Labor policies that foreign investors need to know when establishing an enterprise in Vietnam

Vietnam is a potential and attractive investment environment for foreign investors due to its many advantages in a large labor market, affordable labor costs, abundant young workforce, incentives policies. When implementing investment activities in Vietnam, besides the concerns about conditions and procedures, foreign investors need to pay special attention to labor regulations as well. There are core labor regulations that foreign investors keep in mind when making the investment in Vietnam.

1. Labor Contract

Under the provisions of Vietnamese law, a labor contract is an agreement between an employee and an employer on a paid job, salary, working conditions, and the rights and obligations of each party in the labor relations. A labor contract shall be concluded in one of the following types:

  • An indefinite-term labor contract is a contract in which the two parties neither fix the term nor the time of termination of the contract.
  • A fixed-term labor contract is a contract in which the two parties fix the term of the contract for a duration of up to 36 months from the date of its enforcement.

A labor contract shall be concluded in writing and made into two copies, one of which will be kept by the employee, the other by the employer, except a contract with a term of less than one month can be concluded in verbal.

Within 30 days from the expiration date of the labor contract, both parties shall enter into a new labor contract. Before such a new labor contract is enforceble, the parties’ rights, obligations and interests specified in the old labor contract shall remain effective. If a new employment contract has not been signed after the 30-day period, the existing fixed-term labor contract shall become an indefinite-term employment contract.

The parties may enter into one more fixed-term labor contract. If the employee keeps working upon expiration of this second fixed-term labor contract, the third labor contract shall be of an indefinite term, except for employment contracts with directors of state-invested enterprises and the other cases according to labor regulations.

2. Minimum Regional Wages

Minimum regional wages are minimum wages of workers who do the most straightforward jobs in normal working conditions that are sufficient to support themselves and their families and appropriate for socio-economic development. Minimum regional wages per month or per hour vary according to region. The minimum regional wages in the year 2021 is specified in the Decree No. 90/2019/ ND-CP dated November 15, 2019, issued by the Government as follows:

  • Region One – VND 4,420 million
  • Region Two – VND 3,920 million
  • Region Three – VND 3,430 million
  • Region Four – VND 3,070 million.

The above regional minimum wage rates are the lowest rates to be used as the basis for any arrangement between enterprises and employees, in which the salary rate to be paid to employees who work under normal working conditions, meet monthly working hour standards, and fully discharge their obligations for predetermined labor productivity norms or agreed worked duties, but these rates must be:

  • Equal or higher regional minimum wage rates are paid to unskilled employees who perform simple tasks.
  • At least 7% higher than the regional minimum wage rates paid to skilled/trained employees.

3. Normal Working Time, Overtime and Leave

a. Normal Working Time

Under the Vietnamese Labor Code 2019, normal working hours should not exceed 8 hours per day or 48 hours per week. An employer has the right to determine the daily or weekly working hours and inform the employees accordingly. The daily working hours shall not exceed 10 hours per day and not exceed 48 hours per week where a weekly basis is applied.

b. Overtime

Employers can request the employees to work overtime with the condition that the employer obtains the employee’s consent. The employer must ensure that the number of overtime working hours does not exceed 50% of the normal working hours per day; (in case of applying regulations on weekly work, the total of normal working hours and overtime working hours must not exceed 12 hours per day); must not exceed 40 hours per month and the total of overtime working hours must not exceed 200 hours per year, except in some special cases as stipulated by the Government in which overtime working hours must not exceed 300 hours per year.

An employee who works overtime will be paid an amount based on the piece rate or actual salary as follows:

  • On normal days: at least 150%.
  • On weekly days off: at least 200%.
  • During public holidays, paid leave, at least 300%, not including the daily salary during the public holidays or paid leave for employees receiving daily salaries.

An employee who works at night will be paid an additional amount of at least 30% of the normal salary.

An employee who works overtime at night will be paid, in addition to the salary specified above, an amount of at least 20% of the day work salary of a normal day, weekend or public holiday.

c. Leave

Employees are entitled to at least one rest day per week.

Employees who have been employed for 12 months are provided with a minimum of 12 days of paid annual leave (vacation) per year, alongside 11 days of public holiday each year. Employees who work in dangerous jobs or those that reside in areas with harsh living conditions may be entitled to up to two to four extra days off. Furthermore, workers are generally entitled to an additional day of holiday for every five years of service with a company.

4. Social Security

Employer and employee shall participate in compulsory social insurance, compulsory health insurance and unemployment insurance. The amount is computed on the factors of salary and mandatory rate according to the regulations of the law.

The mandatory contribution rate by employee (not belonging to the state sector) and employer from October 1, 2021, to the end of September 30, 2022, is as follows:

For Vietnamese employees from October 1, 2021, to June 30, 2022:

 Social insuranceHealth insuranceUnemployment insuranceTotal

For Vietnamese employees from July 1, 2022, to September 30, 2022:

 Social insuranceHealth insuranceUnemployment insuranceTotal

For foreign employees from January 1, 2022, to June 30, 2022:

 Social insuranceHealth insuranceUnemployment insuranceTotal

For foreign employees from July 1, 2022, to September 30, 2022:

 Social insuranceHealth insuranceUnemployment insuranceTotal

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