Tiếng Việt
中文 (中国)
(Vietnam) Unemployment insurance and severance allowance are 2 very different concepts but they are mistaken with one another most of the time by employees who just quit their jobs and are wandering around to try to receive support during these arduous days. So, what are the difference between the 2 policies, and what are the notes about unemployment insurance and severance allowance in Vietnam?
The difference between unemployment insurance and severance allowance in Vietnam
Pursuant to Clause 2, Article 46 of the Labor Code 2019, the working time for calculation of severance allowance is the total time the employee has actually worked for the employer minus the time the employee has attended compulsory unemployment insurance and the working time that the employee has been paid severance allowance, job loss allowance.
In principle, if an employee has participated in unemployment insurance, they will not be entitled to severance allowance because participation in unemployment insurance is a mandatory requirement for both employees and employers when signing a labor contract of 3 months or more, applied from January 1, 2009.
Accordingly, an employee who quits their job can still receive both severance allowance and unemployment benefit if he/she falls into one of the following cases:
- Have a job and pay social insurance before 01/01/2009.
- Performing a probationary period before officially working.
- Having a sick leave period of 14 days or more in a month.
- Having time off to enjoy maternity benefits.
The reason why the employees can receive both benefits is that at the moment, a large portion of the working class in Vietnam had a job and pay social insurance before 01/01/2009, the date when the unemployment insurance policy took effect according to the Law on Social Insurance 2006.
Thus, when employees leave their jobs, they will be entitled to a severance allowance for the time they worked before 2009 (the time when they have not yet participated in unemployment insurance).
Since 2009, most employees who quit their jobs will be entitled to unemployment benefits, and severance allowance is rarely applied, except for special circumstances.
Unemployment benefits from unemployment insurance will be paid by the social insurance agency, while the policy on severance allowance stipulates that the severance allowance will be paid by the employer to employees when they leave work.
The situation in Vietnam’s society at the end of 2021
Nowadays, due to the Covid-19 rages on across Vietnam, the number of employees who voluntarily and forcibly quit their job is increasing day by day.
As of October 2021, the number of people withdrawing one-time social insurance is 1.5 times higher than in the first 6 months of the year and up nearly 5.5% over the same period in 2020.
Counting HCM City only, from the beginning of the year until now, authorities have handled more than 95,055 applications for one-time social insurance benefits with the payment amount of more than 6,000 billion VND.
On the other hand, for individuals who continue to enjoy social insurance benefits, due to many reasons, instead of working until they reach the retirement age, many people, after having paid the full number of years of social insurance, choose to quit their jobs, waiting until they reach full retirement age.
However, the employees should know that, when they quit their jobs early before retirement age, if qualified, they can enjoy the benefits from the unemployment insurance and severance allowance.
Severance allowance
Clause 1, Article 46 of the 2019 Labor Code stipulates: “In case an employment contract is terminated as prescribed in Clauses 1, 2, 3, 4, 6, 7, 9 and 10, Article 34 of this Code, 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. 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 this Labor Code.”
Accordingly, the employee who has worked regularly for the business for full 12 months or more and terminates the labor contract legally will receive severance allowance.
However, this benefit will not be paid in the following two cases:
- The employee is eligible for a pension.
- The employee arbitrarily quit work for 05 consecutive working days or more without a valid reason.
Thus, if employees quit their jobs before being eligible for the pension, they will have the opportunity to receive a severance allowance.
The employee’s severance allowance will be calculated according to the following formula:
Severance allowance = 1/2 x Time used for calculation of severance allowance x The average salary of 06 consecutive months according to the latest labor contract before quitting
Methods to count the time used for calculation of severance allowance
Time used for calculation of severance allowance = Total time worked for the business – Time participated in unemployment insurance – Time paid for severance allowance, job loss allowance.
