by Russin & Vecchi's lawyers
- Setting up and operating in Vietnam - Part 1
- Setting up and operating in Vietnam - Part 2
- Setting up and operating in Vietnam - Part 3
- Setting up and operating in Vietnam - Part 4
- Setting up and operating in Vietnam - Part 5
- Setting up and operating in Vietnam - Part 6
- Setting up and operating in Vietnam - Part 7
- Setting up and operating in Vietnam - Part 8
- Setting up and operating in Vietnam - Part 9
- Setting up and operating in Vietnam - Part 10
- Setting up and operating in Vietnam - Part 12
- Setting up and operating in Vietnam - Part 13
This Chapter highlights several basic concepts from the substantial body of law that governs workplace relationships and employment conditions.
5.1 Brief comments on Vietnam's labor force
Vietnam has a young labor force. The level of experience and expertise in certain areas is still low. However, literacy is high, and computer literacy in particular has quickly developed. Young Vietnamese are dynamic, eager and quick to learn and to acquire new skills.
A near universal view within the foreign manufacturing community is that Vietnamese workers have good assembly skills. They are attentive to detail, especially in areas that require a high level of accuracy.
5.2 State management agencies
The Ministry of Labor, War Invalids and Social Affairs ("MOLISA") acts on behalf of the State in managing labor and the labor-related activities of enterprises. MOLISA formulates and enforces policies on the salary system and the management and development of the labor force. It sets out general employment rules applicable to all enterprises.
People's Committees, acting through Departments of Labor, War Invalids and Social Affairs ("DOLISA") under them, are responsible for management of labor in their locale. They implement labor rules and monitor compliance. They follow labor issues and report to the MOLISA.
Trade unions exist at all levels, from the enterprise level to the industry level, and from the provincial level to the central level. They participate in the supervision of labor-related activities. Trade unions have traditionally been regarded as an essential part of Vietnam's political system. Their current task is to represent and protect workers' rights and interests. In reality, however, they have not been very dynamic as either a political force or even in labor matters.
There are also labor inspectorates that have been established by the MOLISA and People's Committees at all levels to survey compliance and investigate labor complaints. Normally, these bodies are reactive rather than proactive.
5.3 Employers' Representative
The Vietnam Chamber of Commerce and Industry ("VCCI") is recognized by law as a representative of Vietnam's employers (and of the business community) to promote employers' interests in domestic and international labor relations. Any employer can become a member of the VCCI. VCCI provides services to members regarding labor issues, ie, labor disputes, wage determination, work safety. It serves as a liaison between employers and the State.
5.4 General employment conditions
The Labor Code regulates the employment of workers. It also provides for rights and obligations of both employees and employers. There are many independent regulations which implement the Labor Code.
5.4.1 Minimum wage
The minimum wage is the lowest monthly wage that may be paid to an employee hired to perform a basic job that does not require training. The minimum wage is fixed from time to time by the Government.
There are two minimum wage systems. One system which is called as "general minimum wage" applies to employees who work for enterprises with foreign-invested capital, foreign organizations, or international organizations. The other system applies to employees who work for non-foreign-invested enterprises such as state agencies, state-owned enterprises and other domestic enterprises. The general minimum monthly wage is VND 1,150,000 per month.42
The other system which is called as "regional minimum wage" applies to employees who work for enterprises with foreign-invested capital and other foreign organizations depends on the classification of the enterprise. The regional minimum wage system is divided into four levels:43
- Level 1: VND 2,350,000 per month for employees who work for enterprises in urban districts of Hanoi, urban and rural districts of Ho Chi Minh City and some designated cities and districts of Dong Nai, Binh Duong and Ba Ria-Vung Tau provinces.
- Level 2: VND2,100,000 per month for employees who work for enterprises in various designated cities and districts of provinces and in centrally-run cities.
- Level 3: VND1,800,000 per month for employees who work for enterprises in cities and districts of other provinces.
- Level 4: VND1,650,000 per month for employees who work for enterprises in other locations.
An enterprise will pay wages based on the above minimum wage structure. If an employee has gone through "vocational training or an apprenticeship" (that is, he is a trained employee), he is eligible for at least the applicable minimum wage plus 7%.
