Vietnam social security – the concept

Vietnam social security is a policy implemented by the Vietnamese government to ensure the provision of benefits to its citizens – Vietnam social insurance law since 2014. It includes, for example, the state pension program, the state healthcare program, and the state unemployment assistance program.

Vietnam’s social security system includes a variety of insurances. However, because social insurance is the most important and significant insurance covered by this policy, it is commonly referred to as the “Vietnam social insurance” policy.

Who are subject to Vietnam social security program?

Employees in both the public and private sectors are required to participate in the social insurance program. Vietnam has enacted a law on social insurance to govern the subject and create a legal framework for its implementation. The program is funded through contributions from both employers and employees every month.

Those who are not employed by any entity can enroll in a voluntary private insurance program. These people will not be covered by all of the insurances included in the package, but only the most important ones, such as social insurance and health insurance. Few social insurance benefits, such as maternity leave income, unemployment insurance, or labor accident insurance, will not be available to this group either.

Types of Vietnam social security

Vietnam social security consists of the following insurance types. Each insurance has its own calculation formula and base. Understanding them will help you understand the hiring cost in Vietnam from the perspective of the employer’s expenses for social security contributions.

Vietnam social insurance

Vietnam social insurance is the most important and significant component of the Vietnam social security system. This insurance compensates for income loss caused by unpaid leave, maternity leave, or retirement (Vietnam pensions plan).
Under an employment contract, the social insurance is contributed by both the employer and the employee. The employer will pay 17%-17.5% and the employee will pay 8% from the gross fixed monthly income (or of 20 times national minimum wage) into this social insurance fund.

Note: Contributions to Vietnam’s national social security system are considered business valid expenses and can be deducted when calculating corporate income tax.
Read more: Understanding Vietnam taxation

Work accident insurance

The company will contribute 0.5% of the employee’s fixed gross monthly income (or a maximum of 20 times the national minimum wage) to the Work accident insurance fund. However, due to the impact of Covid, this contribution has been exempted from July 2020 to July 2021.

Vietnam health insurance

Vietnam health insurance will help cover medical bills and treatment expenses according to Vietnam national standards. The employer would contribute 3% to the fund, and the employee would pay 1.5% of their monthly fixed gross income (max. of 20 times national minimum wage). Following successful registration, a Vietnam health insurance card will be issued (done by the company).

In fact, in many cases, the coverage provided by this state health insurance is deemed insufficient because it is far too small in comparison to the actual treatment costs in private hospitals. As a result, employers are usually required to provide additional health insurance (via a private insurance company) as an additional benefit to their employees.

Vietnam unemployment insurance

The Employer and Employee will each contribute 1% of their gross fixed income (up to a maximum of 20 times the Regional minimum wage) to the Vietnam unemployment insurance fund. By purchasing this insurance, the company would avoid having to pay job loss compensation or an allowance in the event of contract termination. If the employee has paid for state insurance, he or she will be able to claim this allowance from the government upon job loss.

Why Vietnam social security scheme is important to your Vietnamese employees

Vietnamese employees place a high value on social insurance and unemployment insurance as part of the Vietnam social security system.

Employees are compensated by social insurance during maternity leave and retirement. These advantages are especially important to the Vietnamese. Especially for women who are entitled to a six-month maternity leave by the law. This insurance will provide significant and meaningful assistance during this time. The company will not pay for the mothers during these months, therefore they will claim the income from the state insurance office.

To be eligible for social insurance benefits such as maternity leave income assistance, mothers must have a minimum of 6 months of social insurance contribution history prior to the labor date. It causes them to seriously consider joining the insurance program a long time in advance in order to be prepared for the future.

Vietnam unemployment insurance, on the other hand, requires employees to plan way ahead of time. To be eligible for unemployment benefits, they must have collected at least 12 months of insurance contributions. As a result, it is critical for the employee to enroll in the insurance program as soon as possible. The longer they are a member of the insurance program, the higher the allowance will be.

How companies provide social security to their Vietnamese staff

Labor contracts impose the full Vietnam social security program according to Vietnam social insurance law 2014. As a result, only those with legal employment in Vietnam will be subject to the comprehensive program and entitled to all of its social insurance benefits. Legal employment is defined as a contract signed by an employee and an entity established and recognized under Vietnamese law.

When a person enrolls in the state social security program, he or she is assigned a social insurance number and a social insurance book. Each company that follows the employment will contribute to Vietnam’s social security funds, which will be recorded in the book.

All registration, recording, and benefit claims must be handled by the entity that hires the person. As a result, a person’s ability to play the role of an entity is critical if he or she wishes to participate in the program.

When a business begins hiring, it is required to participate in Vietnam social security and social insurance programs. Non-payment of contributions to the funds or late payment will result in a penalty and interest charge for late payment. If the company does not strictly adhere to Vietnam’s social security and social insurance law, it may face legal consequences.

How to provide insurance to Vietnamese staff if you don’t have an entity in Vietnam

As insurance has become more important to Vietnamese employees, many multinational corporations with remote teams in Vietnam would like to enroll their employees in the state social security program.

However, as previously stated, only a company based in Vietnam would be able to enroll its employees in the program and do social security declaration. If the foreign company does not register in Vietnam, it cannot do so on its own.

Alternatively, the company can hire an EOR firm to do this for it. Employer of Record, or EOR, is a service in which a local entity is hired to act as the legal (nominee) employer of its client’s employees in the country. It will sign a labor contract with the employees and, as a result, will be able to enroll the team in the Vietnam social insurance program.

The role of an EOR company

The EOR company can also contribute to social insurance, health insurance, unemployment funds on behalf of its client, implementing social security declarations and allowing it to assist its client’s employees in claiming insurance benefits when necessary.

This EOR service is the most efficient solution for multinational corporations that want to hire people in Vietnam but do not intend to open a physical office. Those who hire freelancers or remote teams in Vietnam but want to give their employees the same benefits as full-time employees can also be subject to EOR service.

Even companies that have already been in the market but do not want to go through the hassle of hiring can use EOR services to retain their talent without risking a labor law violation.

In summary, the Employer of Record service appears to be the most popular BPO service in Vietnam in recent years. It has elevated HR outsourcing to a new level, with a variety of forms, styles, and prices suitable for small, medium, and large companies with varying needs.

To get know more about the EOR service by VNBG, contact us by filling this form below