Employment Act and Labor Laws in Vietnam

When looking at hiring and employing in Vietnam, businesses must comply with several employment-related rules and regulations. Vietnam’s principal employment law is the Employment Act. With a few exceptions, it establishes the fundamental terms and conditions of employment for all categories of employees. The primary law regulating employment relationships in Vietnam is the Labor Code 2019, which came into force on 1 January 2021. Decree 152/2020/ND-CP is the employment law that oversees employment specifically for foreign nationals in Vietnam. The Decree 152/2020/ND-CP mainly provides work permits for foreign national workers in Vietnam. This article aims at covering all the main elements of the Vietnamese labor law and provisions of employment laws in Vietnam cover.

There are key areas that are critical under the labor regulations in Vietnam, including that businesses and employers operating and hiring in Vietnam must keep in mind:

• The scope of employment regulation
• Employment status
• Background checks
• Regulation of the employment relationship
• Relocation of employees
• Illness and injury of employees
• Minimum wage and bonuses
• Working time, holidays, and flexible working
• Provisions for fixed-term, part-time, and agency workers
• Proposals for reform
• Resolution of disputes between an employer and employee
• Redundancy/layoff
• Rights created by continuous employment
• Discrimination and harassment
• Termination of employment
• Employee representation and consultation
• Consequences of a business transfer
• Employer and parent company liability
• Restraint of trade
• Employer insolvency
• Employers’ health and safety obligations
• Taxation of employment income
• Intellectual property

Employees and workers:

Employees and workers: The Labor Code of Vietnam in recent revisions defines employees more expansively and states that an employee is an individual who works and renders services for an employer under an agreement (called employment contract), and is paid, managed, and supervised by the employer. Vietnam’s labor laws do not take any legal distinction between different categories of workers; however, it applies to

• Employees
• Trainees
• Apprentices
• Other workers without labor relations (under the recently implemented version of the Labor Code)

Businesses must take particular care when drafting contracts with independent contractors or other types of workers (such as freelancers) whom they do not intend to employ as regular employees. These categories of workers with the recent revisions may now be considered employees if the employer/business closely manages and supervises their work. Therefore, this leads to a common mistake of misclassification (causing penalties). The Labor Code in Vietnam also includes specific provisions for certain classes of employees, such as

• Junior employees
• Senior employees
• Disabled employees
• Female employees

Employees classified under the labor law in Vietnam are granted certain protections as well as additional statutory employment rights, such as

• Additional rest breaks
• Shorter working hours

Independent Contractor/Self-Employed:

An individual can also provide services to an enterprise or organization in Vietnam as an independent contractor (commonly known as freelancers). However, the governing law for the employment of independent contractors is Civil Code 2015 rather than the Labor Code of Vietnam. It is generally not considered an employment relationship to which the labor laws apply. Due to this, an independent contractor is not entitled to any statutory employment rights as compared to a full-time employee under Vietnamese labor law, such as

• Statutory insurance
• Severance
• Statutory leave that includes annual leave, sick leave, maternity leave, unpaid leave
• Job loss allowance upon the termination of employment

The recently enacted version of the Labor Code in Vietnam also applies to “other workers without labor relations.” There are no provisions in the labor law in Vietnam that specifies situations where an employer must (or must not) use either

• An employment contract for full-time and part-time employees
• A service contract for independent contractors and freelancers

However, suppose a contract contains the features found in an employment relationship; for example, it provides that the contractor is subject to the employee’s working hours or disciplinary actions for a breach of the work rules. In that case, the authorities will treat the service contract as an employment contract. Generally, using a service contract for permanent and long-term work is not encouraged. You should only use service contracts for projects where an individual is not directly managed or supervised by the employer (in cases of freelancers). However, where an employer misclassifies an employee as an independent contractor, the labor authorities in Vietnam may view this misclassification as a deliberate evasion by the employer of labor laws and employment-related requirements. Such instances include the payment of statutory insurance or the provision of paid leave. In cases where an employer misclassifies an employee and an independent contractor, they may be subject to a monetary fine. The employee’s statutory entitlements must be provided or paid for the duration of the employee’s employment.

Foreign Employees:

Vietnamese nationals working abroad must comply with Vietnam’s employment laws and the foreign country’s laws within which they are working unless there is an international treaty to which Vietnam is a party state otherwise.

