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Vietnam: Draft of the Revised Law on Social Insurance

By 6 Mins Read

In brief

In March 2023, the government issued a draft of the Revised Law on Social Insurance (“Draft Law“) for public comments. The Draft Law will be available for public comments until 30 April 2023.

The Draft Law presents a number of notable changes to the currently applicable regulations that may bring about a significant impact if they are eventually approved in the final version of the Draft Law.

Below is a summary of major updates under the Draft Law.

Recommended actions

Enterprises should review the proposed changes carefully. If you would like to submit comments on the Draft Law, please send them to us for consolidation with other commentary. We are working closely with the advocacy teams of various different chambers of commerce and business associations regarding the submission of comments on the Draft Law.     

If you would like to discuss any issues concerning these potential insurance policies and their impact in detail, as well as how our Firm can help your business deal with the proposed changes if they are approved, please do not hesitate to contact us.

We will promptly inform you should there be any further development regarding these matters.

In more detail

1. Stricter sanctions for violations of social insurance regulations

The Draft Law proposes the introduction of various new liabilities and sanctions on employers that violate compulsory social insurance regulations, including the following:

  • Liabilities concerning employees: There will be supplements added to the compensation owed to employees if an employer fails to promptly participate or inadequately participates in compulsory social insurance, damaging an employee’s rights and benefits.
  • Liabilities concerning the authorities: Employers that evade compulsory social insurance contributions will: (i) be compelled to return the evaded contribution amount in full; (ii) face corresponding administrative sanctions; and (iii) further pay 0.03% interest on the evaded contribution amount for each day of the evasion period.
  • Other consequences: The competent authorities could potentially decide to temporarily cease the use of invoices of employers who evade social insurance contributions for six months or more. If an employer evades social insurance contributions for 12 months or more, the competent authorities have the power to postpone such employer’s ability to exit the country. Furthermore, criminal liabilities could also apply if an employer’s evasion of social insurance contributions is reflective of criminal activity.

2. Introducing new social retirement benefits

The Draft Law introduces a new concept of “social retirement benefits” to the social insurance regime. Under the proposed Draft, Vietnamese citizens will be entitled to social retirement benefits if they: (i) are at least 80 years old; and (ii) do not receive pensions or other monthly social insurance benefits. Additionally, the Draft Law proposes that employees who are not eligible for pensions and are not yet eligible for social retirement benefits may, subject to certain conditions, choose to receive certain monthly allowances before reaching the age of eligibility for social retirement benefits. 

3. Broadening compulsory social insurance subjects

The Draft Law expands the scope of subjects participating in social insurance by adding (among others) Vietnamese citizens who: (i) work under a contract that includes content on salary payment and management, as well as administration and supervision of a party, regardless of the name or description of such contract; (ii) work under a part-time labor contract with a monthly salary equal to or higher than VND 2 million (approx. USD 87); (iii) work as business managers that do not receive a salary; or (iv) are owners of household businesses.

Further pursuant to the Draft Law, foreign employees will not be subject to compulsory social insurance contributions in Vietnam if “they are the governed object of the international treaties that Vietnam has signed and participated in – which provide different regulations.” This is to recognize commitments under bilateral social security agreements between Vietnam and other countries.

4. Adjusting the salary used as the basis for compulsory social insurance premiums

The Draft Law introduces two options for the salary used as the basis for payment of compulsory social insurance premiums (applicable to the private sector):

  • Option 1: The salary used as the basis for payment of compulsory social insurance premiums includes “salary, allowances and other supplements that can be determined with a specific amount along with the salary agreed in the labor contract according to the labor law.”
  • Option 2: The salary used as the basis for payment of compulsory social insurance premiums includes “salary and allowances, as well as other supplements according to the labor law.”

The salary used as the basis for payment of social insurance contributions under Option 2 is broader than under Option 1.

Furthermore, the Draft Law introduces that the lowest and highest rates used as the basis for payment of compulsory social insurance premiums will be VND 2 million (approx. USD 87) and VND 36 million (approx. USD 1565), respectively. Accordingly, the concept of “20 times the general minimum wage,” as provided under the existing regulations, would no longer apply.

5. Shortening the contribution period for pension entitlement

The Draft Law reduces the minimum number of years of contribution to the social insurance fund needed to be eligible for pension benefits from “20 years” to “upwards of…15 years.” This is intended to broaden the scope of people entitled to social insurance benefits.

6. Other notable changes under the Draft Law

  • Social insurance books will be implemented in electronic format (meaning there will no longer be a requirement to re-issue social insurance books, as there is with physical versions). Current physical social insurance books will remain valid for the duration of their stated validity period.
  • Employees who do not work and do not receive wages for 14 or more working days in a month will still be entitled to monthly social insurance contributions in certain cases (e.g., upon the agreement of both parties). 
  • Lump-sum payouts (if there are no social insurance contributions for 12 months or more) will be divided into two parts: 50% of the payout will be paid upon request and the other 50% will be paid upon reaching the retirement age. Under the current regulations, 100% of the lump-sum payout is paid at the time of request.
  • “Maternity allowance” and “occupational accidents allowance” will be supplemented into the voluntary social insurance regime.
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Author

Thuy Hang Nguyen is a partner in Baker McKenzie's Ho Chi Minh City office and the head of the Employment and Labor, and Compliance and Investigations practices in Vietnam.
Her diverse working experience, broad knowledge in various areas of law, and business management qualifications allows her to provide clients with practical and commercially savvy legal advice, and to create effective, strategic and innovative solutions for her clients to navigate around the ever-changing legal landscape of Vietnam.
As head of Baker McKenzie Vietnam’s Employment and Labor practice, Hang is in charge of developing and providing strategy for the practice, training and coaching team members and coordinating the global and regional employment practices when related to Vietnam. She is a member of the Steering Committees for the Firm's JAO and Asia Pacific Employment Practice Groups, and the Global Immigration and Mobility Group. Hang is also a leading authority and frequent speaker on employment and labor law in Vietnam and the Asia Pacific region.

Author

Van Trung Khuat joined Baker McKenzie in Ho Chi Minh City in April 2012, and is experienced in areas of employment, dispute resolution, and corporate compliance and investigation. He is an accredited mediator at the Center for Effective Dispute Resolution (CEDR) in London and at the Vietnam International Commercial Mediation Center, and frequently publishes articles and leads seminars on both advisory and contentious labor and employment law issues in Vietnam. During his time with Baker McKenzie, Trung has also worked in the Firm's Hanoi and Chicago offices. He also acts as Co-chair of the Human Resources and Training Committee of the European Chamber of Commerce in Vietnam.

Author

Trung started his career in 2000 as an adviser on foreign investment in Vietnam. His expertise covers a broad range of practices, including corporate, foreign direct investment, labor and employment.
Since joining Baker McKenzie, Trung has specialized in labor and employment law. He has been extensively involved in numerous areas, including employment, labor, compensation and immigration.
Trung has vast experience working on equity award plans for employees. He is the main contact point for Baker McKenzie in Vietnam on this matter.
Trung has also been involved in various development projects sponsored by foreign NGOs and international organizations, which means he has extensive knowledge and insight in both the private and public sectors, as well as regulatory and development issues.

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