In which:
a) The total time the employee has actually worked for the business includes:
- The time the employee has directly worked for the business;
- Probationary period;
- Time to be sent to school/higher education by the employer;
- The period of leave to enjoy the sickness and maternity benefits in accordance with the law on social insurance;
- Time off work for treatment, occupational rehabilitation in case of an occupational accident or occupational disease, which is paid by the employer in accordance with the law on occupational safety and sanitation;
- Time off from work to perform civic obligations as prescribed by law and paid by the employer;
- The time off work is not due to the fault of the employee;
- Weekly rest period according to Article 111, full pay leave according to Article 112, Article 113, Article 114, Clause 1 Article 115;
- The time to perform the tasks of the representative organization of employees as prescribed in Clauses 2 and 3 of Article 176 and the time of temporary suspension from work according to Article 128 of the Labor Code.
b) The time the employee has participated in unemployment insurance includes:
- The time the employee has participated in unemployment insurance according to the provisions of law;
- The period when the employee is not required to participate in unemployment insurance according to the provisions of law but is paid by the employer together with the employee’s salary an amount equivalent to the employer’s payment of unemployment insurance for employees in accordance with the law on labor and unemployment insurance.
c) Time paid for severance allowance, job loss allowance
The time paid for severance allowance, job loss allowance of employees is calculated by year (full 12 months). In case the employee’s working time with odd months is less than or equal to 06 months, it is calculated as 1/2 year, and over 06 months is counted as 01 working year.
The average salary of the latest labor contract used to calculate severance allowance
The average salary of the latest labor contract, which is used to calculate severance allowance, is measured according to Clause 5, Article 8, Decree 145/2020/ND-CP.
In case the employee works for the employer under many consecutive labor contracts, the salary used to calculate the severance allowance is the average salary of the 6 consecutive months according to the labor contract before terminating the final labor contract.
In case the final labor contract is declared invalid because the content of the salary is lower than the regional minimum wage announced by the Government or for other reasons, the salary used as the basis for calculation shall be agreed upon by both parties.
Unemployment insurance
Besides the severance allowance benefits, unemployment insurance is the social insurance policy that most employees who leave their work before retirement age can acquire, according to the current regulations labor and work.
Pursuant to Article 49 of the Employment Law 2013, an employee will receive unemployment benefits if the following conditions are satisfied:
- The labor contract has been terminated legally (The employee who illegally terminates the labor contract, and/or is eligible for monthly pension and allowance, etc. is not qualified)
- Have paid unemployment insurance for a full 12 months or more in the 24 months before leaving work.
- Have submitted the application for unemployment insurance benefits at the Employment Service Center within 03 months from the date of termination of the labor contract.
- Haven’t found a job after 15 days from the date of submitting the application.
If the above four conditions are met, the people who are waiting for retirement will be entitled to unemployment benefits at the following rates:
Unemployment insurance benefits/month = Average monthly salary on which unemployment insurance are based for the 6 consecutive months before unemployment x 60%
The number of months to receive unemployment benefits will be calculated based on the period that the employee has paid unemployment insurance. Specifically:
- Full payment of 12 – 36 months of social insurance: Enjoy 03 months of unemployment benefits.
- After that, every additional 12 months of full payment of social insurance: receive an additional 01 month of unemployment benefits.
- The maximum period of enjoying unemployment benefits: 12 months.
The maximum unemployment benefit that an employee is entitled to receive must be:
- Not more than 05 times the base salary.
- Not more than 05 times the regional minimum wage.
Every month, the social insurance agency shall pay the unemployment benefits within 12 days from the date of enjoying the unemployment benefit of that month if the agency does not receive the notice on suspension or termination of unemployment benefits for that person.
With this regulation, employees need to reasonably balance the waiting period for retirement to fully enjoy unemployment benefits before receiving monthly pension.
However, this is difficult to achieve because Vietnam’s social insurance policy is currently quite unstable with the retirement age increasing each year and leading to the rate and benefits of pensions changing accordingly, making it difficult for employees to calculate profit/loss if they decide to retire earlier than the retirement age stipulated by law.
Nonetheless, employees should still try to find the balance of retirement time to receive full benefits when participating in social insurance policies in Vietnam.
ASL LAW is the top-tier Vietnam law firm for Employment and Labor Law. If you need any advice, please contact us for further information or collaboration.
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