According to a recent study by Vietnamworks, Ho Chi Minh City has the highest monthly average salary in Vietnam at US$ 456 (VND 10.37 million), 38 percent higher than the national average. The data was compiled from 4.7 million job applications and 95,000 job postings in 2017 on Vietnamworks, an online recruitment platform. As per the report, 59 percent of monthly salaries ranged from US$ 251 (VND 5.7 million) to US$ 500 (VND 11.37 million).
Human Resources & Payroll
In 2018, Vietnam along with several ASEAN countries will see a rise in their minimum wages to support the rising costs of living. The region’s growth in the past few years has been largely attributed to the manufacturing industry, driven by low labor costs. As more investors adopt the “China Plus One” strategy, understanding the rise in wages will be crucial for maintaining the delicate balance between labor costs and productivity in Vietnam and its neighboring countries.
Vietnam has revised the minimum wage caps and social security contributions, most of which will be in effect from January 2018. Foreign and domestic firms will be required to adjust to the changes to ensure compliance with the new laws. These changes are going to impact the payroll and net take home salary for employees. Revisions have been made in minimum wages, salary caps for unemployment insurance, and social insurance for foreign workers.
After setting up a business in Vietnam, the next big hurdle is hiring the staff that you will need to help grow your operation. The initial hiring process and, ultimately, payroll administration can quickly become a complex and confusing process. Labor intensive sectors, such as manufacturing, are almost certain to face a significant degree of exposure to these challenges, while all companies setting up within Vietnam – from representative offices to fully foreign-owned enterprises – will face some liability.
South East Asia continues to attract foreign investors seeking to draw from its ever-more-skilled, abundant and still relatively inexpensive labor resources. However, historic sensitivity to abusive labor practices, and in some cases combined with the influence of litigious jurisprudence, has led to an environment where foreign investors are advised to tread cautiously and lay a solid foundation for human resources management, lest they run afoul of local labor laws or trigger costly labor disputes. One pillar of this firm foundation is typically a well-crafted employment contract.
Certain South East Asian countries, including Vietnam – and Indonesia and Malaysia – distinguish themselves by mandating a formal, written labor contract signed by the parties. Rather than viewing it an additional administrative burden, foreign investors should consider this as an opportunity to establish a firm foundation for human resources management in Vietnam.
Finding the right workers can be a difficult task in any market, Vietnam being no exception. Fortunately, prior to entering into a binding labor contract in Vietnam, probationary periods provide both the employer and the employee an opportunity to assess their relationship. With minimized compliance, reduced compensation requirements, and fewer restrictions surrounding termination, probation contracts are an invaluable asset allowing foreign investors to safeguard their operations and reduce turnover.
Who should use probationary contracts?
Companies seeking to employ workers in high-skilled positions stand to gain most from use of probation contracts as a first step to prior to standard labor contracting. Not only are the skills for these jobs more subjective and difficult to assess within an interview, wage premiums attached to skilled labor in Vietnam can exacerbate the risks of onboarding of unqualified or unsuited candidates. Generally speaking, the higher the salary of a potential employee, the greater value is added by a probation contract arrangement.
Given the shifting position of Vietnam in the value chain, many sectors are susceptible to turnover. At present, IT, professional business services, and managerial positions in manufacturing are all in high demand and thus experience heightened levels of churn. Employers in all sectors, however, should be sure to assess the Vietnamese labor market and to implement probationary contracting if needed.
How do probationary contracts differ from standard labor contracts?
Under the prevailing labor code of 2012, probation contracts are provided as a separate agreement to a standard labor contract. As such, probationary contracts are subject to a reduced list of information and documentation requirements. The specifics of these requirements can be found above in the chart below outlining the differences in contract structuring:
While separated from a legal standpoint, probation contracts can be issued in conjunction with a standard labor contract which will enter into force upon the successful completion of the probation contract. To tie the two agreements legally, clauses within the probationary contract may specify the continuation of a working relationship through a standard labor contract following the successful conclusion of the probation contract. This approach is popular in practice as it allows employers to effectively negotiate with potential candidates prior to the probation stage. Alternatively, it is also possible to incentivize performance over the period of probation by inserting clauses within the probation contract which offer employment but leave salary and benefits negotiations until after the probation period.
