By Scott Thomson – Chief Operation Officer, Links International Hong Kong
As one of the fastest and most stable-growing economies in Asia, Vietnam is an attractive market to explore and open up other developing markets in Southeast Asia. Vietnam’s macroeconomics alone are convincing, with a population of 90 million, consistent GDP growth of 5-6% over the last decade, relatively low costs and a literacy rate of over 90%. So how do you start your Vietnam expansion?
If you’re looking to expand your business into Vietnam, the easiest, most flexible and cost-effective way to expand into the Vietnam market is by using PEO employment or hiring staff under a reputable Professional Employment Organisation (PEO) arrangement.
PEO employment is the perfect solution for companies expanding into Vietnam and who:
- Have no legal entity set up in Vietnam to hire staff in Vietnam; or
- Want to test the Vietnam market without making a relatively large commitment of minimum capital; or
- Don’t have knowledge of Vietnam labour law and payroll rules (critical in Vietnam due to employee friendly labour rules); or
- Want to avoid corruption related incidents.
Employment through a reputable PEO service provider is increasingly popular in Vietnam, since multinational companies are looking for more cost-effective and flexible ways to set up an office in Vietnam.
So what is PEO?
In short, PEO involves a Vietnam PEO service provider legally employing staff in Vietnam on your behalf and seconding them back to you under a services agreement (therefore the PEO service provider becomes your employer of record in Vietnam). This arrangement makes your expansion into Vietnam so much simpler, as it enables you to effectively hire staff immediately to perform key duties such as sales activities, market research, set-up activities without the need to incur the costs, commitment and time delays associated with setting up an entity.
In general, hiring under a PEO arrangement is at least 60% cheaper than setting up a legal entity in Vietnam. The below table compares the costs of setting up a 100% foreign owned company in Vietnam and using PEO employment in Vietnam:
What’s the reason that companies use PEO employment to set up a presence in Vietnam?
When companies enter the Vietnam market, they choose to use a PEO arrangement to employ staff due to the following reasons:
The cost savings shown above are owed to PEO employment, removing the need for a commitment of minimum capital (generally at least $50K USD for a 100% foreign owned company) and the administrative costs of maintaining an entity in Vietnam. However, having a good Vietnam PEO service provider is crucial as it will save you significant time by enabling you to hire immediately and remove any HR administration, visa applications, Vietnam social contributions, Vietnam trade union payments and personal income tax payments that distract you from focusing on your Vietnam business growth.
Flexibility and reduced cost
- Hiring staff in Vietnam under a PEO service provider gives you a much higher level of flexibility than if you set up a Vietnam company. Setting up a new foreign owned legal entity in Vietnam generally requirements an investment of at least $50K USD, which is a significant amount to commit to if you aren’t yet sure about the Vietnam market. PEO employment ensures that you can easily scale up and down before making this commitment. Three months in and want to put the Vietnam expansion on hold to focus on another market? Simply cease the Vietnam PEO arrangement and turn it back on again once you are ready. If you try to do this with a legal entity, you’re going to be $50K USD in the hole, as well as having to bear the ongoing administration costs, any wind down costs and the inevitable questions from finance about how they recover the cost!
Fast time to market
- Receiving approval from your HQ for the set-up of a legal entity, obtaining the relevant sign offs and completing set-up of a company in Vietnam can be a slow and frustrating process. PEO employment hugely accelerates your time to market by skipping all of these issues through removing the need to set up a legal entity – enabling you to go to market in as small a timeframe as a single day.
Services a good PEO provider will offer
Common services that a reputable Vietnam PEO company will provide include:
- Creating an employment contractand assisting with onboarding of employees
- Setting up any social contributions, eg. employee compensation
- Vietnam visa processing in the event that your employee is an expat who needs a work visa in Vietnam
- Vietnam salary and payroll processing, including social contributions, trade union payments, personal income tax and any other required statutory submissions
- Service delivered from an HR Portal, where seconded staff can access their HR records, pay slips and apply for leave online (make sure your provider can do this as it will save you a ton of admin!)
- Maintenance of annual leave and sick leave records
- HR support and advice on Vietnam labour law and any employment risks
Employment under a Vietnam PEO service provider is becoming increasingly popular in Vietnam, as multi-national companies look for more cost effective and flexible ways to set up an office in Vietnam without having to commit to a legal entity in Vietnam. Are you looking to expand your business into Vietnam in the most cost-effective and flexible manner? Speak to us now!