

    Severance Payment 

    No severance payment is available for employees who have been dismissed.

    Redundancy

    A company may retrench its employees where there is an organisational restructuring or technological change, including

    i) partial or complete changes of machinery or equipment or replacement by advanced technological process in order to achieve increased capacity;

    ii) changes of product lines or structure of products leading to a reduction in the number of employees required; or

    iii) merger or dissolution of a number of departments within the company.

    Procedure

    In a redundancy scenario, the Labour Code requires the company to retrain the affected employees and to assign him/her to a new job that may be available at the company. If new employment is not available, the employer must give statutory notice by publishing, either internally or externally, a list of employees to be laid off.

    While individual notice is not specifically required, the employer must first consult with the appropriate trade union’s executive committee and notify the local authority of the layoff 30 days prior to the termination date.

    Severance Payment

    Employees who have been employed for at least 12 months are entitled to  one month’s salary, plus salary allowance, if there is any, for every year of service with a minimum of two months’ salary.

    Termination disputes

    An individual employee / class of employees may initiate Labour Court proceedings in relation to any labour dispute.

  4. Statutory Leave

    Working Hours

    A standard working week is equal to 48 hours, comprising six 8-hour working days, although this may be extended by mutual agreement. Employees working in dangerous, noxious, or especially toxic jobs (as defined by DOLISA) will have their working day shortened to 6 or 7 hours.

    Annual Leave

    Employees working for at least 12 months are entitled to at least 12 days of annual leave.

    Maternity Leave

    Female employees are entitled to maternity leave of at least six (6) months. They are also entitled to an allowance equal to 100% of their salary to be paid by the Social Insurance Fund.

  5. Pensions and Benefits

    Social insurance

    Compulsory social insurance is only applicable to Vietnamese employees. From January 1st 2016, the employer is obliged to contribute 18% of an employee’s salary to the Social Insurance Fund: 3% to the “sickness and maternity fund”, 1% to occupational accidents and occupational diseases fund, 14% to retirement and death fund.

    The employee contributes 8% to retirement and death fund.

    All contributions and benefits are based on the employees’ gross monthly salary. However, an employee’s salary is capped at 20 times the country’s gross minimum salary.

    Health insurance

    Foreigners who sign labour contracts with Vietnamese entities with a term of three months or more are required to contribute to the Vietnamese health insurance. Contributions are based on contractual salary and wage, but capped at 20 times of the regulatory minimal wage.

    The current rates are 3% for the employer and 1.5% for the employee.

    Unemployment insurance

    Unemployment insurance only applies to Vietnamese employees. The current contribution rates are 1% each for both employer and the employee.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Vietnam. For companies which intend to employ their staff directly through their incorporated Vietnamese entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Vietnam.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Vietnam.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Vietnam

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Vietnam

– the company needs help with tax, employment, immigration and payroll compliance in Vietnam

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