Foreign companies wanting to do business in Vietnam must ensure they follow the provisions of the Labor Code, which contains the legal framework for the rights and obligations of employers and employees with respect to working hours, labor agreements, social insurance, overtime, strikes, and termination of employment contracts, to name a few.
Here we discuss:
- Foreign employees
A Vietnamese entity is permitted to recruit foreign workers in order to work as managers, executive directors and experts where local hires are not yet able to meet production and business requirements. Unlike in certain other Asian countries, Vietnamese representative offices are also able to hire staff directly.
To demonstrate the necessity of a foreign employee, 30 days prior to recruiting the foreign employee, the entity must publicly announce recruitment for this position to Vietnamese job seekers in a Vietnamese newspaper or online portal.
Evidence of this announcement must be presented in the application for a work permit for a foreign employee. The other option is to recruit foreigners through a government-owned employment service center.
When hiring foreign staff in Vietnam, there are a number of procedures and legal frameworks that must be understood.
Employment contracts in Vietnam
As per the new labor code which took effect in January 2021, there are now only two types of labor contracts:
- Indefinite term - A contract in which two parties do not determine the term and the time for its
- Definite term - Two parties determine the term as a period of 12 months to 36 months and the time for its termination.
If an employee continues working after the expiration of his or her definite term labor contract, the contract must be renewed within 30 days after the expiry date or it will become an indefinite term labor contract. In addition, e-contracts are now officially recognized and have the same validity as those in written form. A verbal labor contract is also recognized as long as its valid for less than one month.
A labor contract must contain provisions such as the scope of work, working hours, rest breaks, wages, job location, term of contract, occupational safety and hygiene conditions and social insurance.
Both employer and employee can unilaterally terminate a contract. A 45-day notice is required for indefinite term contracts and a 30-day notice for definite term contracts. In some cases, the employer will be required to discuss the termination with the executive committee of the trade union.
Companies which employ ten or more people must have a copy of company rules or internal labor regulations registered with the provincial labor department. Company working rules include contents such as working and rest hours, rules and orders in the company, labor safety, hygiene in the workplace, protection of assets, business and technology confidentiality, and sanction methods to name a few.
Severance and payment in Vietnam
If a labor contract is terminated, employers may be liable for a severance payment to the employee in question. The nature of severance payment is dependent on the salary of a given employee, the amount of time that the employee in question has been working in their current position, and the amount of time the employee has been covered under social insurance.
Eligibility for severance payments is open to all employees who have been working for a company for 12 months or longer. Severance payments will be required in instances where an employer or employee can prove that one or more general termination triggers or unilateral termination provisions have occurred during employment.
Under the Vietnamese Labor Code, severance compensation shall amount to half a month’s wages for every year
that the employee has been working. For example, an employee that had been with a company for three years would be eligible for one and a half months’ pay.
Grounds for the Unilateral Termination of Contracts in Vietnam
Source: Limitations as prescribed under Law No. 10/2012/QH13
*Article 33 allows for a 15 day grace period for all employees returning to work following a temporary suspension of their contracts.
Types of bonuses
Bonuses are given to employees based on company earnings and performance and as a way of boosting company morale and productivity. There are various kinds of bonuses that a company may grant its employees throughout the year.
For example, a 13th month’s salary is usually given as a kind of “annual bonus” by both local and foreign companies in Vietnam to employees that have worked with the company for at least one year. Employees that have worked at a company for less than one year are typically given a bonus that is prorated and based on their actual employment period.
In addition, there is also a special bonus called the “Lunar New Year” bonus (or “Tet Bonus”) that is often paid to employees prior to their leaving for the Lunar New Year holiday.
The amount of any Tet Bonus will be dependent on both company and employee performance, but the bonus typically ranges from smaller amounts of money (up to an entire month’s salary) to larger amounts of money (up to an entire year’s salary) depending on the company progress and goals.
Apart from the larger annual bonuses mentioned above, employees may also be given smaller bonuses for public holidays or other special days (e.g., International Labor Day or National Day). Senior management and other valued employees may be given bonuses during these days as well, including in the form of share certificates with a vesting period, for which the corresponding stock can be sold only after the employee had worked for the company for a certain amount of time.
All salaries and bonuses are subject to PIT in Vietnam.
Allowances and benefits
Apart from salary and bonuses, an employee may be entitled to several kinds of allowances and monetary or non-
monetary benefits designed to retain staff. Some of these are subject to PIT. Taxable benefits include:
- Housing rent;
- Payments for power, water, and associated services for employees that amount to more than 15 percent of their total taxable income;
- Transportation allowances;
- Premiums for life insurance;
- Health care services;
- Entertainment fees; and
- Sports/athletics fees or membership fees to golf clubs, tennis courts, and other exclusive clubs.
Prefixed lump sum amounts (or “khoan chi” amounts) for telephone calls and services, stationery, uniforms and per diem allowances are not subject to taxes if the amounts are within the levels set out under the relevant regulations.
Foreigners that work in Vietnam are also exempted from PIT on various benefits such as relocation allowances for moving into the country, airfare to their home country, and education fees for their children.