With its strong economic development and its agreeable lifestyle, Vietnam is an attractive labor market for foreigners. The number of foreigners working in Vietnam continues to grow. Vietnamese law continues to change to address the situation affecting foreign employees. However, there are some common misunderstandings of the rules that apply to foreign employees working in Vietnam:
A foreign employee must have a local employment contract.
No. Only a foreign employee who is directly employed in Vietnam by a Vietnamese entity must have a local employment contract. A foreign employee, for example, may work for a Vietnamese entity in Vietnam, but may not be directly employed by that entity. A common example is the case of a foreign employee who works in Vietnam under an internal secondment from another country. That is, the foreign employee is seconded by her offshore employer to work at her employer’s subsidiary (or a branch or representative office) in Vietnam. Such a person need not have an employment contract in Vietnam.
A foreign employee can have only two definite term employment contracts with her Vietnamese employer.
No. Having a limit of two definite term employment contracts before the employment becomes indefinite applies only to Vietnamese employees. A foreign employee can have an unlimited number of definite term employment contracts with her Vietnamese employer. Of note, the term of each employment contract must be aligned with her work permit which is valid for up to two years.
Foreign employee’s salary must be paid in Vietnamese dong.
No. Currency of payment is optional. A foreign employee’s salary can be paid in Vietnamese dong or in any foreign currency.
Participation in Vietnam’s social insurance regime is mandatory for foreign employees.
No. Since December 1, 2018, a foreign employee who works in Vietnam must participate in Vietnam’s social insurance program. Previously, the employer and foreign employee were only required to contribute to the health insurance portion. Even though social insurance contributions have become mandatory, the foreign employee can be exempt from the social insurance contributions, for example, if she reaches retirement age or if she works in Vietnam under an internal secondment.
Employer must pay a severance allowance when a foreign employee is terminated.
No. A severance allowance is due to both a foreign and a Vietnamese employee if the employer did not contribute to the employee’s unemployment insurance. The severance allowance is “one half month salary for each year of service”. As a foreign employee is not subject to the unemployment insurance regime, she is automatically entitled to a severance allowance. However, there is an exception. The Labor Code permits the employer to make a taxable payment directly and monthly to the foreign employee. As a result, when employment is terminated, the employer does not need to pay severance allowance to that foreign employee, in lieu of making the payment to the unemployment insurance fund. Making that payment directly to the employee in lieu of making payment of unemployment insurance can avoid the need to pay a mandatory severance allowance.
For further information, please contact:
Dao Thi Ai, Russin & Vecchi
DTAi@russinvecchi.com.vn
