Legal Notes on Salary Negotiation with Foreign Employees
When hiring foreign employees, HR departments often focus on visible elements such as salary, benefits, work visas, and work permits. However, one detail that is often overlooked—but critically important—is severance pay. Whether the employee is Vietnamese or foreign, this benefit is strictly protected under Vietnamese law. Ignoring this cost from the start can leave companies unprepared when employment ends.
At DEDICA, we will walk you through key regulations on severance pay for foreign workers and share practical insights to help you manage HR matters legally, transparently, and strategically.
Are Foreign Employees Entitled to Severance Pay?
Many businesses mistakenly believe that foreign workers are not eligible for severance pay due to the temporary nature of their contracts. This is incorrect.
According to Article 46 of the 2019 Labor Code, any employee—including foreigners—is entitled to severance pay if:
They have worked regularly for 12 months or more;
The labor contract terminates legally (not due to dismissal or voluntary resignation without just cause);
The employee did not participate in unemployment insurance during their work period.
For example, if a foreign employee signs a 24-month contract and it ends without renewal, they are still entitled to severance pay—provided they weren’t enrolled in unemployment insurance, which is common since many foreign workers don’t qualify for it in Vietnam.
How to Calculate Severance Pay Correctly?
The formula is straightforward but must be applied legally:
Severance Pay = 1/2 Monthly Salary x Number of Years Worked
Where:
Salary is the average contractual wage in the 6 months prior to termination (excluding bonuses and non-fixed allowances);
Work period is the actual time worked minus any time covered by unemployment insurance.
Example: A foreign expert worked for 3 years, didn’t pay unemployment insurance, and earned VND 60 million/month. The severance pay owed would be:
1/2 x 60,000,000 x 3 = VND 90,000,000
If this cost is not planned for in advance, the company may face cash flow or legal surprises during contract termination.
Tying Responsibilities to Rights in the Employment Contract
To avoid disputes and safeguard corporate reputation, HR and legal teams should include a severance clause in the labor contract from the start. Some tips:
Clearly define the conditions for severance pay, e.g., for employees who are not enrolled in unemployment insurance and have worked for at least 12 months;
Base calculations on base salary only, excluding bonuses or other benefits.
This improves transparency and professionalism while preventing future misunderstandings.
Common Disputes & Prevention
Many companies face post-contract disputes with foreign workers over severance pay—even when termination was mutual. Why? They lack documented proof of previous discussion or payment.
Often, agreements are verbal or poorly documented.
Preventive measure: Always create a termination minutes document signed by both parties, detailing all payments, including or excluding severance.
In some cases, courts have ruled in favor of foreign workers, ordering companies to pay severance even when a separate agreement existed—because the document was vague or legally invalid.
HR Checklist for Legal and Harmonious Termination
Before terminating a foreign labor contract:
Review severance eligibility under the Labor Code;
Check unemployment insurance contributions;
Prepare a detailed termination agreement with signatures;
Archive all payment receipts, notices, and agreements.
With proper preparation and legal support, businesses can reduce unnecessary risks and build a compliant, transparent workplace.
In today’s globalized business environment, foreign workers are key players in Vietnam’s economy. Ensuring their legal rights is not only a legal duty but a reflection of ethical commitment and corporate responsibility.
Need help drafting compliant labor contracts for foreign employees?
Let DEDICA guide you through drafting, reviewing, negotiating, and resolving legal issues related to foreign employment.
📞 Hotline: (+84) 39 969 0012
🏢 HQ: 144 Vo Van Tan St., Vo Thi Sau Ward, District 3, HCMC
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