DFDL’s Employment Practice Group is dedicated to advising clients on employment and labor issues and preparing human resources documentation that is compliant with local laws. Our employment team’s in-depth knowledge of the law and practices in the countries where we operate allows us to provide specialized, tailored, and practical advice on issues that arise in employment relationships. This legal update is to advise you on important legislative developments and employment issues in the region.
PROVISION OF SENIORITY PAYMENTS, Prakas 443 of the Ministry of Labour and Vocational Training (“MLVT”) dated 21 September 2018.
Following the amendments to the Labour Law (including the introduction of seniority payments), which came into effect on 26 June 2018 (as discussed here) the MLVT issued Prakas 443 on Seniority Payments (“Prakas 443”) on 21 September 2018. This Prakas will take effect from 1 January 2019 and clarifies the scope and enforcement of the relevant provisions on seniority payments for employees under unfixed duration contracts (“UDCs”).
Previously, ‘severance’ (or indemnity for dismissal) was payable only upon termination of a UDC by an employer, except for serious misconduct committed by an employee. From 2019, seniority payments (which replaces ‘severance’) must now be paid to employees on UDCs every 6 months. This change is likely to increase an employer’s liability with respect to severance/seniority payments.
For employees under fixed duration contracts, severance pay of at least 5% of the total wages due throughout the term of the contract must continue to be paid.
The most significant implications of Prakas 443, which are applicable to all enterprises under the scope of the Labour Law (including non-governmental organizations, associations and private sector entities) are as follows:
(1) Seniority payments from 2019 onwards
Seniority payments equal to 15 days of wages and fringe benefits per year must be paid to employees two times per year according to the following schedule:
(a) 7.5 days of wages and fringe benefits to be paid in June each year; and
(b) 7.5 days of wages and fringe benefits to be paid in December each year.
Accordingly, from 1 January 2019, seniority pay will be payable every 6 months.
Upon one month of employment having successfully been completed, new employees will be entitled to 7.5 days of wages and fringe benefits payable in June or December of that particular year, irrespective of whether they complete the entire 6 months’ of service. The law is unclear concerning employees under probation and, based on the current wording of Prakas 443, the initial employment period is likely to include any probationary period.
Upon termination for cause or without cause before the end of June or December in a particular year, seniority pay will be payable at the rate of 7 days of wages and fringe benefits. This is provided that the relevant period for which seniority pay is due is at least one month but less than six months. This excludes termination for serious misconduct, in which case seniority pay for that period will not be payable. In the event of resignation, it is unclear from the Labour Law and Prakas 443 as to whether seniority pay is due to an employee.
(2) Back pay of seniority payments prior to 2019
In addition to seniority payments from 1 January 2019, employees who were employed prior to 2019 are also entitled to back pay for all past seniority. The amount of the back pay is capped however, at a maximum of 6 months of the average base wage in each relevant year of employment up to 31 December 2018.
With respect to back pay, given instances of certain manufacturers failing to meet their severance obligations, more onerous obligations have been imposed upon participants in the textile, garment and footwear manufacturing (“TGF”) sectors:
(a) employees in the TGF sectors who have worked prior to 1 January 2019 and remain working for an enterprise, will be entitled to 30 days of back pay per year (to a maximum of 6 months) paid as follows:
(i) 15 days of seniority payment to be paid in June each year; and
(ii) 15 days of seniority payment to be paid in December each year; and
(b) employees in all other sectors who have worked prior to 1 January 2019 and remain working for an enterprise, will be entitled to 15 days of back pay per year (to a maximum of 6 months) paid as follows:
(i) 7.5 days of seniority payment to be paid in June each year; and
(ii) 7.5 days of seniority payment to be paid in December each year.
In determining the entitlement to back pay for an employee’s initial calendar year of employment, an employer must pay:
(a) 7.5 days of back pay if the period of employment in the initial calendar year was between 1 month and 6 months; and
(b) 15 days of back pay if the period of employment in the initial calendar year was more than 6 months up to 12 months.
Upon termination for cause or without cause from 1 January 2019, outstanding back pay will be payable in full upon termination (to a maximum of 6 months of the average base wage in each relevant year of employment up to 31 December 2018), except in the event of termination for serious misconduct or resignation, in which case back pay will not be payable.
PROVISION OF WAGE PAYMENTS, Prakas 442 of the MLVT, dated 21 September 2018
From January 2019 onwards, all enterprises governed under the Labour Law must pay wages to employees twice per month as follows:
(1) First Payment: 50% of base wages for that month in the second week of the month; and
(2) Second Payment: the remaining base wages, fringe benefits and other allowances for that month in the fourth week of the month.
This requirement would be a major change to the payroll processes of hiring entities, which are typically made monthly.
We will be preparing a worksheet for the calculation of liability for back pay and seniority pay, once all aspects of the Labour Law are clarified. To register your interest to receive this worksheet, or if you require further guidance on any of the above matters, please do not hesitate to contact [email protected].
