Regulations on severance allowance in Vietnam, Conditions for severance allowance in Vietnam, employees are not entitled to severance allowance, The calculation of working time for severance allowance, The calculation of severance allowance, Procedure for receiving severance allowance, receive a severance allowance, severance allowance

Regulations on severance allowance in Vietnam

To ensure the rights and interests of employees after a period of hard work, the Vietnamese Government has recognized a number of legal provisions on severance allowance for employees in Vietnam. Accordingly, after a period of time working in a business, the employees are entitled to receive an amount of money from the business owners or the employers. However, some employees and even employers don’t entirely and fully understand the regulations of severance allowance in Vietnam. So, what are the regulations on severance allowance in Vietnam?

Conditions for severance allowance in Vietnam

Pursuant to Clause 1, Article 46 of the Labor Code 2019, the employees are entitled to receive severance allowance, and the employers are responsible to provide the employees the severance allowance when:

  1. The employee has worked on a regular basis for a period of at least 12 months for the employer before that employee quits the business.
  2. The termination of the labor contract between the employee and the employer must be one of the cases prescribed in Clauses 1, 2, 3, 4, 6, 7, 9, and 10, Article 34 of the Labor Code 2019, which is:
  • The employment contract expires, except for the case 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, 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 employee unilaterally terminates the employment contract.
  • The employer unilaterally terminates the employment contract.

What are the cases where the employees are not entitled to severance allowance?

Article 46 of the Labor Code 2019 provides for severance allowance as follows:

“1. 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.”

Regulations on severance allowance in Vietnam
Regulations on severance allowance in Vietnam

Accordingly, it can be perceived that the employee who quits job will not be entitled to severance allowance if he/she falls into one of the following cases:

  • The termination of the labor contract but not in the above-mentioned cases.
  • The employee has not worked regularly for a full 12 months or more with the employer.
  • The employee is entitled to receive a retirement pension as prescribed by social insurance laws.
  • The labor contract is terminated by the business because the employee is absent from work without acceptable excuses for at least 05 consecutive working days.

The calculation of working time for severance allowance 

Working time for calculation of severance allowance is calculated as follows:

Working time to calculate severance allowance = Total time the employee worked – Time participating in unemployment insurance – Time for which severance allowance or redundancy allowance has been paid by the employer

– The total time the employee worked includes:

  • Direct working time;
  • Probationary period;
  • Time sent by the employer to go to school/higher education;
  • Time off for sickness and maternity benefits;
  • Time off for treatment and functional rehabilitation when suffering from occupational accidents or occupational diseases with salary;
  • Time off to perform public obligations with salary;
  • Time off work that is not due to the fault of the employee;
  • Weekly break time;
  • Time off work with full salary;
  • Time to perform tasks of the representative organization of employees;
  • Period of temporary suspension of work.

– Time participating in unemployment insurance includes:

  • The period of paying unemployment insurance premiums;
  • The period of being not required to pay unemployment insurance premiums but being paid by the employer with salary an amount equal to the unemployment insurance premium rate.

Note: The working time to calculate severance allowance that is odd will be rounded according to the following formulas:

  • Having odd months of less than or equal to 06 months: Calculate as 1/2 year;
  • Over 06 months: Calculate as 01 year.

The calculation of severance allowance 

Severance allowance = 1/2 x salary to calculate severance allowance x working time to calculate severance allowance.

  • The salary used to calculate severance allowance is the average salary according to the labor contract of 06 consecutive months before the employee quits (Based on Clause 3, Article 46 of the Labor Code).
  • The working time to calculate severance allowance is calculated according to the above formulas.

Note:

In case the employee is working under many consecutive labor contracts then the formula to calculate severance allowance will be based on the average salary of 06 consecutive months under the contract before the termination of the last contract.

Procedure for receiving severance allowance

According to the Labor Code 2019, the payment of severance allowance is the responsibility of the employer and the business. Employees are not required to conduct any type of procedure in order to receive a severance allowance. 

On the employer’s side, there are currently no procedural requirements for the payment of severance allowance as prescribed by law. Accordingly, the business can choose the method to pay this amount of allowance to the employee.

How long does it take to receive a severance allowance?

Regarding the receipt of severance allowance after the termination of the contract, Clause 1, Article 48 of the Labor Code 2019 states:

“1. Within 14 working days following the termination of an employment contract, both parties shall settle all payments in respect of the rights and interests of each party. In the following cases, such period may be extended, but shall not exceed 30 days:

a) Shutdown of business operation of the employer that is not a natural person;

b) Changes in the organizational structure, technology, or changes due to economic reasons;

c) Full division, partial division, consolidation, the merger of the enterprise; sale, lease, conversion of the enterprise; transfer of the right to ownership or right to the enjoyment of assets of the enterprise or cooperative;

d) Natural disasters, fire, hostility, or major epidemics.”

Accordingly, in the normal case, the employee only takes up to 14 days from the date of termination of the labor contract to receive the severance allowance. In some special cases, employees may have to wait up to 30 days to receive the severance allowance.

What is the punishment for the employers if they don’t pay severance allowance?

If an employee is eligible for severance allowance but the employers and the business intentionally neglect the problem and do not pay it, they will be considered having conducted a violation of the law

Acts of not paying or not paying enough severance allowance to employees will be sanctioned according to the provisions of Clause 1, Article 11 of Decree No. 28/2020/ND-CP, the penalty level is based on the number of employees being violated:

  • From 01 – 02 million VND: If there are 01 – 10 workers being violated;
  • From 02 – 05 million VND: If there are 11 – 50 workers being violated;
  • From 05 – 10 million VND: If there are 51 – 100 workers being violated;
  • From 10 to 15 million VND: If there are 101 – 300 workers being violated;
  • From 15 to 20 million VND: If there are 301 employees or more being violated.

In addition to the above administrative penalty, the employer is also required to pay the employee’s severance allowance in full and charge additional interest on the highest interest rate on demand deposits of state-owned commercial banks at the time of sanctioning.

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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