Vietnam: Calculating the qualified period of work as the basis for calculation of severance allowance for employees

According to Article 46 of the Labor Code 2019 of Vietnam and Article 8 of the Decree No. 145/2020/NĐ-CP of Vietnam’s Government, severance allowance payment for employees is guided as follows:

1. Conditions for employees to receive severance allowance

Employees are paid severance allowance when meeting the following conditions:

- Employment contract is terminated in accordance with Clauses 1, 2, 3, 4, 6, 7, 9 and 10 Article 34 of the Labor Code of Vietnam.

- Having work on a regular basis for at least 12 months.

- Not in the following cases:

+ The employee is eligible for retirement pension as prescribed in Article 169 of the Labor Code of Vietnam and social insurance laws.

+ The employee leaves his/her job for at least 05 consecutive days without justified reasons according to Point e Clause 1 Article 36 of the Labor Code of Vietnam. Justified reasons are prescribed in Clause 4 Article 125 of the Labor Code of Vietnam.

If an employee leaves a job but meets the above conditions, the employer is responsible for paying severance allowance to the employee.

2. Calculating the qualified period of work as the basis for calculation of severance allowance

The qualified period of work as the basis for calculation of severance allowance shall be the total period during which the employee actually worked for the employer minus the period over which the employee participated in the unemployment insurance in accordance with unemployment insurance laws and the period for which severance allowance or redundancy allowance has been paid by the employer.

Formula:

Period of severance allowance = ∑ Period the employee actually worked – (Period the employee participated in the unemployment insurance + Period for which severance allowance or redundancy allowance has been paid by the employer)

Where:

- The actual work period includes: actual work period; probation period; employer-provided training period; sick leave and maternity leave according to social insurance laws; paid recovery period after an occupational accident or disease according to occupational hygiene and safety laws; paid leave period for fulfillment of citizen’s duties; work suspension period through no fault of the employee; weekly breaks prescribed in Article 111, paid leave prescribed in Article 112, Article 113, Article 114, Clause 1 Article 115; period over which the employee has to perform duties of the employee representative organization prescribed in Clause 2 and Clause 3 Article 176; and work suspension period prescribed in Article 128 of the Labor Code of Vietnam.

Note: Total period over which the employee has worked for the employer in reality in some special cases.

- The period over which the employee participates in unemployment insurance includes: the period over which the employee participates in unemployment insurance and the period over which participation in unemployment insurance is not mandatory but the employer has paid in addition to salary an extra amount equal to the unemployment insurance premium according to labor and unemployment insurance laws.

- The work period as the basis for calculation of severance allowance or redundancy allowance shall be expressed as years (full 12 months); If the number of months of an incomplete year is 06 months or less, it will be considered ½ year; if the number of months of an incomplete year is more than 06 months, it will be considered 01 year.

3. Salary as the basis for calculation of severance allowance

According to Decree No. 145/2020/NĐ-CP of Vietnam’s Government, salary as the basis for calculation of severance allowance and redundancy allowance is stipulated as follows:

The salary as the basis for calculation of severance allowance and redundancy allowance is the average salary of the last 06 months before the employee resigns or loses the job.

In case the employee works for the employer under consecutive employment contracts as prescribed in Clause 2 Article 20 of the Labor Code of Vietnam, the salary as the basis for calculation of severance allowance and redundancy allowance is the average salary of the last 06 months before the last employment contract is terminated. 

In case the last employment contract is invalidated due to lower salary than the region-based minimum wage announced by the Government or lower than the salary specified in the collective bargaining agreement, the salary as the basis for calculation of severance allowance and redundancy allowance shall be negotiated by both parties but must not be lower than the region-based minimum wage or the salary specified in the collective bargaining agreement.

Expenditures on payment of severance allowance and redundancy allowance shall be recorded as production and business costs or operating costs of the employer.

Thuy Tram

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