The Lao PDR
The last quarter of 2018 saw no developments in the Lao PDR labor law framework. To provide a brief outlook for 2019, however, we contacted the relevant governmental authorities for insight on what labor legislation will be reviewed in the coming months. Firstly, the draft Decree on Safety at the Workplace has been going through a review process and is currently waiting to be signed into law by the Prime Minister. The Decree is expected to enter into force in the coming weeks, though a draft has not yet been made publicly available.
The amended Law on Social Security has been approved by the National Assembly and is pending publication in the Lao Official Gazette. Once the final law is passed, we will provide an update on any significant changes from the former law.
Enforced Leave and Holiday Rules 2018 & Shops and Establishments Rules 2018
The Ministry of Labor, Immigration, and Population (“MOLIP”) issued the draft Leave and Holiday Rules on 26 April 2018 and the Shops and Establishments Rules on 9 April 2018 (together, the “Rules”).
On 15 October 2018, the Factory and General Labor Laws Inspection Department (Nay Pyi Taw) issued a letter stating that since the Parliament has not submitted amendments within 90 days from the draft Rules submission, the draft Rules are effective.
Summary of the Shops and Establishments Rules (“SE Rules”): The SE Rules provide that employers must comply with the following reporting requirements to the Factory and General Labour Laws Inspection Department:
1) Notice for operating the shop or establishment (Form 1);
2) Notice for moving the place, changing the type of business, enlarging the business, changing the owner, appointing an employee and making changes to the employment (Form 2);
3) Notice for temporary or permanent shut down of the business (Form 3);
4) Notice for equal working time of employees (Form 4);
5) Notice for shift or rotation system (Form 5);
6) Notice for overtime compensation (Form 6); and
7) Notice for opening 24 hours (Form 7).
Summary of Leave and Holidays Rules (“LH Rules”): The LH Rules provide definitions of casual leave, medical leave, maternity leave, and leave for daily wage workers, salary workers, piece-workers and so on. Employers must report to the authority on overtime work that occurs with an employee’s consent during his or her weekly holiday or public holiday. An employee is entitled to casual leave, medical leave, and maternity leave during the probationary period and training period. The employer must not dismiss, reduce the salary or position of, nor move the employee to another workplace during his or her leave.
An employee is entitled to 1 day of paid casual leave after 2 months of his or her service. However, the employer will be allowed to take casual leave for valid reasons even without 2 months’ of completed service.
Employees who donate blood are entitled to medical leave for the time away from work if they submit valid evidence of having donated blood.
If a female employee is not covered under the Social Security Law, she will be entitled to leave of up to a maximum of 6 weeks in the case of a miscarriage.
If an employer allows any individual or organization to lease his or her business, such an individual or organization shall be responsible to provide the rights granted under the Law or these Rules.
Upcoming labor legislation 2019
The Lower House (Pyithu Hluttaw) approved the draft Health and Occupational Safety Law and second amended Law on Settlement of Labour dispute during the ninth regular session of the Second Pyithu Hluttaw on 12 September.
The bills are being sent to the Parliament’s upper house for approval before being submitted to the President. We expect these laws to enter into force in 2019.
The National Legislative Assembly approved a resolution for the new draft Labor Protection Act (Amendment) on 14 December 2018. The amendment to the LPA is expected to be published soon and will come into effect within 30 days from the publication date in the Royal Gazette. The law is expected to take effect in March 2019. Overall, this amendment grants further benefits and provides more clarity to employee entitlements. Below is a summary of the key changes:
(1) If the employer fails to issue notice in advance of dismissal, the employer is required to pay the dismissed employee wages from the date of dismissal to the effective dismissal date if the dismissal notice had been served as legally required.
(2) A new type of mandatory paid leave will be introduced, i.e., 3 working days per year of leave for necessary business. Prior to this change, personal business leave depended on the agreement between the employer and the employee.
(3) Increased maternity leave from 90 days to 98 days with mandatorily paid maternity leave is still limited to 45 days.
(4) Additional severance pay rate for an employee working for an uninterrupted period of more than 10 years but less than 20 years, which is the amount equivalent to 400 days of the last wage (approximately 13.3 months).
(5) All types of remunerations from works (other than wages) must be paid at least once a month and in case of termination, the remunerations must be paid within 3 days from the date of dismissal. Prior to this amendment, there was no specified due date for this type of entitlements.
(6) Wage payment during the suspension of business by the employer must be paid at the work location (or otherwise agreed by the employee) and must be paid at least once a month. Previously, there was no specified due date or payment location for this type of entitlements.
(7) In case of workplace relocation, the employer is required to post a notice of relocation for a period of not less than 30 days. Such notice must be clearly visible and with clear information such that the employees can understand the details of the new location and need to relocate.
