Amidst the volatile and recessionary global and domestic economic climate, many businesses face significant challenges in retaining personnel to maintain their production and business operations. However, when unable to retain personnel working for the business at this time, businesses have applied and implemented the necessary mechanisms to reduce their workforce through the current legal regulations enshrined in the Labor Code 2019, and related guiding documents.
Unfortunately, although they have applied workforce reduction mechanisms in accordance with legal regulations, businesses are still overlooking or have overlooked certain benefits for employees after the workforce reduction, specifically the severance allowance and other payments that employees are naturally entitled to. In this article, we focus on clarifying the severance allowance for foreign employees when they are no longer employees of the enterprise
Conditions for Receiving Severance Allowance?
Employees are entitled to severance allowance by law when they meet the following conditionsexcept for cases where they are not entitled to severance allowance as prescribed by law: (i) the employee has worked regularly for the enterprise for twelve (12) months or more, and (ii) the Labor Contract has been terminated in accordance with the regulations presented below.
t can be said that the Labor Code 2019 has created conditions for employees to receive a severance allowance when terminating their labor relationship with the enterprise, and also to allow employees to prepare and maintain a "stable" standard of living before finding a suitable new job.
For Vietnamese employees, there is a slight disadvantage in that they may not be entitled to this severance allowance after leaving the enterprise because they have contributed to unemployment insurance for the same period as their actual working time for the enterprise. Instead, they will receive another payment from (i) job loss allowance paid by the enterprise itself or (ii) unemployment benefits when the employee completes the procedures with the local Job Support Center.
For foreign employees, they are not subject to mandatory unemployment insurance participation according to regulations so their unemployment insurance participation period is zero. Therefore, their actual working time does not include the unemployment insurance participation period, so they will be paid severance allowance by the enterprise for the total actual working time of the employee at the enterprise
How is severance pay calculated?
When an employee has worked for the enterprise for one (1) consecutive year or morethe employee will be entitled to one-half (1/2) month's salary. The salary for calculating severance allowance is based on the average salary of the six (6) consecutive months that the enterprise paid to the employee before the employee's termination.
However, many enterprises only pay severance allowance based on the salary amount used for social insurance contributions for employees. On the other hand, the salary as regulated includes the base salary, allowances, and other supplementary payments. If only the base salary is used as the basis for paying severance allowance to employees, the employees become even more disadvantaged.
In what cases are employees entitled to severance allowance?
The Labor Code 2019 stipulates the cases in which employees are entitled to severance allowance upon termination of their labor contract, including:
- The labor contract expires;
- The work according to the labor contract has been completed;
- Both parties agree to terminate the labor contract;
- The employee is sentenced to imprisonment but does not receive a suspended sentence or does not fall under the case of being released as prescribed, is sentenced to death, or is prohibited from doing the work specified in the labor contract according to a legally effective judgment or decision of the Court;
- The employee dies, is declared by the Court to have lost civil act capacity, is missing, or is deceased;
- The employer, being an individual, dies, is declared by the Court to have lost civil act capacity, is missing, or is deceased; or
- The employee or the enterprise unilaterally terminates the labor contract according to regulations.
Apart from the cases mentioned above, foreign employees will not be entitled to severance allowance as stipulated. Nevertheless, enterprises should consider whether employees are entitled to severance allowance before ending the labor relationship with them. In cases where employees are not entitled to severance allowance, but the enterprise still intends to pay severance allowance to the employees, this is a very humane and commendable point.
However, paying severance allowance that is not in accordance with or exceeds the legally prescribed amount may result in the employee being subject to personal income tax on the inappropriate portion of the severance allowance or the difference between the higher amount and the legally prescribed amount.
Reasons Leading to Enterprises Not Paying Severance Allowanceto Employees?
There are many reasons leading to enterprises not paying severance allowance to employees, stemming from enterprises embedding the clause "monthly salary already includes severance allowance" in the Labor Contract, leading to enterprises evading the payment of severance allowance to employees and also to'deceive" the lack of knowledge and understanding of the law of foreign employees. Therefore, the enterprise will reduce the burden of costs by eliminating a "very largeamount of money that must be paid to employees.
In reality, the aforementioned provision, from the perspective of legal professionals, does not guarantee whether the enterprise can escape the obligation to pay severance allowance to employees. There is a reality and legal regulation that the enterprise's responsibility to pay severance allowance upon termination of the labor contract when meeting the legally prescribed conditions is mandatory, and the severance allowance is the legitimate right of employees that they are naturally entitled to.
Therefore, if the employee wants to claim this severance allowance, the enterprise may be the one who suffers the most, bearing many legal consequences due to "evading" the payment of severance allowance to foreign employees, including administrative penalties ranging from 2 to 40 million VND depending on the severity of the violation, in addition to having to pay the severance allowance and interest on the late payment amount.
Finally, businesses also need to proactively check and review the necessary obligations and rights for foreign employees, especially severance allowance, to resolve matters completely for employees, avoiding unnecessary costly and time-consuming complaint cases.
If there is any content that needs further discussion, please contact us via nghia@ivlf-advisors.com or www.ivlf-advisors.com
