Regime for employees to receive severance allowance in Vietnam 2023

Regime for employees to receive severance allowance in Vietnam 2023 (Internet image) 

1. Case of employees eligible for severance allowance in Vietnam

According to Clause 1, Article 46 of the Labor Code 2019, in case an employment contract is terminated as prescribed in Clauses 1, 2, 3, 4, 6, 7, 9 and 10, Article 34 of the Labor Code 2019, the employer is responsible for paying severance allowance to the employee who has worked on a regular basis for a period of at least 12 months.

- The employment contract expires, except for the case the employment contract with an employee that is a member of the management board of the internal employee representative organization expires before the end of his/her term of office, the existing contract shall be extended until the end of the term of office specified in Clause 4 Article 177 of the Labor Code 2019.

- The tasks stated in the employment contract have been completed.

- Both parties agree to terminate the employment contract.

- The employee is sentenced to imprisonment without being eligible for suspension or release as prescribed in Clause 5 Article 328 of the Criminal Procedure Code, capital punishment or is prohibited from performing the work stated in the employment contract by an effective verdict or judgment of the court.

-  The employee dies; is declared by the court as a legally incapacitated person, missing or dead.

- The employer that is a natural person dies; is declared by the court as a legally incapacitated person, missing or dead.

The employer that is not a natural person ceases to operate, or a business registration authority affiliated to the People’s Committee of the province (hereinafter referred to as “provincial business registration authority”) issues a notice that the employer does not have a legal representative or a person authorized to exercise the legal representative’s rights and obligations.

- The employee unilaterally terminates the employment contract in accordance with Article 35 of the Labor Code 2019.

- The employer unilaterally terminates the employment contract in accordance with Article 36 of the Labor Code 2019.

* Note: Except for the case where the employee quits his job and is eligible for pension and the employee voluntarily quits without a valid reason for 05 consecutive working days or more.

2. What is the amount of severance allowance will employee receive?

According to Clause 1, Article 46 of the Labor Code 2019, each year of work will be worth half a month’s salary, except for the cases in which the employee is entitled to receive retirement pension as prescribed by social insurance laws, and the cases specified in Point e Clause 1 Article 36 of the Labor Code 2019.

3. Employment period as the basis for calculation of severance allowance in Vietnam

According to Clause 3, Article 8 of Decree 145/2020/ND-CP, the employment period as the basis for calculation of severance allowance or redundancy allowance is the total period over which the employee has worked for the employer in reality (hereinafter referred to as “actual work period”) minus (-) the period over which the employee participates in unemployment insurance and the period over which the employer pays severance allowance or redundancy allowance. Where:

- The actual work period includes:

+ Actual work period; probation period;

+ Employer-provided training period;

+ Sick leave and maternal 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 of Decree 145/2020/ND-CP;

+ Period over which the employee has to perform duties of the employee representative organization prescribed in Clause 2 and Clause 3 Article 176 of Decree 145/2020/ND-CP;

+ And work suspension period prescribed in Article 128 of the labor code.

- 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.

4. Salary as the basis for calculation of severance allowance in Vietnam

According to Clause 5, Article 8 of Decree 145/2020/ND-CP, salary as the basis for calculation of severance allowance and redundancy allowance:

- 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 2019, 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.

Vo Van Hieu

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