Important Suggestions for Amending the Labor Code
The Ministry of Labor – Invalids and Social Affair (MOLISA) collected opinions on the application file for the formation of the amended Labor Code from December 18, 2017 to January 18, 2018 (please see the Vietnamese content here). Until a detailed draft of the amended Labor Code is circulated, it is not possible to accurately assess the new regulations. However, after reviewing the contents of the application file, we can anticipate the amendment of several key regulations as follows:
The creation and submission of salary scales to local labor-management authorities leads to many difficulties in practice, because:
- An enterprise’s creation of salary scales is only a formality to fulfill the report obligation to the state agency. In reality, the salary and income of an employee are often higher than the amount registered in salary scale.
- The salary scale system of an enterprise is changed every year to adapt to a new regional minimum salary policy, as well to the enterprises’ manufacturing operation, management model, actual revenue and technological level. This places a significant annual compliance expense and administrative burden on the enterprise.
- Currently, it is compulsory to collect the opinions of the Grassroots Trade Union or the Upper Level Grassroots Trade Union when creating a salary scale. This is difficult to implement since many enterprises do not have a Grassroots Trade Union. Consequently, the participation of the Trade Unions in creating the salary scale, salary and bonus payment regulations, and salary increments for employees is only a formality and the employees’ interests may not be realistically assessed or adequately protected.
- The payment of salary to employees is at the sole discretion of the enterprise, since it is inherent in the enterprise’s freedom to conduct business. Therefore, there is no need to register with the state authorities.
On the above grounds, the amended Labor Code is expected to (i) remove the Government’s responsibility in setting standards for making the salary scale; and (ii) no longer require employers to create and submit salary scales to the local labor-management authorities. Instead, employers and employees shall base their salary determinations on the actual business conditions prevailing for each enterprise and actively negotiate together to create the salary scale (which shall be applied and published transparently at the enterprise).
This policy is considered to be an improvement to the 2012 Labor Code and the 2nd draft amendment of the Labor Code 1 in helping to eliminate unnecessary procedures and reduce legal compliance expenses for enterprise.
Increasing the total number of overtime hours to a maximum of 400 hours per year, compared to the current policy of 200 hours per year
The contents of the draft amendment propose two adjustment plans for increasing the total overtime hours of employees, which are (i) not to exceed a maximum of 400 hours per year or (ii) not to exceed a maximum of 500 hours per year. The solution preferred has been “not to exceed 400 hours per year”, although by comparison these two plans do not differ substantively in terms of negative socio-economic impacts and don’t differ at all in matters of gender equality, administrative procedure or the legal system.
In addition, this plan also proposes a change to the overtime salary/wages of employees. Accordingly, the overtime salary is expected to be as follows:
- On ordinary days: the equivalent to at least 150% of salary/wages for the first hour of overtime and 200% for subsequent hours.
- On weekly days off: the equivalent to at least 200% of salary/wages for the first 02 hours of overtime and 300% for subsequent hours;
- On public holidays, paid leave days: the equivalent to at least 300% of salary/wages for the first 02 hours of overtime and 400% for subsequent hours.
In addition, the provision for limiting the monthly total number of hours (not exceeding 30 hours per month) is also expected to be removed.
Therefore, basically, this 3rd draft amendment retains the proposals for adjustment mentioned in the 2nd draft amendment. Below is the comparison table between current regulations of the 2012 Labor Code and the proposed amendments:
The 2012 Labor Code | Proposed Amendments |
Total number of overtime hours | |
The total number of ordinary working hours and overtime hours shall not exceed 12 hours in a day; not exceed 30 hours in a month and the total of overtime hours in a year shall not exceed 200 hours. | An employee’s number of overtime hours and standard hours shall not exceed 12 hours in a day and the total of overtime hours in a year shall not exceed 400 hours. |
Salary for overtime work | |
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Expanding the employee’s right to unilaterally terminate the labor contract
In order to assure an employee’s freedom in searching for better jobs and to prevent and eliminate forced labor, the proposed amendment is expected to recommend two expansion plans regarding an employee’s right to unilaterally terminate the labor contract: (i) an employee has the right to terminate the labor contract without submitting any reasons as prescribed by law, as long as advance notice is provided or (ii) an employee has the right to terminate the labor contract without submitting any reasons as prescribed by law and without providing advance notice to the employer. It should be noted that the amendment proposal for an employee’s right to terminate the labor contract without submitting any reasons was mentioned in the 2nd draft amendment, however, employees are obliged to provide an advance notice in any case.
The two proposed amendment plans will most certainly benefit the employee but will enormously affect the employer’s use and management of labor. If these plans are implemented, the employer is likely to face significant increase in (i) employee recruitment and replacement training costs, (ii) litigation costs arising out of disputes over unilateral termination of labor contracts, (iii) costs for changing the labor management model, the methods of managing working conditions (redrafting of the work rules, collective labor agreement, sample labor contract and other human resource management documents) and (iv) other significant and unforeseen economic consequences when an employee unilaterally terminates the labor contract without any reason at enterprises where the business operation requires positions of continuous labor.
Schedule for raising the retirement age for employees beginning in 2021
The schedule for raising the retirement age in the new proposal has no change compared to the 2nd draft amendment. This means that the retirement age of ordinary employees in normal working conditions remains at 60 years of age for men and 55 years of age for women; and from January 01, 2021, there will be increments of 06 months for each subsequent year until it reaches 62 years of age for men and 60 years of age for women. This proposal, in the 2nd draft amendment, has previously encountered opposing opinions, namely: (i) the raising of the retirement age is not suitable for employees working in manual labor; and (ii) many employees do not wish to prolong their working time but wish to retire at the current age in order to earn a monthly pension, and so, if they work they can earn income from 02 sources. Therefore, the raising of the retirement age, i.e. the prolongation of working time until a pension is earned, will not benefit the employee (i.e. losing the pension amount), etc.
In reality, in order to guarantee the financial stability of the Insurance Fund, without raising the retirement age, only two solutions are possible: (i) raising the contribution amount by employees and enterprises or (ii) reducing the employee’s pension entitlement amount. However, it is difficult to raise the contribution amount as the employees shall bear a greater financial burden and the enterprise’s competitive strength will likely be reduced. Reducing the pension entitlement amount will also negatively affect the quality of life for the pensioners. As a result, the plan for raising the retirement age to balance the time and amount of contribution with the time and amount of entitlement is still currently considered the best solution by the State (with the fact of an aging population and the risk of future insolvency of the Insurance Fund).
This insight is quoted from the Vietnam Labor Law Review (February – March 2018), you can download and read the full file of Vietnam Labor Law Review (February – March 2018) here.
- The 2nd draft amendment of Labor Code remained the obligation for submitting the salary scales to local labor-management authorities.