5.4.2 Overtime payment
Generally speaking, a worker who works overtime is entitled to receive commensurate pay. The Labor Code provides different mandatory payment rates for overtime: 150% after normal working hours, 200% on weekends, and 300% on a holiday or a paid leave. Employees and their employer may agree on an amount of overtime that may generally not exceed four hours per day and 200 hours per year. In some cases, it may reach 300 hours per year.
The Labor Code requires that workers who work overtime at night must receive an amount, which is at least equal to the rate applied to overtime payment as mentioned above, multiplied to the nightshift salary rate44 , plus 20% of salary which applies to normal working hours during the daytime.
5.4.3 Annual leave
An employee who has worked for one year is entitled to a statutory annual leave of at least 12 working days. An employee who has worked for less than a year may receive leave on a pro-rated basis. If, by reason of termination of employment or for any other reason, an employee has not taken all of his annual leave, the employee must be paid for the days not taken.
Paying annual bonuses is generally a matter of an employer's own discretion, based on the enterprise's annual business performance and its workers' performance. However, the practice most employers have consistently followed is to pay an annual bonus equivalent to at least one's month salary. An employee in his first year may receive a portion of the annual bonus corresponding to the time he has been with the enterprise.
5.4.5 Social, health and unemployment insurance
Social insurance and medical insurance are compulsory for any employee who works for at least three months. In addition, an employee who works for an employer who employs 10 or more employees, and has a labor contract of indefinite term or a term of between 12 months and 36 months is obliged to participate in the unemployment insurance regime.
Under the compulsory social insurance, compulsory health insurance, and unemployment regimes, both the employer and the employee are required to contribute to the insurance fund. Their contributions are based on the entire contracted salary that an employee receives. The government also contributes and provides additional funds.
Nevertheless, the Law on Social Insurance sets a ceiling for the salary on which contributions will be calculated, and no contribution need be made beyond this ceiling. If an employee's salary is higher than 20 times the Government's general minimum wage, then for the purposes of calculating social insurance contributions, the employee's salary will be deemed to be fixed at 20 times the general minimum wage. Therefore, the maximum social insurance contribution will depend on the minimum wage fixed by the Government from time to time. The current legal minimum is VND1,150,000, and 20 times the general minimum wage is VND23,000,000. Thus, the maximum contribution salary on which contributions will be calculated is currently VND23,000,000.
Under the compulsory social insurance regime, employees and their beneficiaries can claim social benefits in the form of compensation for sick leave, maternity leave, compensation for work-related accidents and occupational diseases, retirement and death benefits. Upon termination of their employment, unemployment insurance provides employees with (i) an unemployment allowance, (ii) re-training vocational support, and (iii) job search support. Medical insurance covers non work-related medical expenses.
For employees who work for less than three months, social and medical insurance must be included in their wages, and those employees may voluntarily join the social insurance fund, or they may, by themselves, obtain insurance from other sources.
An employer has a right to terminate employees in certain circumstances, and must pay a retrenchment (severance/redundancy) allowance. The Labor Code provides for the payment of the retrenchment allowance for employees who have worked for the employer for more than one year.
Types of retrenchment allowance vary depending on the particular circumstances of a retrenchment. For example, if the employer unilaterally terminates an employee in case of natural disasters, fire or other cases of force majeure and the employer has in fact made every effort to avoid terminations but is nevertheless compelled to make cuts in production and workforce, the employee may receive a severance equal to one-half month's salary for every year of employment. If the enterprise merges or is divided, an employee whose employment is discontinued as a result of such merger or division is entitled to receive a redundancy allowance of one month's salary for every year of employment, or a total of two months' salary, whichever is greater. Other benefits, such as accumulated leave or bonuses, must also be paid.
As of January 1, 2009, seniority for severance/redundancy allowance purposes stopped accruing for any Vietnamese employee who worked under an indefinite term or a definite term labor contract of 12 months or more in a place with 10 or more employees. In this connection, the duration during which the employee contributes to an unemployment insurance plan is set-off against the total working time which is counted for paying severance/ redundancy allowance.
5.5 Individual and collective labor agreements
5.5.1 Individual labor agreement
Essentially, all employees are required to have a labor agreement with their employer. There are three types of individual labor agreements recognized by law: an agreement for an indefinite term, an agreement for a definite term of 12 to 36 months, and an agreement to perform a specific task which will last for less than 12 months.
