Vietnam: Foreign Employees Required to Participate In Compulsory Social Insurance

The Vietnamese government issued a ruling on October 15th, 2018 that highlights a new regulation on compulsory social insurance applicable to all foreign employees, decree No. 143.  Initially, the 2014 Social Insurance Law indicated that international workers only be permitted (not required) to participate in Vietnam’s Social Insurance as of 1st January 2018.

The vagueness of this regulation is what raised concerns as to the scope of Social Insurance by foreign employees- is it compulsory or is it optional?

The Scope of Decree No. 143

Taking effect on December 1st, 2018, the new verdict on a foreign employee’s compulsory participation in social insurance provides detailed guidelines on how specific contribution rates and entitlement benefits will take form.

In particular, Decree 143/2018 now officially stipulates that foreign employees who meet the following conditions must comply with the country’s social insurance:

  • The employee currently works in Vietnam under a one year term, with either a definite or indefinite-term labor contract with a Vietnam-based employer.
  • The employee must be granted either a practicing certificate (“chứng chỉ hành nghề”), practicing license (“giấy phép hành nghề”), or a work permit (“giấy phép lao động”).

Aside from those mentioned above, the following foreign employees are exempted from social insurance:

  • Intercorporate transferees in accordance with Article 3.1 of Decree No. 11/2016/ND-CP, detailing regulations of Labor Code for foreign employees working in Vietnam.
  • Those who are transferred from their parent companies to Vietnam-based subsidiaries and reach the prescribed retirement age are not required to participate in the compulsory social insurance regimes prescribed in this Decree.
  • Employees who have reached the statutory retirement age, as prescribed under Article 187.1 of the Labor Code, which is 60 years old for men and 55 years old for women.

Contribution Rates

Under Decree 143/2018, contributions imposed on foreign employees will be identical to those enforced on Vietnamese employers. The current contribution rates shared are 8% by employees and 17.5% by employers. This will be based on the foreign employees’ actual monthly salary capped at 20 times the indicated general minimum wage (mức lương cơ sở) of approximately USD 1,200.

Despite the decree taking effect on December 1st, 2018, foreign employees will begin making their Social Insurance contributions from the beginning of 2022.

The contribution rates will be implemented as follows:

  • As of Dec. 1, 2018, to Dec. 31, 2021
  • Employers: They will liable for a 3.5% rate which will include 3% for illness and maternity funding as well as 0.5% for labor accidents and occupational diseases funding.
  • Employees: N/A
  • As of Jan. 1, 2021
  • Employers: They will see a 17.5% rate which will include 3% for illness and maternity funding, 0.5% for labor accidents and occupational diseases funding and 14% for retirement and survivorship funding.
  • Employees: Their rate will include 8% for retirement and survivorship funding.

Entitlement Benefit Regimes

Currently, only Vietnamese employees are covered for all the five compulsory Social Insurance schemes. However, once the decree takes full effect and international employees make their contributions, they will also be entitled to the following five regimens:

  • Illness
  • Maternity
  • Labor accidents and occupational diseases
  • Retirement
  • Survivorship

The application of these five regimens to international workers will be introduced as follows:

  • From Dec. 1, 2018

All short-term benefit regimens for illness, maternity, and labor accidents and occupational diseases.

  • From Jan. 1, 2022

All long-term benefit regimens for retirement and survivorship.

Accordingly, the processes and procedures for foreign employees to participate in the above compulsory social insurance plans would not differ from the current procedures applicable to Vietnamese employees, as regulated under the 2014 Law on Social Insurance. Details on the dossiers for foreign employees’ participation and settlement of all compulsory social insurance regimes are also provided under this new decree.

Other Relevant Regulation Amendments

Application in the Case of Numerous Labor Contracts

For employees subject to compulsory Social Insurance with numerous labor contracts with various employers, their contributions will only be applicable to their initial labor contract. However, their contributions to labor accidents and occupational disease benefits must be taken care of by each employer under each labor contract.

Lump-sum Social Insurance

If employees terminate their employment and no longer work in Vietnam, they are entitled to a lump-sum payout or retirement benefits upon request. The payment of lump-sum retirement benefits will begin to be rolled out from Jan. 1, 2022 onwards.

However, the employee needs to satisfy at least one of the requirements listed below:

  • The employee has reached retirement age and has not contributed to social insurance in full for 20 years.
  • The employee has been diagnosed with a terminal illness as prescribed by the law.
  • The employee no longer lives in Vietnam but is eligible to receive monthly retirement allowances.
  • Either the employee’s labor contract is terminated or their practice licenses and work permits have expired without any extension.

Such foreign employees should make their allowance requests within 30 days prior to the expiry date of their contracts or work permits. The insurance authority shall be responsible for settling and paying the allowance to the employees within 10 days from the date of receipt of proper requests. The calculation of the lump-sum social insurance allowance applicable to foreign employees would be the same as what is currently applicable to Vietnamese employees according to the Law on Social Insurance.

Cause and Effect of Decree 143/2018

Social insurance authorities developed the compulsory social insurance scheme for foreign workers in the country, citing the need to follow international practices as the country deepens integration. By making it compulsory, they protect the rights of foreign workers in Vietnam and the social insurance serves as a basis for bilateral and multilateral agreements in which worker’s rights, whether for foreigners or Vietnamese, are all treated equally.

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