The first steps in any business are recruitment and employment. These are the most difficult parts for a new company, especially if the company is unfamiliar with the local language, people, culture, and law. In this post, we will attempt to explain employment practices in Vietnam from both a legal and practical standpoint.
Employment & Labor Laws in Vietnam
Employment contracts in Vietnam
When hiring new employees, Vietnamese law requires employers to draft written employment contracts. Contracts should be concise and strongly worded, outlining an employee’s compensation, benefits, job responsibilities, and any termination rules.
Furthermore, employment contracts and letters of offer should be written in both Vietnamese and English. Salary and benefits should be stated in Vietnamese dong (VND) rather than a foreign currency. Our local experts can assist you in drafting strong employment contracts that are in accordance with local regulations.
Working hours in Vietnam
In brief, employees in Vietnam are usually not allowed to work more than eight hours per day and 48 hours per week. Employers are required by law to provide one day off per week to their employees. Sundays are usually designated as a day off in most workplaces. In Vietnam, a typical workweek is Monday through Friday, with eight hours per day.
Holidays in Vietnam
Every year, there are a number of public holidays in Vietnam. Tet Lunar New Year is a week-long celebration. On National Day, international employees in Vietnam are entitled to a paid day off.
Public holidays are as follows:
- Â Solar New Year (1 day)
- Lunar New Year (5-7 days)
- Unification Day (1 day)
- Labor Day (1 day)
- Hung King’s day (1 day)
- Independence day (2 days)
Vietnam Employer taxes/duties
In Vietnam, entities, enterprises, and organizations may be subject to Statutory Social Insurance. This is determined by whether employees are hired under indefinite-term labor contracts or fixed-term labor contracts lasting longer than three months. Vietnam’s social insurance fund pays allowances for:
- Maternity leave
- Sick leave
- Occupational disease
- Work-related accidents
- Pensions
In fact, there is also a mandatory social, health, and unemployment insurance scheme. Employees and employers must both contribute to this scheme. Contributions are calculated based on an employee’s monthly salary, as specified in the applicable labor contract (capped at 20 times the Common Minimum Wage for SI / HI and 20 times the Minimum Regional Wage for UI).
Mandatory unemployment insurance is only applicable to enterprises with 10 or more employees.
- Local: Employers contribute 21.5% of payroll to social insurance; local employees contribute 10.5%
- Expat: Employers contribute 6.5% of payroll to social insurance; ex-pat employees contribute 1.5%
- Union Fee: 1% if the company establishes a Union, 2% if not.
- Trade Union: 2% (compulsory to the employer).
Health benefits
Generally, standard insurance is provided by the national system in Vietnam. Employers are required by law to provide health insurance to their employees. Employers must also provide employees with annual health checks on a regular basis.
Vacation Leave
Vietnamese labor law stipulates that employees are entitled to 12 day’s annual leave. Leave conditions are as follows:
- For employees with at least 12 month’s experience with an employer, they are entitled to 12 day’s paid annual leave. Employees with less than 12 month’s company service are entitled to prorated leave.
- Employees are entitled to an extra paid vacation day for every five years’ company service.
- For leave not taken by the end of a year, employees are entitled to pay in lieu of annual leave. Employers will generally allow an employee to carry over unused annual leave to the following year, but no later than March 31st of the following year. This would be an alternative to payment in lieu of unused leave.
- As a supplementary benefit, employees working in hazardous conditions may earn additional leave (this is negotiated between an employee and employer).
- In Vietnam, vacation leave is classified as separate to sick leave or maternity leave.
Employees in Vietnam are also entitled to paid personal leave for their wedding or the wedding of their child. Additionally, paid or unpaid personal leave is typically available to employees after the death of a parent, spouse, or child.
Sick leave
Employees suffering from an illness or injury may be eligible to receive an allowance that is paid for by Vietnam’s social insurance fund. To be granted this allowance, an employee must submit the required medical certification supporting their leave.
In Vietnam, sick leave allowance is based on an employee’s salary, which is then used to calculate the social insurance premium. The maximum entitlement is:
- 30 days per year – if an employee has contributed to the social insurance fund for a duration that is less than 15 years
- 40 days per year – if an employee has contributed to the social insurance fund for a duration that is between 15 and 30 years
- 60 days per year – if the employee has contributed to the social insurance fund for a duration that is more than 30 years
Maternity and paternity leave
Female employees in Vietnam are eligible for six month’s paid maternity leave at a full salary (the base salary of the social insurance contribution). An employee’s maternity leave is paid for by compulsory social insurance.