Insofar as the second and third types are concerned, if such an agreement expires without being renewed, or if no new agreement is executed but the employee continues to work after its expiration, the expired agreement will be deemed to remain effective with one condition - that is, in certain circumstances, it will become an indefinite term agreement for the labor agreement from 12 to 36 months or become a 24 month-definite term agreement for a labor agreement of less than 12 months. More specifically, a definite term labor agreement may be used only for two consecutive terms, including one renewal. After the second consecutive definite term, if the employer and the employee enter into a new labor agreement, this agreement must be an indefinite term labor agreement. If the employment continues, but no new labor agreement is executed, the current labor agreement will automatically be considered to be an indefinite term labor agreement.
An individual labor agreement signed between an enterprise with foreign investment and an employee must be prepared by the enterprise. It contains particulars such as the nature of the work, working hours, employment term, remuneration package, leave, bonus, and insurance. Additional terms may be added. The employer and the employee must each receive one original.
Before signing a labor agreement, an employer and an employee may enter into an agreement on probation within the following parameters:
- A probationary period cannot exceed 60 days if the employee is recruited for a position that requires a professional or technical college qualification or above;
- A probationary period cannot exceed 30 days if the employee is recruited for a position that requires an intermediate-level qualification, or if he is recruited to be a technical worker or staff;
- A probationary period cannot exceed six working days if the employee is recruited for other positions.
During the probationary period, the employee is entitled to a salary equivalent of at least 85% of the salary to which he will be entitled if he is employed.
Upon expiration of the probationary period, the employer must give notice to the employee of the result of his probationary performance. If the performance meets the requirements set out in the agreement on probation, the employer must enter into a labor contract. If, upon expiration of the probationary period, the employer does not give any notice and the employee continues to work for the employer, the employee is deemed to have been recruited.
During the probationary period, either the employer or the employee may terminate employment without the need to give notice or reason. Neither party is obliged to pay compensation for such early termination.
5.5.2 Collective labor agreement
An employer may enter into a collective labor agreement with its employees in cases where an internal trade union has been formed in the enterprise. If the enterprise does not have an internal trade union, the collective labor agreement can be signed between the employer and trade union of higher level. A collective labor agreement must contain basic terms such as working hours, salaries and bonuses, insurance, work safety provisions, and guarantee of employment. A collective labor agreement may be signed for a term of one to three years. The term could be less than one year if it is the first time the employer has entered into a collective labor agreement.
A collective labor agreement must be filed with the relevant labor department within 10 days after its execution. A collective labor agreement is the main source of employees' rights and interests. There may be some overlap between a collective labor agreement and an individual labor agreement. In that case, a collective labor agreement prevails.
5.6 Internal Labor Rules
A company must have internal labor rules ("ILRs") if it has 10 or more employees. The ILRs must include information on the following:
- Working hours and rest breaks;
- Company rules and discipline;
- Occupational safety and hygiene in the work place;
- Protection of assets and confidentiality of technology and business secrets of the company; and
- Conduct which is in breach of labor rules and penalties imposed for those breaches, and responsibility for damages.
Carefully worded ILRs are important in order for the employer to take disciplinary action against an employee, or to terminate a labor contract in case of an employee's poor performance. It is difficult for a company to dismiss an employee for an offense if that offense is not specified in its ILRs or if the company does not have duly registered ILRs.
5.7 Trade unions
Trade unions exist at all levels, and, as mentioned, form a part of Vietnam's political system. Vietnam has a separate Law on Trade Unions that deals with the establishment and operation of trade unions at all levels. Trade unions are empowered to monitor compliance with labor regulations. They have a role in educating workers to perform their duties of citizenship in the interest of the country.
The right to form a trade union is given to all employees. The employer is required to acknowledge the status of a legally established trade union, to assist, if requested, in its formation, and to provide facilities in order for the trade union to function. An employer may not discriminate against an employee because he has formed or joined a trade union.
An enterprise, whether in the public or private sector, is required to contribute to a fund for trade union. The rate of contribution is equal to 2% of the payroll.
5.8 Work safety
The law strictly requires an employer to implement safety measures in the workplace. Liability is imposed on the employer in relation to work-related accidents that cause injuries or casualties to its employees in the course of employment. If an employee is not covered by social insurance, the employer is obliged to pay compensation to the employee or his beneficiary. Whether or not the employee was at fault is irrelevant in respect of the employer's obligation to pay compensation, but fault is relevant in determining how much is to be paid.
