11 October, 2018
Cambodia’s Ministry of Labor and Vocational Training (MLVT) has introduced two new Prakas (implementing guidelines), one of which seeks to clarify recent amendments to the country’s Labor Law pertaining to seniority payments, and the other establishes a new requirement to make salary payments twice per month. Below we set out full details of the changes.
Prakas No. 443 on Seniority Payments
On September 21, 2018, the MLVT issued Prakas No. 443 on Seniority Payments, which provides implementing guidelines for the recent amendment to the Labor Law. To recap, the amendment to the Labor Law eliminated the “indemnity for dismissal” on termination of undetermined duration contracts and replaced it with an ongoing requirement for employers to pay a new “seniority payment.” Please refer to our client alert dated August 6, 2018, for more information on the amendment to the Labor Law.
The new Prakas No. 443 provides the following implementing guidelines:
Applicability of Seniority Payments to Employees with Undetermined Duration Contracts and Fixed-Term Contracts
Seniority payments only apply to an employee with an undetermined duration contract. An employee with a fixed-term contract is not entitled to a seniority payment, but is entitled to a severance payment at the end of the employee’s contract pursuant to Article 73 of the Labor Law. Article 73 provides that the severance payments must be in accordance with a collective bargaining agreement, if any, and must be at least 5 percent of all wages that the employee received during his/her employment period.
Timing and Amount of Seniority Payments
As mentioned in our previous alert, an employee is entitled to an annual seniority payment of 15 days of wages and other fringe benefits.
Starting in 2019, an employer must pay each annual seniority payment in two installments, with half of the seniority payment being paid in June and the remaining half being paid in December of each year.
For a new employee, an employee is entitled to a full installment of the seniority payment (being equal to 7.5 days of wages and benefits) if the employee worked for at least one month in the applicable period (being from January to June, or July to December).
Lastly, as stated in the amendment to the Labor Law, if an employee is terminated for any reason other than the employee’s own serious misconduct, and at least one month has passed since the last seniority payment without the subsequent seniority payment being paid, then the employee is entitled to a seniority payment equal to seven days of wages and fringe benefits.
Back Payments for Seniority Incurred Before 2019
An employee is entitled to seniority payments for each year worked with an existing employer for time worked before 2019 (i.e., seniority back payments). The seniority back payments equal 15 days of wages and fringe benefits for each year worked (however, there is some ambiguity in the drafting of the Prakas, which may lead to an interpretation that employees in the textile, garment, and footwear industries are entitled to a seniority back payment based on 30 days, as opposed to 15 days).
These seniority back payments are subject to a payment cap that equals six months of the employee’s average actual salary. For an employee who worked for less than a full year or for a partial portion of a year, an employee is entitled to a full installment of the seniority payment (being equal to 7.5 days of wages and benefits) if the employee worked for at least one month in the applicable period (being from January to June, or July to December).
Back payments of the seniority payment will be paid in annual installments starting from 2019 as follows:
- For workers in the textile, garment and footwear industries, they will be entitled to have settled 30 days of seniority back payments per year; and
- For workers in all other industries, they will be entitled to have settled 15 days of seniority back payments per year.
Seniority back payments must be paid in the same months as the ongoing seniority payments with half of the seniority back payment being paid in June and the remaining half being paid in December.
An employee is entitled to both the seniority back payment and the ongoing seniority payment.
By way of example, if an employee has worked for a bank for five years before 2019, the employee will be entitled to 75 days of seniority back payments (5 years x 15 days). In addition, the employee will also be entitled to the ongoing seniority payment from 2019 onwards. Therefore, for the first five years, the employer will be obliged to pay the employee a seniority back payment of 15 days and an ongoing seniority payment of 15 days (for a total back and ongoing seniority payment of 30 days) each year. Half of the payment will be made in June and the remaining half will be paid in December. Once the employer has cleared the seniority back payments, the employer will only be obliged to pay the employee the ongoing seniority payment of 15 days per year.
Likewise, if an employee has worked for a garment factory for six years before 2019, the employee will be entitled to 90 days of seniority back payments (6 years x 15 days). In addition, the employee will also be entitled to the ongoing seniority payment from 2019 onwards. Therefore, for the first three years, the employer will be obliged to pay the employee a seniority back payment of 30 days and an ongoing seniority payment of 15 days (for a total back and ongoing seniority payment of 45 days) each year. Half of the payment will be made in June and the remaining half will be paid in December. Once the employer has cleared the seniority back payments, the employer will only be obliged to pay the employee the ongoing seniority payment of 15 days per year.
If an employee resigns, the employee is not entitled to any seniority back payments that remain unpaid.
Remaining Ambiguities
While Prakas No. 443 has addressed many ambiguities in the Labor Law, certain ambiguities remain in the Prakas, including:
- whether an employee who is terminated on or after January 1, 2019, is entitled to any unpaid seniority back payments;
- the exact formula for calculating a seniority back payment, in particular whether the seniority back payment is based current or past wages;
- the exact formula for calculating the payment cap of six months of the employee’s salary, in particular how to calculate the average actual salary.
- We hope the MLVT will further address these issues before employers have an obligation to make seniority back payments in June 2019.
Prakas No. 442 on Payment of Wages
Under Prakas No. 442 on the Payment of Wages, all employers are required to pay salaries to all employees twice per month starting from January 2019. The first half of the salary payment must be made in the second week of the month, and the second half of the salary payment must be made in the fourth week of the month. Any remaining amounts and other benefits owed to employees (such as overtime) should be paid at the time of the second half of the salary payment.
For further information, please contact:
Jay Cohen, Director, Tilleke & Gibbins
jay.c@tilleke.com
