Labour and human resource compliance is one of the most complex matters for international investors operating in Vietnam, due to the significant regulatory requirements and the differing rules and processes governing labour management.
A significant part of the labour compliance, which is often missed or disregarded by employers is the onboarding process. In this article, we look at key provisions for onboarding new employees in a company in Vietnam, with practical insights on probation, documentation, contract execution, reporting and statutory requirements.
Probation – how does it work in Vietnam
The Probation Period is not compulsory by law in Vietnam, however it is considered a normal practice for employers to evaluate in an effective manner the capabilities and value proposition of new employees.
There are no specific regulations governing the initial submission of an employee’s personal documents that are required to be provided to an employer. The employer is also not permitted to retain any of the provided original documents that belong to the employee. Common practice, though, for compliance with taxation and mandatory insurances requires that several standard personal documents are provided for electronic recording for an employee of the company.
An employee would generally need to provide for the employer:
- ID card
- Educational degree/ or certificate(s)
- Health check result for employment
- Employment resume
Upon registering for social insurance and tax, the employee’s personal information should be clear and accurate from the outset, especially the tax code and social insurance code based on the ID card number, to ensure the employee has a unique tax code and a unique social insurance code.
The Labour Code 2019 offers detailed guidelines on the regulatory processes and specifics of the Probation Engagement between the employee and the employer.
The 2 templates used for the Probation engagement are the Probation Contract or Offer Letter, where the Probation Contract may include more details of clauses regarding rights and obligation. The duration of probation should not exceed the statutory limits as per the current Labour Code, and cannot be extended above these limits:
- 180 days for the position of enterprise manager, according to the Vietnam Law of Enterprise
- 60 days for a position that requires a degree or above
- 30 days for a position that requires a secondary vocational certificate, professional secondary school, positions of or for technicians, and skilled employees
- 6 working days for other jobs
The Probation period is usually included in the labour contract, and it will be subject to SHUI contributions. In case the probation contract is separated from the official labour contract, SHUI contribution is not required during the probation period, however in this scenario, the probation period may be subject to severance allowance at the termination of labour contract in certain circumstances as per the Vietnamese Labour Code.
When the probationary period is completed, the employer is required to notify the results of the probation to the employee. In the case where the probation is satisfactory, the employer is to continue to implement the employment contract, where the probation agreement is part of the employment contract and must conclude an employment contract in case a separate probation contract was in place.
Where the probation is unsatisfactory, the employment contract or probation contract can be terminated and during the probationary period, either party has the right to cancel the probation contract or employment contract without prior notice or compensation.
Labour Contract engagement and execution
While the previous Labour Code 2012 stipulated labour standards, rights, obligations, responsibilities of employees and employers engaged in labour relations (and other relations directly related to labour), the New Labour Code 2019 (introduced from January 2020) extended the scope and object to individuals who do not necessarily have a labour contract. In the new Code, an individual will be classified as an employee if they meet the following 3 conditions:
- the individual has an agreement to perform a job
- the individual is receiving monetary payment; and
- the individual is working under the supervision of an employer
The Labour Code 2019 recognises the ability to conclude labour contracts through electronic means, and which will have the same validity in law as a written labour contract. The provision initially applies for contracts under 1 month (with exceptions for employees who are under 15 years old, maids and individuals without capacity over 18 years old).
The Labour Code 2019 prescribes only 2 types of labour contracts: indefinite-term contract and definite-term contract under 36 months. Therefore, seasonal or specific job contracts with a duration under 12 months are deemed as a definite-term contract.
In practice, the common execution timeline for labour contracts is:
- 1st contract: 1 year
- 2nd contract: 1-3 years
- 3rd contract: indefinite term
Statutory Social, Health, Unemployment Insurances and PIT registrations
The SHUI registration for new hires should be done within the first effective month of the labour contract. If the registration is delayed exceeding this timeline, the procedure for registering new employees will be more complicated, resulting in additional time and fees due to late registration/contributions. In addition, the employee will not be entitled to their medical benefits from government’s medical insurance system, even though the medical insurance contributions are still required to be paid.
In the first month when the employee receives salary from the employer, the employee is required to have registered their Personal Income Tax code, which is used to record the PIT deduction data for the company’s annual PIT finalisation. Therefore, where the employee has not registered their PIT code, the employer must process the registration accordingly. Where the employee has requested dependent deductions, the employer should check the required documents to ensure accuracy and then process the registrations with the relevant authorities, as well as apply these deductions/benefits in the payroll calculation.
Induction plan and best practices
Formal inductions are not specifically a mandatory requirement of the onboarding process within Vietnamese law, however welcoming a new employee the right way is critical for the employer’s workforce retention strategy. In the Vietnamese business environment, which considered from a recruitment perspective to be an ‘employee’s market’, it is extremely important to create a good initial impression and a clear/structured plan for the employee’s first week and the next 3 months of their career journey within the organisation.
On the first day of work of the employee, the following should be ensured:
- All required personnel documents are collected from the employee to making sure the provided information is correct and accurately recorded
- All required regulations and/or policies of the company should be disseminated to the employee and acknowledged by the employee in writing
A “buddy” or the line manager should accompany the new employee throughout the day, undertaking specific tasks related to sharing the company’s culture, procedures and working process.
Onboarding should be regarded as a significant component of the labour engagement process, from a regulatory and organisational culture perspective, and following practical and compliant onboarding procedures is critical for investors to ensure an effective workforce management strategy in Vietnam.
The above information is general in nature, and should be only considered in conjunction with the specific situation of each investor’s operations. 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.