In the past two decades, outsourcing to Vietnam has been much easier thanks to intentional efforts from the country. Since the late 1980’s, when the country moved from a centrally planned economy to a market-based economy, Vietnam has slowly made legal reforms to welcome business investment and outsourcing. This is achieved primarily by focusing on the rule of law rather than arbitrary bureaucrat control, from all over the world.
Challenges and Benefits of Outsourcing to Vietnam
Outsourcing to Vietnam has more benefits than just low labor costs. Workers have a similar skillset to those in areas which are better known for outsourcing, like India. Companies also find that Vietnamese workers are more loyal than workers from other countries. Josh Lieberman, president of KMS Technology, reports that his attrition rate in Vietnam is between 6% and 8% compared to as high as 20% in India.
There are some challenges, however. While the workers who are well-educated and well-trained have the skills companies need, most of the workforce in Vietnam is considered low-skill. Because their education system needs some major work, only those who can afford to supplement public education receive adequate training and education. This may not affect small outsourcing operations, but large-scale businesses may have trouble finding enough workers.
Hiring Vietnamese Workers
Perhaps the most efficient and easiest way to begin outsourcing to Vietnam is by working with an in-country expert or Employer of Record (EoR). These local experts know the culture, labor market, and labor laws. An EoR can also help your team manage compliance.
As more and more businesses are outsourcing to Vietnam, local entrepreneurs have responded by growing their own crop of consulting companies to meet international companies’ outsourcing needs. Because Vietnam is a growing market, many of these companies will have experience working with international businesses.
All employee relationships are governed in large part by the 2012 Labor Code. It requires that every employee have a written contract unless hired as a short-term worker – less than three months. When outsourcing to Vietnam, every employment contract should include these elements:
- Work to be performed
- Location of job
- Length of employment
- Hours, breaks, and vacation time
- Protective equipment for the employee
- Social and health insurance
- Training and continuing education
In addition to the employment contract, employers must abide by collective labor agreements, which must be signed by the employer and a labor representative. Some industries have an industry-specific collective labor agreement. While these are not required by law, employers are encouraged to abide by these as well.
Like many countries, employers in Vietnam must file an annual report on each employee’s yearly income within 90 days of the end of the year. The tax rate for personal income in Vietnam starts at 5% and goes up to 35%. Taxable income includes:
- Monetary and non-monetary benefits
Additionally, Vietnam requires all employers to pay a portion of their employee’s salary to three different social security programs:
Social insurance: employers pay 18% and employees 8%.
Health insurance: employers pay 3% and employees 1.5%.
Unemployment insurance: both employers and employees pay 1%.
The income cap for calculating a worker’s contributions for social insurance and health insurance is set at 20 times the national base salary, and the cap for unemployment insurance is 20 times the regional base salary.
There is no such thing as “at-will employment” in Vietnam, and there are strict circumstances under which an employer can fire an employee. Failure to do so is called a breach of “labor discipline,” and is defined by labor law and each company’s internal rules. The process for terminating an employee needs to include these steps:
- Sending a written notice to the employee and any trade union
- Meeting with the employee
- Publishing the minutes of that meeting
- Issuing a decision
If the dismissal is considered illegal, the employer will have to rehire the employee or pay damages. A law that passed in 2015 may also assign criminal penalties as well. These risks can make outsourcing to Vietnam difficult. In these instances, an Employer of Record solution can help companies manage termination risks overseas.
Foreign Workers in Vietnam
Foreign workers must have both a visa and a work permit to work in Vietnam. An employer must request the work permit for the employee at least one month prior to employee’s start date. A permit must be issued by the local labor authority within seven days of completing an application.
However, it is more complicated to acquire a visa. The foreign worker needs an invitation from a Vietnamese company. The company then files an application with the Immigration Office of Vietnam and can expect a response within five to seven days. The maximum term for a visa is two years, after which a foreign worker would have to apply for a temporary residence card.
Vietnam is the new hotspot for companies looking to expand overseas or to outsource labor. If your global expansion strategy includes Vietnam, reach out to the experts at Velocity Global. We can walk you through our flagship solution, Employer of Record, and show you what it takes to successfully begin business in Vietnam.