Labor Laws in Vietnam
For foreign companies aiming to conduct business in Vietnam, adherence to the Labor Code is essential. This legislation outlines the rights and obligations of employers and employees regarding various aspects such as working hours, labor agreements, social insurance, overtime, strikes, and the termination of employment contracts.
Moreover, Vietnam has enacted an amended Labor Code No. 45/2019/QH14, effective as of January 2021. These amendments aim to align with international labor standards, particularly as Vietnam integrates further into the global economy, as highlighted by the International Labor Organization (ILO).
This guide explores important topics including employee-employer contracts, severance rules, bonuses and allowances, retirement ages, and other critical provisions in Vietnam’s labor framework.
Human Resources in Vietnam
Many foreign investors are relocating their operations to Vietnam, drawn by its large, skilled, and cost-effective labor force. As the economy continues to expand and new businesses enter the market, corporate strategies must increasingly focus on effectively motivating staff while adhering to local labor laws.
Hiring Employees
Vietnam presents an appealing landscape for businesses across various sectors, characterized by a growing consumer base and a youthful, dynamic workforce with continuously evolving skill sets. The labor force in Vietnam is expanding by over a million individuals annually.
Several key HR considerations are pertinent when hiring in Vietnam:
- While labor costs are relatively low, wages are on the rise. Additionally, employers must account for high social insurance contributions and income tax rates.
- Vietnamese entities can recruit foreign workers for roles such as managers, executive directors, and specialists when local talent is insufficient to meet business needs.
- Unlike some Asian counterparts, Vietnamese representative offices have the ability to hire staff directly.
Terminating Employees
Termination of employment can be a complex issue for foreign investors in Vietnam. The labor law framework in the country tends to favor employees, necessitating that termination is based on statutory grounds, complete with formal requirements and procedures.
Vietnamese labor law applies universally to employers operating under labor contracts, regardless of the nationality of the employees. However, it does not extend to foreign nationals working in Vietnam through internal transfers under foreign labor contracts.
To minimize risks related to labor retrenchment and maximize hiring flexibility, it’s vital for employers in Vietnam to familiarize themselves with the conditions under which contracts can be terminated and the financial obligations that may arise.
Business Visas and Work Permits
Navigating Vietnam’s visa and work permit procedures can be daunting for newcomers. Foreigners require a visa issued by the Vietnamese Embassy or Consulate to enter the country. Visas can be obtained while in a third country or while in Vietnam itself.
Work permits in Vietnam are issued by the Department of Labor, Invalids and Social Affairs and enable the holder to work legally in the country. The application process must be initiated by the employer or a service center in Vietnam, rather than directly by the foreign worker.
Payroll in Vietnam
Recent years have seen significant increases in foreign direct investment (FDI) in Vietnam, as an escalating number of international companies seek to establish operations in the nation. To navigate the local landscape effectively, employers must develop a comprehensive understanding of human resources practices. Salary structures often serve as the starting point, rationalizing wages and incentivizing employees. To attract and retain top talent, foreign employers must align payroll structures with sound HR management practices.
Wages and Salary
In Vietnam, there are two categories of minimum wages. The first, known as the Common Minimum Wage, is set at VND 2,340,000 (approximately US$93) and is applied to salaries for employees in state-owned entities, as well as being used to determine social contributions across all enterprises. The second type is the Regional Minimum Wage, applicable to employees in all non-state businesses, varying based on designated zones established by the government.
The minimum wage in Vietnam is location-dependent, categorized into four regions. The minimum wage ranges from US$0.66 per hour and US$137 per month in Region 4 to US$0.94 per hour and US$196 per month in Region 1. (Note: Exchange rates were based on June 26, 2024, at VND 25,250.)
Beyond base salaries, employees are also eligible for bonuses tied to company performance, serving to enhance morale and productivity. Companies may offer several types of bonuses throughout the year.
Alongside salaries and bonuses, employees may receive various allowances and benefits, both monetary and non-monetary, aimed at retaining talent.
Social Security
Mandatory social insurance must be enrolled in by both employees and employers, regardless of their domestic or international status. There are three types of compulsory social insurance associated with labor contracts:
- Social insurance
- Health insurance
- Unemployment insurance
Foreign employees must participate in health insurance if their employment contract lasts between 3 and 12 months. For contracts of 12 months or longer, both health and social insurance are obligatory.
Vietnamese employees are similarly mandated to participate in social insurance with labor contracts lasting a month or longer. Contracts of three months or more necessitate inclusion of health and unemployment insurance alongside social insurance.
The mandatory rates for social insurance are 8% and 17.5% for employees and employers, respectively. Health insurance carries rates of 1.5% from employees and 3% from employers, while unemployment insurance is set at 1% for both parties.
Like their Vietnamese counterparts, foreign employees included in the mandatory social insurance scheme receive coverage for sickness, maternity, occupational diseases, accidents, retirement, and death.
Public Holidays and Annual Leaves
The Ministry of Labour, Invalids and Social Affairs of Vietnam (MOLISA) administers public holidays, taking into account a range of religious and cultural observances. Foreign workers in Vietnam are entitled to an extra day off for their home country’s national day alongside traditional public holidays.
In addition to public holidays, employees are also entitled to various forms of paid leave, including annual, maternity, and paternity leave.
Personal Income Tax
The Vietnamese Law on Personal Income Tax (PIT) categorizes ten distinct types of income, each with its own tax rates, deductions, and exceptions.
A tax resident in Vietnam is defined as someone who has resided in the country for 183 days or more within a calendar year or any consecutive 12-month period from their date of arrival. Tax residents are subject to progressive PIT rates on their worldwide employment income, ranging from five percent to a maximum of 35%. Conversely, non-resident taxpayers pay a flat rate of 20% on their Vietnam-sourced income.