Salary Budget of Enterprises shall be Significantly Increased from 01 January, 2015

The new Law on Social Insurance No. 58/2014/QH13 issued on 20 November 2014 (the “LoSI”) shall take effect from 01 January 2016. There are three key items of the LoSI which are delayed until 01 January 2018 as follows: (i) social insurance (the “SI”) shall be applicable to labor contract having term from 1 month and less than 3 months (i.e. short term or seasonal labor contract); (ii) the SI shall be applicable to foreign employees working in Vietnam with work permit or practicing licenses issued by competent authorities in Vietnam; and (iii) the monthly salary on which social insurance premiums are based will be the salary plus salary-based allowance and other amounts as prescribed in the laws on labor.

The LoSI proposes the new policies on formula of calculation of payable social insurance. Accordingly, since 01 January 2016, for employees who pay social insurance premiums according to the employer-decided salary regime, their monthly salary on which social insurance premiums are based has been their salary plus salary-based allowance as prescribed in the laws on labor.

In reality, we understand that most of enterprises in Vietnam are paying social insurance premiums according to the base salary which is significantly lower than the actual salary paid to employees (i.e. base salary and salary-based allowance).

In light of this, upon taking force of the LoSI, it is likely that salary budget of enterprises shall be significantly increased. In order to avoid such negative implication imposed by the LoSI, a number of methods are being reviewed and considered by employers such as (i) separation of the labor contract into (1) labor contract and (2) seasonal labor contract and/or service contract or (ii) increase of regular bonus and decrease of salary. However, it is suggested that each of the aforementioned methods still has disadvantages which may lead to violation of the laws on labor and other unwelcome implications.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact the author Thuy Nguyen at (thuy.nguyen@lntpartners.com) or visit the website:Http://LNTpartners.com

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