Human resource and labour compliance in Vietnam is one of the most troublesome areas for international investors operating or seeking to enter Vietnam. In a recent LinkedIn survey of our extended Acclime community, 62% of our audience, when being asked of “What are the top challenges foreign investors face when doing business in Asia?” voted Labour laws and HR issues as their number 1 choice.
In this article, we seek to present the key risks and offer practical solutions for the most challenging issues faced by investors in Vietnam regarding HR, labour and employment compliance.
1. Labour contracts and HR document issues
Common issues regarding labour contracts:
- Incorrect practices adopted regarding the number of times employers are allowed to sign definite term contracts,
- Labour Contracts do not include required information, or include non-compliant regulations,
- No labour documents to prove the application of allowances or amounts,
- Non-compliance in signing contracts to avoid compulsory SHUI contribution (one non-compliant method is to separate the salary into many allowance amounts, however, the allowances are still subject to PIT or SHUI contributions).
Employers may face risks of being sued by employees who have non-compliant labour contracts, and can also face potential penalties from the authorities when subject to audit, leading to reputational damage and unexpected costs.
Common issues regarding employee documents:
- Employees change personal ID numbers, however, these aren’t updated with the Tax and SHUI authorities
- Non-compliance where the employer holds the original copy of employee certificates or ID cards
- Employees have numerous passports and register SHUI and Tax with different numbers, or have an expired passport and forgot to renew
- Employees using a Work Permit issued for 1 employer to work for a different employer, working in Vietnam without a Work Permit, or working with an expired Work Permit but still signing a labour contract
Companies face risks due to the inability to proceed with the relevant SHUI and Tax applications and employees may not be entitled to SHUI claims or tax refunds. Both the company and the employees may be fined when audits are conducted.
Common issues regarding Labour Regulations, Payroll Policy and Salary Scales:
- Companies fail to create and issue labour regulations, have no general regulations for labour management, no performance assessments, no discipline practices, etc
- Companies with more than 10 employees are not aware of the fact they are required to create and submit Labour Regulations to the Department of Labour (‘DOLISA’)
- Companies do not have policies for allowances, bonuses, promotion schemes or their regulations are not compliant or up to date with recent regulatory changes.
When applying labour management processes which are inaccurate or not in line with the latest labour laws, companies face risks of non-compliance and penalties from the labour authorities.
2. Issues with Compulsory Insurance (SHUI)
- Enterprises failing to register compulsory insurance for employees prior to the required deadline. Within 30 days from the date of signing labour contracts, enterprises are responsible for synthesising and preparing a complete dossier of insurance registration to submit to the district-level insurance agency.
- Enterprises are late in updating new registrations, removing SHUI registrations, adjusting information about the participation in SHUI, changes in hospitals or registering health insurance cards for employees
- Incorrect determination of premium rates of different types of employees (local, expatriates, subjects participating in social insurance in 2 places)
- Late submission of registrations for requesting SHUI regimes of employees
Employers are required to prepare and submit documents to relevant authorities, and ensure insurance registrations are submitted on time for their employees. If enterprises do not submit the required documents to register or amend information, the SHUI contribution period of employees will be lacking and inaccurate, presenting a significant non-compliance risk, and where concerned employees may lodge complaints with the Labour Department. Therefore, enterprises may be sanctioned, and may have to pay compensation and penalties to employees. There are also risks where the non-complaint elements affect the legal rights of employees, due to inaccuracies in the SHUI registration and incorrect payroll report calculations.
3. Issues with Personal Income Tax (PIT)
- Failure to correctly determine the residency status of a foreign employee. Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of their presence in Vietnam, or having a place of residence in Vietnam for more than 6 months (which is a registered place of permanent residence or a rented house for living in Vietnam under a term rent contract) makes an individual a tax-resident in Vietnam.
- Incorrect calculation of the taxable income for individuals working in Vietnam. In addition to income form salaries and wages, expatriates often have a wide range of income from capital investment, capital transfer, real estate and other sources. It can be difficult to collect relevant information and understand conditions when determining taxable income or non-taxable income.
- Inaccurate or misleading data about dependent registrations
- Missing or undertaking late submissions for monthly/quarterly tax declarations and payments
These issues may present significant risks with declaring, calculating and finalising the personal income tax declarations for staff who may be incorrectly treated as tax or non-tax residents in Vietnam, based on wrong assumptions and invalid data sets about their residency status.
The residency status in another country should be provable by a Certificate of Residence. If the individual is a citizen of a country or territory that has signed a tax agreement with Vietnam and does not issue the Certificate of residence, that person needs to provide a copy of their passport to prove the period of residence.
Enterprises should maintain a detailed information list related to the taxable income or non-taxable income of their employees and send it to their local and expatriate staff prior to the PIT finalisation period. Offering additional support with clarifications and details about regulations and conditions is encouraged.
Employers should also be aware and determine if their enterprise is required to submit PIT monthly or quarterly, and then proceed accordingly as per tax regulations.
4. Issues with regulations regarding Trade Union provisions
Where enterprises in Vietnam do not register and undertake payments to the Trade Union fund according to the current regulations, they may be fined for administrative violations up to VND 75 mil.
5. Issues related to special work-related cases
The effects of major environmental hazards such as epidemics, floods, earthquakes or other events directly impacting the process to sign labour contracts and the process of managing the employee’s statutory compliance.
In many cases, the current regulations do not fully address the effects of the issues above, thus employees can face job loss, eviction and work discontinuation with little or no support.
In an unpredictable period such as the current time, employers and employees can both face challenges with certainty and the ability to plan ahead with sufficient confidence. Where difficulties are encountered, we encourage all parties to act rationally, with the employer being open with their challenges and longer-term objectives, thus making it easier for employees to understand and for appropriate decisions to be made.
The above information is general in nature, and under each specific situation of the investor’s operational scope in Vietnam, the business location prerequisites may differ. If you need any assistance with these or any other matters relevant for international investors in Vietnam, our experts are ready to work with your company to ensure you understand how the above will apply to your specific situation in Vietnam.
Contact our teams for expert support and further information on managing labour and HR compliance in Vietnam.
Huynh Thi Bao Tran– Head of Payroll and HR Consulting – firstname.lastname@example.org
Matthew Lourey – Managing Partner – email@example.com