5.9 Labor dispute resolution
Emphasis is placed on negotiation and conciliation in order to resolve labor-related disputes. The law sets out rules for conciliation, including powers of conciliators, and responsibilities of parties to a dispute. If conciliation fails, a court action may be instituted with the appropriate Labor Court. The time limit within which an employee must file a request to resolve a dispute with the court ranges from six months to one year, depending on the nature of a particular dispute. DOLISAs can participate in labor dispute settlement by appointing conciliators and arbitrators for negotiations.
5.10 Employment of expatriates
The employment of an expatriate is generally limited to a managerial position or to a position requiring a high level of expertise for which position Vietnamese are not yet qualified. An enterprise that employs an expatriate usually must have a plan for Vietnamese staff to replace the expatriate; however, an enterprise with foreign-invested-capital is permitted to extend employment of an expatriate if it does not yet have a qualified Vietnamese replacement.
Decree No. 34/2008/ND-CP of the Government (March 25, 2008) on recruitment and management of foreign labor working in Vietnam, eliminated the restriction on the number of expatriates that an enterprise is allowed to employ. One exception, however, is the use of intra-corporate transferees, in which case an employer must be able to show that at least 20% of the total number of its managers, executives and specialists are Vietnamese citizens. This requirement does not apply to representative offices.
5.11 Work Permits
With limited exceptions, most expatriates who work in Vietnam are required to have a work permit. An expatriate is exempt from the need to have a work permit in the following circumstances:
- He is a capital contributing member or ia an owner of a limited liability company which is registered to operate in Vietnam;
- He is a member of the Board of Management of a shareholding company which is registered to operate in Vietnam;
- He is chief of a representative office or of a project of an international organization or a non-governmental organization in Vietnam;
- He enters Vietnam for less than three months to offer services;
- He enters Vietnam to work for less than three months or to handle an emergency case or one with complicated technical or technological problems that affects production/business activities and that cannot adequately be addressed within Vietnam;
- He is a lawyer who has received a Certificate for the practice of law in Vietnam granted by the Ministry of Justice;
- He is a student studying and working in Vietnam. In this case, the employer who employs such pupil or student must inform the provincial labor authority seven (07) days in advance;
- He is an intra-corporate transferee working in Vietnam in one of eleven (11) service sectors as committed under the WTO - Vietnam's Schedule of Specific Commitments in Services including the following services: business; information; construction; distribution; education; environment; financial; medical health; tourism; culture and entertainment; and transportation;
- He provides expert and technical consultancy services or undertakes other tasks with respect to research, formulation, evaluation, monitoring and assessment, management and implementation of a program or project using official development aid ("ODA");
- He has a media license issued by the MOFA;
- He is appointed by a competent authority of a foreign country to teach at an international school which is managed by a foreign diplomatic office or an international organization in Vietnam;
- He is a volunteer. This means a foreigner working in Vietnam on a voluntary basis and without entitlement to a salary in order to implement an international treaty to which Vietnam is a signatory;
- He has a master's degree or higher or similar qualifications and provides consultancy, teaching, or conducts scientific research at a university or vocational college for a period not exceeding thirty (30) days; or
- He implements an international agreement signed by a Vietnamese government authority, a provincial body or a central socio-political organization.
In order for an expatriate to be exempt from a work permit, the employer must file an application with the provincial labor authority to confirm the exemption.
An employer must fix an annual plan to recruit foreigners for each job for which Vietnamese are not qualified. Such plan must be filed with the Chairman of the provincial People's Committee for approval. The Chairman will issue a written consent to each employer regarding the employment of a foreigner for each job.45
In Chapter Two, we discuss the personal income taxes that apply to expatriates.
41The law also recognizes the Vietnam
Cooperative Alliance ("VCA") as a representative of
Vietnam's employers. Unlike the VCCI, most members of the VCA
42Art. 1 Decree 66/2013/ND-CP dated June 27, 2013 regarding general minimum wage.
43Art.3 Decree 103/2012/ND-CP (December 4, 2012).
44The nightshift salary rate is equal to 130% of the normal working hour salary.
45Article 4 of Decree 102/2013/ND-CP issued by the Government on September 6, 2013.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.