An employment contract under Vietnamese labor law is legally binding to the employer and the employee that extensively states all the provisions that must be adhered to. An employment contract is an employment agreement, appointment letter, offer letter, or appointment offer. The labor code in Vietnam clearly outlines a mandatory requirement for all employers and businesses operating in Vietnam. This is to ensure employment contracts are made in writing. An exception arises only in the case of employment contracts for temporary work of a duration of less than one month. In such cases, employers can use an oral employment contract. An employment contract must contain provisions such as

• The Employee’s full name, date of birth, gender, place of residence, and identity card number or passport number
• Employer’s name and address that includes the full name and position of the person signing the contract on the employer’s behalf
• Wages that clearly outlines the basic pay, time and method of payment, other additional payments and allowances, and regime for wage increases and promotion
• Duties and responsibilities, term of the contract, and job location
• Working hours, rest breaks, and holidays
• Training and skills improvement for the employee
• Health, social, and unemployment insurance for the employee

Two defining employment contracts in Vietnam include

• Open-ended contracts or indefinite term employment contracts: Open-ended contracts are the most common form of employment contracts between the employer and employees in Vietnam that do not have fixed end date. The contract is open for an indefinite period till either parties wish to terminate it.
• Fixed-term contracts or definite term employment contracts. This type of employment contract must have a minimum term and a maximum of 36 months in duration.

Employment contracts in Vietnam can be in two parts:

• Vietnamese language for local employees
• In dual languages (such as Vietnamese and English) for foreign employees

In Vietnam, an employment contract must be entered into directly with the company that employs the employees and not the group company. The only terms automatically implied in employment contracts in Vietnam include the conditions under which an employment contract can be terminated. This is because the termination of employment contracts is strictly regulated by Vietnamese labor law. Suppose an employer wishes to change or amend the terms of an already signed employment contract. In that case, they must notify the employee at least 3 working days before the amendments are made to obtain the employee’s consent. However, if the employer and the employee cannot agree on the new terms of the employment contract, the original signed employment contract continues.

As per the Labor Code of Vietnam, employees are entitled to several benefits under the Employment Act. Annual paid leave, sick leave, maternity benefits, paid public holidays, and other benefits. Employers must ensure that they meet all of the Act’s standards and that the contract conditions reflect this.

Minimum Age:

The labor act rules in Vietnam state that the employee must be 15 years of age or older for an individual to get into an employment contract. However, there are different labor regulations for people under 18 and 15.

Minimum Wage Payment:

Currently, there are 4 regional minimum salary levels applicable to employers that range between 3,250,000 VND to 4,680,000 VND per month, depending on the region. The salary for trained employees must be at least 7% higher than the regional minimum salary. The employment laws in Vietnam do not mandate a specific salary payment method. However, payment methods are subject to the agreement between the parties, though salary payments must be made directly to the employee, in full and on time. The minimum wage/salary is applicable to all employers including

• Enterprises
• Co-operatives
• Farms
• Households
• Individuals
• Other organizations hiring employees under employment contracts from time to time

Working Hours in Vietnam:

Vietnamese labor code restricts and oversees the maximum working hours for employees in Vietnam. The standard working hours cannot exceed

• For employees working under normal working conditions – 8 hours per day and 48 hours per week
• For employees working in hefty, hazardous, or toxic working conditions – 6 hours per day and 36 hours per week

Employers are generally permitted to grant overtime. However, the overtime limit is capped at 40 hours per month, and 200 hours per year, for each employee. Under exceptional circumstances prescribed by the government, employers may extend the annual overtime cap to 300 hours after notifying the Department of Labor, Invalids, and Social Affairs at least 15 days in advance of exceeding the cap.

Overtime Pay in Vietnam:

Employees are entitled to overtime pay as follows:

• At least one-and-a-half times the regular hourly pay rate for extra hours worked on standard working days.
• At least two times the regular hourly rate for extra hours worked during the weekend.
• At least three times the regular hourly rate. This is for extra hours worked during annual paid leaves and public holidays.

Employees working the night shift are entitled to an additional 30% of their regular salary. This applies to any night work completed.

Rest Breaks:

Rest breaks during a working day:

Employees who work for 6 continuous hours are entitled to a minimum rest break of 30 minutes (included in the working hours). Vietnamese labor law allows employers to arrange for employees to work in shifts based on production requirements.

Rest Periods Between Working Days:

An employer must ensure employees take a minimum rest period of 12 hours before their next shift. Employees are entitled to 4 days off each month.

Special Provisions for night shift:

An employee working at night is entitled to a minimum rest break of 45 minutes, included in the working hours. Night shifts under the Vietnamese employment laws are between 10 pm to 6 am on the following day.

Statutory Leaves:

The statutory leaves in Vietnam can be categorized into four types:

• Annual leave
• Public holidays
• Sick leaves
• Maternity leaves
• Unpaid time off

The statutory leaves that every employee is entitled to be as below

Sick leaves:

‍Social insurance fund finances sick pay and applies to both expatriate and Vietnamese employees. Vietnamese employees are entitled to 75% of their salary as sick pay. Vietnamese employees with a disease on the list requiring long-term treatment are entitled to

• 180 days in a year, including weekends and public holidays.
• Employees requiring over 180 days continue to be entitled to the paid sick leave regime at a lower rate that varies between 45% to 65% of their salary.

Paid maternity leaves in Vietnam:

‍While employees are entitled to a paid maternity leave in Vietnam for 6 months, in cases of multiple births of children, the employee is entitled to an additional 30 days.