If special severance pay must be paid (i.e., when the employee serves to the employer a written notice stating that the relocation significantly affects the ordinary course of life of the employees and the employee refuses to relocate), the employer must pay special severance pay (in the amount equal to normal severance pay) within 7 days from the employment termination date.
The employer has the right to appeal the reasons invoked by the employee not to work at a new workplace location to the labor welfare commission at Ministry of Labor within 30 days from the date of receipt of the written notice from the employee of his/her intention not to work at the new location.
(8) The labor inspector will no longer issue a letter requesting the employer to submit the report on working conditions. All employers having more than 10 employees must submit the report to the Labor Inspector by the end of January every year. Failure to do so will result in employers being liable to a fine of up to THB 20,000.
The end of 2018 marks the introduction of a number of changes to Vietnam’s labor regulations that will impact employers in the upcoming time.
1. Changes to severance/retrenchment allowance calculations
As of 24 October 2018, the Government of Vietnam issued Decree 148/2018/ND-CP, amending and supplementing a number of articles of Decree 05/2015/ND-CP (“Decree 5”) detailing and guiding the implementation of certain contents of the Labor Code (“Decree 148“). Decree 148 stated that the total actual working time under employment contracts (“Service Period”) is used to calculate severance allowance and job-loss allowance, as below.
- The following periods are abolished from the Service Period used for the calculation of severance allowance and job-loss allowance:
(i) the probation period;
(ii) the period of apprenticeship and job training; and
(iii) the period of temporary detention or custody in relation to a case before a competent state agency, where the agency finds the employee not guilty.
- The following periods are inserted into the Service Period used for the calculation of severance allowance and job-loss allowance:
(i) the period during which an employee is off work for treatment and recovery after labor accidents and occupational diseases, and
(ii) the period during which an employee is off work to perform paid citizen’s obligations as required by law.
2. Changes to labor discipline procedures
Among positive changes in the law, the process of handling labor discipline has been changed in such a way as to simplify the currently complex process for employers. Decree 148 provides that the employer only needs to send one invitation (instead of the previously required three) to the disciplinary hearing, before the employer can proceed at the invitees’ absence. Within three working days from the date of receipt, the invitees have to confirm their attendance. If they cannot attend the hearing, they have to provide a legitimate reason for their absence. In the event that the invitees do not confirm their attendance, or the reason for their absence is not legitimate, or they confirm their attendance and then fail to turn up, the employer is allowed to conduct the disciplinary hearing in their absence.
Decree 148 also introduces that the authorized representative of the employer (previously only the legal representative had this power) can sign and issue a labor disciplinary decision on all types of disciplinary measures, instead of just reprimands under the current regulations.
3. Reducing certain obligatory contents to be listed in an employment contract
Decree 148 removes certain unnecessary details of the former Decree 5 ‘s requirements of mandatory provisions in employment contracts, and allows the parties to refer to the employer’s internal labor regulations, collective labor agreements, other internal policies or relevant laws. These provisions include:
- salary review and increases;
- working and rest time;
- labor protection equipment; and
- social, health, and unemployment insurance.
Instead of stating these in contracts, the aforementioned contents could be subject to the items agreed by the two parties or pursuant to an agreement to implement internal labor rules and other regulations of the employer, the collective labor agreement, and provisions of law.
4. Exemption from submitting wage scales, wage tables, and labor rates for enterprises employing less than ten employees
This concerns Decree 121/2018/ND-CP of the Government of Vietnam dated 13 September 2018 on amendments to Decree 49/2013/ND-CP dated 14 May 2013. This provides guidelines on implementing a number of articles of the Labor Code for wages. Employers employing less than ten employees will be exempt from having to submit wage scales, wage tables, and labor rates to the labor authority at the district level in the locality where the employer has its production and business establishment.
5. Specific guidance for expatriates on making social insurance payments
Decree 143/2018/ND-CP of the Government of Vietnam dated 15 October provides guidelines on the Law on Social Insurance and the Law on Occupational Safety and Hygiene. This Decree (“Decree 143”) concerns the social insurance obligations of foreign employees working in Vietnam, in partial effect since 1 December 2018. Decree 143 is expected to enter into full force and effect on 1 January 2022.
Accordingly, foreign employees working in Vietnam are subject to social insurance (“SI”) when they have a work permit, a practicing certificate, or a license issued by a competent State authority. They (the “Expatriates”) must be employed under an indefinite term or fixed duration employment contract of 12 months or more with an employer in Vietnam. The following cases will not be subject to compulsory SI:
(i) internal transfer within the enterprises; and
(ii) employees that have reached retirement age.
In this regard, Expatriates must pay 8% of their monthly salary to the superannuation and survivorship fund from 1 January 2022. If the Expatriates do not work nor receive salary for 14 working days or more in a month, they are not obliged to pay SI premiums for that month. However, this time shall not be counted for social insurance purposes, except for maternity leave.
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This article is written by DFDL Lawyers.
This article was first published on the DFDL website.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.