By Scott Thomson – Chief Operating Officer, Links International
Vietnam is one of the most exciting investment prospects in Southeast Asia and has been regularly reported as one of the fastest and most stable-growing economies in Asia.
Walking around the rapidly developing Ho Chi Minh City, you can’t help but be immersed in the vibrant energy of this up and coming city, bursting with opportunity.
So, how do you set up a business in Vietnam? It all starts with your people on the ground! Here’s our guide to what you need to know when employing staff in Vietnam.
Is Employment law in Vietnam employer friendly?
Employment law in Vietnam is relatively employee friendly, compared to other major hubs in Asia like Hong Kong and Singapore. The Vietnam Labour Code has a number of mechanisms that protect employees, including trade unions, mandatory social contributions, overtime rules and statutory rules in respect of terminations. For employers who have a presence in China, Vietnam labour law and payroll rules in Vietnam have a number of structural similarities to China labour law and payroll rules (however, similar in structure only!).
How do labour or employment contracts work in Vietnam?
Generally, an employer must sign a labour contract with an employee before they start working for the employer (except if the contract work is for less than three months). Labour contracts can take three main forms:
- Definite term contract for seasonal work or specific task – generally speaking, a labour contract for less than 12 months;
- Definite term contract – labour contract between 12-36 months (note: employers can only sign two definite term contracts before having to go indefinite);
- Indefinite term contract – open-ended contract with no fixed end date.
The type of contract entered determines the entitlements of the employee, so it is critical to ensure that employers use the most appropriate labour contract to ensure at a minimum that they understand how to pay employees and their employees’ entitlements. For example, probation period rules, personal income tax, social contributions, minimum term and severance payments in Vietnam differ between contract types.
Who can work in Vietnam?
Similar to most countries in Asia, all foreigners working in Vietnam must have a work permit in order to receive their pay in Vietnam and an employer must justify why they need to employ a foreigner over a local, e.g. a skillset that can’t be found in Vietnam. There are minor exceptions where foreigners do not require a work permit, however, work permit laws and procedures regularly change, so we strongly recommend engaging external help, since obtaining a Vietnam work permit can be extremely complex (and frustrating) without local assistance.
Do Vietnam employment contracts need to be in Vietnamese?
Yes, written labour contracts must be in Vietnamese and as a result most MNCs will usually have labour contracts in both English and Vietnamese.
What is the approximate cost of mandatory contributions on top of salary?
The amount of social, medical and other contributions required depends on a number of factors (including salary levels, the type of labour contract entered into, etc.), but, as a general rule, an employer is required to contribute approximately an additional 20% on top of a local employee’s gross salary in mandatory contributions. Accordingly, the total salary cost of the local employee for the employer will be the gross salary plus 20%.
Are there limits on overtime and overtime rates?
Yes, Vietnam has a number of rules aimed at protecting employees from being exploited through overtime. Generally speaking, normal working hours should not exceed 48 hours per week and the Vietnam Government encourages employers to apply 40-hour working weeks. There are limits of the amount of overtime hours employees can work, depending on their industry and special overtime rates, depending on what day an employee works overtime (for example, normal day, weekend, night, public holiday, etc.). Overtime rules become very complicated and outsourcing payroll calculations to an HR expert in Vietnam is a great, cost effective way of keeping on top of your payroll calculation, changes in employment law and paying employees in Vietnam.
Under what circumstances can an employee be terminated in Vietnam?
In short, instances that an employer can terminate a labour contract in Vietnam are limited, due to the employee-friendly labour law of Vietnam. Instances when an employer may terminate a labour contract include:
- Disciplinary hearing – Dismissal for serious disciplinary violations (does not include performance issues);
- Unilateral termination by the employer – very limited circumstances include employee being ill for long periods of time, force majeure events;
- Expiry of labour contract term;
- Employer ceases operations;
- Retirement, death, incarceration.
Strict procedures must be followed and well documented for any dismissals for serious disciplinary violations and the circumstances for dismissal effectively amount to what most companies would consider gross misconduct (e.g. theft, disclosure of confidential information, abandonment).
For unilateral termination (when permitted by law), employers must provide advance notice to the employees within a minimum statutory time limit and may be required to make a severance payment to the employee.
What is the level of risk associated with corruption and fraud in Vietnam?
Unfortunately, corruption and fraud are prevalent in Vietnam and employers must be wary of the risk of corruption and fraud related activities, including bribes, facilitation payments and so on being made (with or without their knowledge!). Payment of a company’s payroll is usually one of the largest financial transactions a company will make each month and ensuring you reduce the risk of fraud in significant financial transactions like payroll is essential. Most foreign companies investing in Vietnam view outsourcing their payroll with a reputable payroll services provider in Vietnam as a good way of boosting their internal controls in respect of payroll risk by ensuring that they have a third party calculating and executing payment on their behalf in Vietnam.
Links International was voted Best Payroll Outsourcing Partner in 2015 and 2016 and provides payroll processing, work permit applications and HR support in Vietnam, as well as 14+ other locations across Asia-Pacific.
Are you interested in outsourcing your payroll in Vietnam? Get a free, no-obligations quote by enquiring now.