A female employee who is pregnant, on maternity leave, or has a child younger than 12 months of age, can only be dismissed if her employer ceases operation. There are no other grounds on which an employee in these circumstances can be dismissed.
Employers in Vietnam are not required to pay salary to an employee who is on maternity leave. However, an employee’s maternity leave is based on their salary and used to calculate the social insurance premium. The maximum entitlement is VND 29.800,000.
Fathers in Vietnam are eligible for between five and 14 day’s paid paternity leave. This is dependent on whether a child is born naturally or by caesarean; and whether it is single or multiple births.
Termination and severance
In Vietnam, an employee’s rights regarding termination are dependent on their employment contract and the reason for dismissal. This has an impact on notice periods and any severance payments.
When hiring new employees in Vietnam, it is common for employers to arrange a probation period. For work that requires specialized or highly technical skills, probationary periods are not allowed to exceed 60 days. For all other types of work, probationary periods must not exceed 30 days.
Employers are permitted to terminate a fixed-term labor contract by serving advance notice of 30 working days. For indefinite-term labor contracts, 45 working day’s notice is required. In both instances, employers must have sufficient legal grounds for termination.
To legally terminate an employment contract, sufficient grounds can include performance issues, prolonged illness, a force majeure event, or dissolution of the company.
As a matter of fact, a termination may be declared unlawful if the employer cannot prove legal grounds or if they fail to follow proper statutory procedures. If termination is proven to be wrongful, an employer may be required to reinstate the employee and/or pay the employee’s salary for the period that they were not allowed to work. Additionally, an employer may be forced to pay two months of the employee’s salary as a penalty for the wrongful termination.
In most cases, settlements and resignations can be negotiated with an agreed amount of severance pay that is provided to the employee. Navigating employee terminations and handling severance packages can be complicated for companies expanding overseas for the first time. New Horizons’ Vietnam PEO can mitigate risk for foreign companies and provide guidance through this process.
Vietnam compensation and benefits (C&B)
Vietnam minimum wages
Minimum wage laws in Vietnam are determined by the area in which a business is operating. This is due to wages being adjusted to factor depreciation and socioeconomic conditions for workers and their families.
For details, major cities in Vietnam have the highest minimum wage, at VND 4,420,000 per month. Meanwhile, rural areas generally see a minimum wage of VND 3,070,000 per month. Minimum wages will often fluctuate as the economy improves. However, very few companies pay at minimum wages. As the matter of fact, the minimum wages are used to calculate the capped state insurance contribution. They do not have much practical meaning in designing an attractive C&B policy in Vietnam,
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Minimum Wage Country Comparison Chart
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(Per month in USD)
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|---|---|
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Switzerland (Geneva)
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$4,000
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Italy
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$2,255
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China
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$308
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Vietnam
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$126
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Uzbekistan
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$22
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Guaranteed benefits in Vietnam
Employers need to be mindful of all statutory benefits required by Vietnamese law. This includes time off for both holidays and vacations.
Employees in Vietnam are entitled to time off for public holidays. The Tet Lunar New Year is a week-long celebration, which means that employees receive the whole week off.
Vietnam public holidays are separate to the country’s minimum vacation requirements. Vacation leave is determined by the length of time that an employee has worked for a company. As an example, employees with 12 month’s company service receive 12 day’s paid annual leave. Employees receive an extra day’s paid vacation for every five year’s company service thereafter.
Vietnam benefit management
Employers in Vietnam should also consider providing supplemental benefits for their employees. This can have a significant impact of employee retention rates. Whilst these benefits are not compulsory, many employees will expect them as part of their compensation.
Furthermore, for employees that have been with a company longer than a year, employers will often provide a 13-month bonus. This bonus can range from a month to a year’s salary and is normally paid before the Lunar New Year Holiday.
Although Vietnam offers standard health insurance through its national system, many employers will elect to provide their employees with supplementary health and life insurance. Alternatively, an insurance allowance may be paid to employees.
Benefits and compensation restrictions
In general, one of the major constraints to benefits and compensation for expanding businesses is the establishment of a local entity. Employers are generally prohibited from hiring and paying employees in Vietnam unless they first establish a subsidiary there. This process can take months to complete, causing significant business disruption.
Fortunately, with our Employer of Record and Payroll services, businesses can begin operating in Vietnam immediately. We serve as your employees’ Employer of Record, eliminating the need to establish a subsidiary in Vietnam. We can also help you source, hire, and onboard top local and international talent as a combined Employer of Record & Payroll service with an in-house recruitment team.
Contact us for more information.
