A new decree with social insurance regulations in Vietnam stipulating that foreign employees are subject to pay compulsory social insurance from December 1 have prompted foreign employers to look for ways to adjust to the new decree.
Specifically, Decree No.143/2018/ND-CP stipulating the details of compulsory social insurance for foreign employees in Vietnam has been officially approved and will come into effect from December 1, 2018.
After the decree was issued, a series of advisory companies like KPMG and Baker McKenzie immediately sent notices to their foreign clients in Vietnam. Currently, the majority of foreign firms in the country are still dazed by the turn of events and are processing the information.
A representative of South Korean Embassy to Vietnam told VIR that as the new decree is not identical to the draft submitted to the Vietnamese government in September, so they need to gather feedback from South Korean companies in Vietnam.
Meanwhile, Takimoto Koji, chief representative of the Japan External Trade Organization (JETRO), said that they are still studying the decree. The JETRO also wondered whether local people’s committees have received detailed instructions from Vietnam’s Ministry of Labour, Invalids and Social Affairs (MoLISA). It expects no ambiguity or inconsistency in the decree.
The new decree was issued as the number of foreign employees in Vietnam has skyrocketed over the past few years due to regional integration, new trade agreements, and the improved flow of skill workforce within the ASEAN.
According to the MoLISA’s statistics, the number of foreign employees in the country grew from 63,557 in 2011 to 83,046 in 2016. They mostly came from Asian countries like China, South Korea, and Japan, accounting for 73 per cent of the total, followed by European countries (21.6 per cent) and American countries (2.4 per cent).
The high averaged salary of foreign employees, along with their high number, makes the 3.5 per cent social insurance under Decree 143 quite a burden to their employers. Specifically, according to HSBC’s September 2017 survey of expatriates living in Vietnam, a foreigner’s annual averaged salary was $88,096, equalling an average of $7,341 per month, much higher than Vietnamese employees’ averaged salary of VND4.23 million ($184) in 2018, according to the Vietnam General Confederation of Labour.
To deal with the decree, employers and foreign firms in Vietnam may have to soon revise their financial plans. Currently, the recruitment of local employees would be a good option for employers to reduce social insurance spending.
Jonathan Moreno, chairman of AmCham in Ho Chi Minh City, told VIR, “Foreign investors will try and absorb these additional costs through alternative cost savings or by lowering their reliance on foreign employees. I believe investors appreciate the slower roll-out. However, the fundamental cost and value concerns have not changed.”
Indeed, many American investors believed they are forced to pay into a system which their foreign staff are unlikely to use. Most American investors already provide higher levels of health and accident insurance packages for their foreign staff from private insurance firms. Many noted that it would have been great if the law provided some wiggle room for people who already hold insurance policies or pay social insurance in their home countries.
Even though the new decree has been officially approved and will come into effect in December, the concerns surrounding its impact of reducing firms’ competitiveness is far from over. Koji from the JETRO voiced concerns that the change will weaken the competitiveness of Vietnamese industries.
He said the best choice is to replace foreign workers with locals. Some Japanese companies understand the MoLISA’s goal to increase the number of domestic workers in higher positions at foreign companies in Vietnam.
Similarly, Moreno also told VIR that this will likely reduce businesses’ willingness to hire foreign workers, especially to mid-level positions. Companies have a general desire to localise their workforce, as it significantly reduces wage expenses. Foreigners are usually hired to provide necessary management, skills, and mentoring – services in short supply in the local workforce – to ensure successful operations.
Due to the concerns surrounding the issue, the draft was previously adjusted many times before officially becoming a decree.
According to vice chairman of the National Assembly’s Social Affairs Committee Bui Sy Loi, the changes are necessary for Vietnamese and foreign workers to be treated equitably. It will also ensure fairness between businesses which only use domestic employees and those that employ staff from overseas. Indeed, companies employing foreigners have been enjoying favourable incentive policies on tax and social insurance.
The government also requested that the MoLISA co-ordinates with the relevant authorities to negotiate with other countries, and sign bilateral and multilateral agreements on social insurance. In case of a clash between the decree and international agreements to which Vietnam is a signatory, the international agreements will prevail.
Decree No.143/2018/ND-CP providing detailed guidance on compulsory social insurance applicable to foreign employees working in Vietnam was issued on October 15, 2018, and will take effect on December 1, 2018.
Foreigners working in Vietnam with a work permit, practicing certificate or practicing licence granted by Vietnamese authorities and holding a labour contract of indefinite term or a contract with a term of one full year and above shall be subject to compulsory social insurance. Foreigners working in Vietnam under an internal mobilisation scheme of labour within a group and reaching retirement age shall not be subject to the compulsory social insurance scheme.
The contribution rates imposed on both employers and foreign employees will be the same as those applicable to Vietnamese employees, that is, 8 per cent from employees and 17.5 per cent from employers, based on the employee’s salary used to contribute to compulsory social insurance which is capped at 20 times the applicable general minimum salary as provided by the government.
From December 1, 2018 to December 31, 2021:
– Employer: 3.5 per cent, including 3 per cent to sickness and maternity funds and 0.5 per cent to occupational diseases and accident funds.
– Employee: Not applicable.
From January 1, 2022 onwards:
– Employer: 17.5 per cent, including 3 per cent to sickness and maternity funds, 0.5 per cent to occupational diseases and accident funds, and 14 per cent to retirement and death funds.
– Employee: 8 per cent to retirement and death funds.