What length of probation is permitted?
Probationary periods permitted for a given position are proportional to the education required for the position and range from six days to 60 days. These contracts are limited to a one-time usage and must be converted to a standard contract of one year or more if both parties wish to continue the relationship beyond the period specified in the probation contract. Existing probationary contract lengths specified under Vietnamese employment law include:
60 days: probationary periods of up to 60 sixty days are reserved for positions that require professional or technical skills that demand a collegiate education or higher.
30 days: probation periods of up to 30 days may be applied for jobs that require a professional skill set, technical qualifications, some of which may require some degree of education to obtain.
06 days: For all other employment in Vietnam, including most manual labor and manufacturing, probation is limited to six days.
The distinction between the 30 and 60 day probationary periods is subject to clarification at the circular level and should be monitored closely when drafting contracts. As a matter of compliance, pursuant to Circular No. 05/2015/NĐ-CP, companies will be required to notify those undergoing 30 and 60 day probationary periods of their results three days prior to the conclusion of the probation contract.
How much do employers have to pay employees under probation contracts?
Compensation for probationary employment is subject to the agreement set out by the parties involved and must be stipulated in the agreement negotiated by the employer and employee. While there is considerable latitude with regard to the amount of compensation that is to be provided for probationary employment, employers are obligated to provide compensation no lower than 85 percent of the going wage applied to the position for which the probation is in preparation.
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An Introduction to Doing Business in Vietnam 2017 will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in this dynamic country.
Managing Contracts and Severance in Vietnam
In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country. We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.
By: Dezan Shira & Associates
Editor: Chau Pham
Vietnam’s social insurance scheme is undergoing a series of changes influencing both the statutory contribution rates required of enterprises as well as the types contracts triggering liability. With rate reductions applied from June 2017 and introduction of a wider liability for social insurance contributions scheduled for early 2018, foreign and domestic companies alike will be required to adjust compliance procedures in the near future.
The Ministry of Labour, Invalid, and Social Affairs has proposed to revise the 2012 Labour Code to increase the overtime ceiling from 200 hours per year to 400 hours per year. Manufacturing enterprises have long asked to increase overtime limit to increase production efficiency, worker incomes, and competitiveness. Once the draft is approved, enterprises will be able to ask for more overtime work.
The latest issue of Vietnam Briefing Magazine, titled “Payroll Management in Vietnam”, is out now and currently available to subscribers as a complimentary download in the Asia Briefing Publication Store.
In this issue:
- Vietnam’s Statutory Payroll Requirements
- Emerging Challenges in Vietnamese Payroll
- Expert Commentary: Understanding the Benefits of Payroll Outsourcing in Vietnam
As companies establish new operations in Vietnam, one of the first tasks for businesses is to put employees on the new entity’s payroll.
This will allow new market entrants to engage local workers and bring in managerial staff from overseas. But payroll administration can quickly become a significant undertaking, even for those who are well versed in market expansion. Payroll compliance and the ever-changing regulatory environment are a challenge for any expanding business.
From individual income tax calculation to ensuring proper social security contributions, companies are required to conduct a variety of monthly compliance tasks to ensure that they are up to take with their statutory obligations. These areas of compliance can often be quite complex and take significant time to master, navigate, and implement effectively.
In recent years, foreign direct investment (FDI) flows into Vietnam have been on the rise as greater numbers of foreign companies decide to establish businesses in the country. To operate in Vietnam, a thorough knowledge of the country’s salary structure is vital to maintaining efficiency and to motivate quality staff to stay and contribute to your company’s growth for years to come.
Salary and wages
The salary of Vietnamese employees that work in foreign companies in Vietnam is determined through negotiations between the two parties, but it should be no lower than the minimum monthly salary rates as stipulated by the Vietnamese government.