Shared paternity leaves in Vietnam:

Male employees are entitled to 30 days of paternity leave from when the child is born. The social security system in Vietnam funds the pay.

Insurance

As per the labor law in Vietnam, employers must provide insurance to their employees. Three types of insurance are required for all employees in Vietnam: Social insurance: Social insurance covers employees’ benefits such as sick leave, maternity leave, benefits for work-related accidents and occupational diseases, pension allowance, and mortality allowance. Health insurance: Health insurance allows employees to undergo medical examinations and inpatient and outpatient treatments at authorized medical facilities. Unemployment insurance (which replaces severance pay): Unemployment Insurance will be paid to workers depending on the amount of time they and their previous employers contribute. The monthly unemployment allowance is 60% of the average salary in the last six months of work. Businesses should pay attention to a few key points about insurance as per law, including social insurance and unemployment insurance is only required for Vietnamese employees.

• Health insurance applies to Vietnamese and foreign employees working under Vietnamese Labor Law.
• The employer is liable to pay insurance for those whose contract is valid for more than three months or an indefinite period. This means that businesses must register and pay for their employees’ insurance at the Department of Labor, Invalids, and Social Affairs.

Pensions in Vietnam

Pensions in Vietnam are provided through a state pension scheme called social insurance and private life insurance-type schemes. The government’s Social Insurance Agency (SIA) administers the state pension system.

Vietnam Laws on Probation Periods

There are no clauses in the Employment Act of Vietnam on probation periods; however, it is common to arrange a probation period. The parties can agree on the following probationary periods:

• Professional or technical college qualification: 60 days
• Intermediate-level qualification or trained staff: 30 days
• Positions that require no training: 6 days

Vietnam Laws on Termination of Employment

By terminating the contract of service, either the employee or the employer can cease the employment relationship. Termination may occur for the following reasons:

• Expiry of the labor contract
• Tasks stated in the labor contract has been completed
• Both parties agree to terminate the labor
• Lawful unilateral termination by the Unilateral employee termination by the employer

Vietnam Laws on Notice Periods

In cases of unilateral termination of employment by an employer, an employer must provide advance notice to the employee. This must be within the statutory time limit as employment law in Vietnam. Employees who resign must give advance notice in writing to their employers within the minimum statutory time limit. The relevant minimum statutory time limits are

• Indefinite term employment contracts – 45 days’ notice
• Fixed-term employment contracts – 30 days’ notice
• Employment contracts with less than 12 months – 3 working days’ notice

Vietnam Laws on Severance Pay

Vietnamese labor law mandates employers to provide severance pay to employees whose employment contracts are terminated. This was when employees terminated had been regularly working for the employer for 12 months or more. The severance payment = 1.5 x (one month’s salary for each year of employment)

Noncompliance with the labor laws in Vietnam would attract fines to the business. There are several aspects that an employer must take into consideration when operating a business in the country. Penalties shall be applied on the following grounds:

• Violations against the regulations on labor contract conclusion
• Violations against labor regulations on probation
• Violations against the labor regulations on labor contract execution
• Violations against amending and terminating labor contracts

Below are some strategies that align with employment rules in Vietnam that employers looking to expand their business in Vietnam include

• Having a dedicated team that ensures they are responsible for hiring and recruitment in Vietnam is a strategic approach that can help manage employees in Vietnam and address legal compliance-related assistance. An HR team would ideally oversee areas such as the recruitment of employees, training and development, employee benefits, and performance appraisals, to name a few.
• Creating a standard set of employment contracts/offer letters is crucial. When looking at hiring for multiple roles in countries such as Vietnam, where there is an influx of talent, having preset job templates would ideally eliminate confusion. Further, creating termination letters would also help in a smooth transition in the termination process.
• Outsourcing an Employer of Record (EOR) and Professional Employer Organization (PEO) would ideally be the easiest way of being compliant while ensuring employee benefits, payroll, and taxation are taken care of. As a business, this leaves you with ample time to focus on other aspects of your business. Interestingly, Multiplier ensures that you have the resources to expand your business in Vietnam.

While expanding businesses and hiring in Vietnam is relatively easy, the employment act and labor law in Vietnam are relatively complex. Ensuring your business is compliant with the local labor laws when hiring employees in Vietnam is key. To protect an employee’s rights and the company, one of the many best practices when hiring is establishing standard contracts, offer letters, or employment contracts. Thus, employment contracts must be regularly reviewed and verified to remain compliant. More than ever, ensuring that you do not misclassify your employees as a business is extremely crucial to avoid penalties. This is where outsourcing a reliable hiring and compliance partner to help relieve the stress of being compliant will pay off. Partnering with Multiplier can help you concentrate on your business while our professionals will ensure a smooth transition and operations in Vietnam while complying with labor laws. Talk to us to learn more.