Overview of Labor Contracts in Vietnam: An Introduction

As Vietnam aligns its labor laws with international standards, companies operating in the country must navigate a complex set of regulations governed by the Labor Code. This legal framework covers all aspects of employment, from contract formation to termination. Non-compliance can result in legal disputes, financial penalties, and reputational damage, making it crucial for businesses to thoroughly understand the Labor Code and its implications for labor contracts in Vietnam.

Types of labor contracts in Vietnam

In Vietnam, the legal framework for employment contracts is designed to provide clarity and security for both employers and employees. Vietnam’s legal framework recognizes three types of labor contracts:

• Indefinite-term employment contract: This type of contract does not specify a term or duration.
• Fixed-term employment contract: These contracts are valid for up to 36 months. If the employee continues to work after the contract expires, it can be renewed.
• Contract for specific or seasonal work: This type of contract is used for work lasting less than 12 months.

The forms of labor contracts are governed by the Labor Code 2019, which stipulates that labor contracts must be established in writing and made in two copies. One copy is kept by the employee and the other by the employer. This ensures that both parties have a record of the terms and conditions agreed upon.

The Labor Code allows for labor contracts to be entered into in two forms:

• In writing: A traditional paper contract that is signed by both parties.
• Electronically: A digital contract that is executed online with the same legal validity as a written contract.

Key elements of a Vietnamese labor contract

When drafting a labor contract in Vietnam, several crucial elements must be considered to ensure compliance with the law and to protect the rights and interests of both employers and employees.  

Working hours, break time, and overtime

Vietnam’s Labor Code regulates working hours, break times, and overtime to ensure fair treatment of employees and maintain a healthy work-life balance.

• Working hours cannot exceed 8 hours per day or 48 hours per week.
• Employees are entitled to a 60-minute break within the first 10 normal working hours.
• Overtime is limited to 12 hours a day, 40 hours a month, and 300 hours a year.

Compensation structure in Vietnam

The compensation structure in Vietnam is governed by the Labor Code, which sets minimum wage requirements, salary payment rules, overtime compensation, and social insurance contributions.

• Minimum wage: Employers must comply with the regional minimum wage levels applicable to their location.
• Salary payments: Salaries must be paid in full and on time, typically monthly. Employers must provide payslips detailing salary, deductions, and overtime pay.
• Overtime compensation: Overtime must be compensated at a higher rate than the regular salary, with the exact rate depending on whether it occurs on weekdays, weekends, or holidays.
• Social insurance contributions: Both employers and employees are required to contribute to social insurance funds.

Termination, severance, and payment

Termination, severance pay, and final payments are crucial aspects of the employer-employee relationship in Vietnam. The Labor Code specifies procedures for contract termination, severance pay calculation, and timely payment of all dues upon termination.

• Termination of employment: Contracts can be terminated by mutual agreement. Employees can unilaterally terminate contracts, while employers can do so under specific circumstances outlined in the Labor Code, with required notice and severance pay.
• Severance pay: Severance pay is required when an employment contract is terminated, except in cases such as employee resignation without just cause or dismissal due to disciplinary reasons. It is generally calculated based on half a month’s salary for each year of service.
• Payment upon termination: Employers must make all payments due to an employee, including outstanding salary, benefits, and severance pay, within 7 days after the employment contract ends. If the employer unilaterally terminates the contract without proper notice, additional compensation equivalent to at least two months’ salary must be paid.

Retirement age

Governed by the Labor Code 2019 has set out a gradual increase in retirement age for both male and female workers. Initially set at 60 years and 3 months for men and 55 years and 4 months for women in 2021, the retirement age rises annually by 3 months for men and 4 months for women. As of 2024, men retire at 61 years, while women retire at 56 years and 4 months under standard working conditions. This phased approach is designed to culminate in retirement ages of 62 years for men by 2028 and 60 years for women by 2035.

For those working in jobs that are considered heavy, hazardous, or dangerous, or for workers with reduced working capacity, there is the possibility of retiring up to 5 or 10 years earlier than the standard retirement age, depending on the specific circumstances.

Hiring foreign employees

Foreign employees typically need a work permit to be legally employed in Vietnam. A labor contract with a foreign employee cannot exceed the term of their work permit, which is generally a maximum of 2 years. However, multiple definite-term labor contracts can be entered into.

Additional provisions under Vietnam’s Labor Code

Apart from the key elements mentioned above, Vietnam’s Labor Code includes several additional provisions that employers and employees should be aware of. 

Salary

Employers must establish their own pay scale, payroll, and labor productivity norms as the basis for recruitment, negotiation, and payment of salaries. Salaries must be paid in full and on time, and employees should receive payslips that detail their earnings and deductions.

Discrimination

The Labor Code prohibits discrimination on the grounds of race, skin color, nationality, ethnicity, gender, age, pregnancy, marital status, religion, opinion, disability, family responsibility, HIV infection, or participation in trade unions or internal employee organizations.

Sexual harassment

Sexual harassment in the workplace is defined as any sexual act against a person’s will. Employers have a duty to prevent and address sexual harassment, ensuring a safe work environment.

Labor supervision

Trade union organizations work with competent state agencies to facilitate the establishment of progressive, harmonious, and stable industrial relations. They also supervise the implementation of labor laws and protect the lawful and legitimate rights and interests of employees.

Female employees

The Labor Code prohibits night work, overtime, or long trips for female employees under certain conditions related to pregnancy and childcare. Female employees raising a child under 12 months old are entitled to a 60-minute break per day during working hours with full pay.

The newest Labor Code 2021 in Vietnam represents a significant step forward in the country’s ongoing efforts to modernize its labor laws and regulations. By incorporating international best practices and addressing the evolving needs of both employers and employees, the Labor Code aims to strike a balance between business growth and worker protection. 

As companies tackle the complexities of HR operations within the legal landscape, it is crucial to partner with experienced legal professionals who can provide tailored guidance and support. Talentnet, with its deep expertise and proven track record, is well-positioned to assist businesses in drafting compliant labor contracts in Vietnam, managing employee relations, and staying ahead of regulatory changes. By leveraging Talentnet’s compliance services, companies can focus on their core operations while ensuring a fair and legally sound work environment.