Doing Business in Vietnam: 2. Employing Workers

Last time, we got a chance to look at the tax rates for business in Vietnam and found that the local government claims 40.1% of the profits made in Vietnam. This is additional to the expenses on preparing the tax documents. It might seem bad to you, but the same study on the US shows that Uncle Sam takes 46.3% of your profits but requires much less procedures (10 compare to 32 in Vietnam) and also takes less of your time (187 hours instead of 1050 hours in Vietnam).

Now let’s look at employing workers in Vietnam. Here is the layman’s version of the Vietnamese labor code (courtesy of Mayer Brown, LLP). Let’s cut the reading and do some of the summary here:

Minimum monthly wage for employee in:
– Domestically owned companies: 450,000 VND ($30)
– Foreign invested companies in Saigon, Hanoi: 870,000 VND ($54)
– Foreign invested companies in suburb of Saigon, Hanoi: 790,000 VND ($49)
– Foreign invested companies in other areas: 710,000 VND ($44)

Working hours/days:
– Normal working hours: 8 hours/day
– Max. working hours: 12 hours/day
– Max. number of working days per week: 6 days/week
– Overtime work is allowed and work week can be extended to 50 hours/week due to seasonal demand

Employee benefits:
– Vacation: minimum of 12 paid holidays with 1 more day per 5 extra years of employment.
– Social Insurance: 20% of the employee’s wage where 15% comes from the employer and 5% from the employee.
– Health Insurance: 3% of the employee’s wage where 2% comes from the employer and 1% from the employee.

Sickness benefits:
– Indefinite employee can enjoy up to 12 months of sick leave
– Definite employee can enjoy up to 6 months of sick leave
– After these periods, the employer may unilaterally terminate the labor contract.

This is just a brief review of some points in the labor code in Vietnam. You can read the full code here. Also, another rating by the World Bank can reveal some very useful information:

Difficulty of hiring index (0-100)	11
Are fixed-term contracts prohibited for permanent tasks?	No	0
What is the maximum duration of fixed-term contracts (including renewals)? (in months)	72	0.0
What is the ratio of mandated minimum wage to the average value added per worker?	0.27	0.33

Rigidity of hours index (0-100)	13
Can the workweek extend to 50 hours (including overtime) for 2 months per year to respond to a seasonal increase in production?	Yes	0
What is the maximum number of working days per week?	6	0
Are there restrictions on night work and do these apply when continuous operations are economically necessary?	Yes	0.67
Are there restrictions on “weekly holiday” work and do these apply when continuous operations are economically necessary?	No	0.00
What is the paid annual vacation (in working days) for an employee with 20 years of service?	16	0

Redundancy Cost (weeks of salary)	87
What is the notice period for redundancy dismissal after 20 years of continuous employment? (weeks of salary)	0
What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of salary)	86.7
What is the legally mandated penalty for redundancy dismissal? (weeks of salary)	0

As observed, employing workers in Vietnam is relatively easy compare to the United States as there are less requirements specified in the law. Also, regarding the legal aspects, most of Vietnam’s employment and financial laws are very new and are being added as a fast pace as Vietnam is attempting to joins many international organizations. As for now, the work force in Vietnam still looks very attractive to many investors. If it were not for the strict control of capital flows out of Vietnam, I would see a very attractive environment for investment in Vietnam.

(sources: World Bank and Mayer Brown, LLP)