Draft dictates foreigners pay into social insurance

If the new draft decree is approved, foreign employees will be obligated to participate in a social insurance scheme

The Ministry of Labour, Invalids and Social Affairs (MoLISA) has publicised a draft decree guiding the application of compulsory social insurance to foreign citizens working in Vietnam. Under the draft, starting from January 1, 2018, foreign employees would have to participate in compulsory social insurance, and pay insurance premiums based on their salaries, allowances, and other additional amounts carved in their labour contracts.

Specifically, the employees would be required to pay 8 per cent of their monthly salaries for the company’s pension and death gratuity funds, while the employers would have to make monthly fund payments of 14 per cent.

The new draft decree details the implementation of several articles in the 2014 Law on Social Insurance, which requires foreign employees with work permits, practice licences, or practice certificates to have mandatory social insurance packages. This contravenes the 2006 Law on Social Insurance, which states that foreign employees in Vietnam are free from any mandatory or voluntary social insurance.

According to MoLISA’s Department for Employment, the reason for requiring foreign employees to participate in compulsory social insurance in Vietnam is that their population has greatly increased, from 63,557 in 2011 to 83,046 last year. Of this number, those with short-term work permits of less than one year account for only 4.4 per cent.

The number of foreign employees in Vietnam will likely climb in the future due to the country’s deepening international integration, especially the free trade agreements with 55 partners – most notably the loosening restrictions on the movement of skilled employees between ASEAN members under ASEAN Economic Community commitments. This is the motivation behind the draft decree, according to MoLISA.

However, the regulation received censure from some experts familiar with foreign employment issues in Vietnam.

Quach Thi Nhung, head of Human Resources at South Korean garment maker KJ Vina in the southern province of Binh Duong, told VIR, “This regulation will be a new burden for both foreign employees and their bosses. It is just like a type of new tax.”

If this regulation is installed, South Korean experts working at KJ Vina would have to pay more than VND100 million ($4,545) per year into pensions and death gratuity funds, in addition to a large sum that the firm would have to contribute, covering the 14 per cent co-pay.

Currently, these experts – like all foreign employees in Vietnam – are not subject to any social insurance requirement.

Nguyen Viet Ha, managing director of the Vietnam Office of US-backed investment consultant BowerGroupAsia Inc, told VIR, “The regulation could prevent Vietnam from attracting skilled experts and high-quality employees.

“The regulation could also discourage foreign investors from investing in Vietnam because it would increase the costs for hiring foreign employees [with unique, irreplaceable skills]. This would also make Vietnam’s investment climate less attractive,” Ha added, drawing on her 20 years of experience with local labour issues.

Under the existing Labour Code’s Article 170, foreign employees in Vietnam must be highly trained and skilled, such as managers, experts, and skilled employees whose labour cannot be replaced by the local workforce. Their work permits are restricted to two years.

By Ha’s reasoning, the application of compulsory social insurance to foreign employees who will be in Vietnam for a short period of time is quite irrational. They would not be able to enjoy the pensions they would be forced to contribute to – though they likely would receive some allowances once they finished their local work term.

“Many foreign employees in Vietnam also have to pay for their social insurance packages in their home countries, while they would still have to do the same in Vietnam without being able to enjoy pension benefits or their equivalents. That’s unfair,” Ha said.