Labor Subleasing – Flexible Human Resources Solution

In the context of economic recovery, the production and practices of most businesses are still not completely stable.  Many businesses cannot effectively anticipate the scale of human resources in forward planning.  The question arises: when do circumstances require personnel for unexpected production and forward business planning?  Moreover, when a business’s workload unexpectedly increases in a short period of time, what course of action should businesses take?  Outsourcing labor is the solution chosen by many businesses in this situation. This is considered an effective and flexible solution in situations where there is a local labor shortage, where businesses have not had sufficient time to recruit or adequately train their workforce, or in circumstances where businesses only need personnel for a specific, usually, short period of time.


Labor subleasing activities

Current labor subleasing practices are the result of tangible increases in economic demand in the 2000s when a wave of foreign investment poured into Vietnam. These practices became codified and were first recognized by the judicial system in the 2012 Labor Code. Justices and affiliated legal counsel formulated legal guidelines for emerging businesses specializing in providing professional labor leasing services with many specific and professional occupations.  Labor leasing activities are currently concentrated in key economic regions such as Ho Chi Minh City, Hanoi, Binh Duong, Dong Nai…

According to definitions found in Article 52 of the 2019 Labor Code, labor leasing is understood as the employee entering into a labor contract with an employer who is a labor subleasing enterprise. After that, the employee is transferred to a work assignment, and placed under the management of another employer while still maintaining the labor relationship with the employer who signed the labor contract. Furthermore, a labor subleasing activity is a conditional business practice, only carried out by businesses with a labor subleasing license and applicable to a certain number of people with a specific number of jobs.

Accordingly, the labor subleasing enterprise and the labor subleasing party must sign a labor subleasing contract. Labor subleasing businesses do not directly sign labor contracts with workers; however, they have the right to manage and assign tasks to the subleased workers. Employees have an obligation to perform work under the management of the employer.


Legal Conditions for labor subleasing businesses granted a license to operate

Labor subleasing is a conditional activity, according to Article 54 of the 2019 Labor Code and instructions in Article 12 and Article 21 of Decree 145/2020, labor subleasing enterprises are established under the Enterprise Law and must ensure the following conditions:

– Licensed to operate labor subleasing.   Enterprises need to have a license to operate labor subleasing. This condition has only recently been decreed. To be granted an operating license, businesses must ensure the conditions prescribed in Article 21 of Decree 145/2020.  Vietnamese law stipulates that labor leasing is a conditional business practice, therefore, licensed activities must be within the scope of 20 permitted occupations.

– The enterprise has made a guarantee deposit.  The enterprise must make a deposit according to the prescribed level of 2,000,000,000 VND (two billion VND).  Deposit money is used for the purpose of paying salaries, social insurance, health insurance, unemployment insurance, occupational accident and disease, career insurance, and other regimes for subleased workers as agreed in the labor contract, collective labor agreement, internal rules, and regulations of the subleasing enterprise or compensation for subleased workers in cases where the subleasing enterprise violates the labor contract with the subleased employee or causes injury to the subleased employee due to not ensuring the legal rights and interests of the subleased employee.  Workers work within the parameters of the labor leasing model. They are usually seasonal workers, where the work is temporary, and the risk of being laid off is quite high. Therefore, the law stipulates quite strict conditions for these industries and occupations to avoid abuse by parties in labor relations and to protect the rights of workers.

 – Legal representative of the enterprise. The legal representative of an enterprise carrying out labor subleasing activities must ensure the following conditions: They must be a manager of the enterprise according to regulations established in the Enterprise Law. The legal representative must not have a criminal record. The legal representative must also have previous experience working directly as a professional or manager in labor subleasing or labor supply for three years or more within five consecutive years before applying for a license.

– Recruitment and conclusion of labor contracts with employees.  This is the most important condition in the labor leasing relationship.  The labor subleasing party signs a contract directly with the employee and then transfers the employee to a work assignment.  The dispatched employee is then placed under the management of another employer without a formal labor relationship with the subleasing enterprise.  All employee benefits and policies will be paid by the labor lessor who, in turn, must ensure compliance with the law on the content of the labor contract.


Principles of labor subleasing operations 

The principles of labor subleasing are stipulated in Article 53 of the 2019 Labor Code as follows:

The maximum sublease term for employees is 12 months.

The sub-hiring party may utilize the sub-hired laborer in the following cases:

– Temporarily respond to a sudden increase in labor demand within a certain period of time.

– Replace workers who are on maternity leave, have accidents at work, have occupational diseases, or must perform civic duties.

– There is a need to employ workers with high professional and technical qualifications.

 The sub-hiring party is not allowed to use sub-hired labor in the following cases:

– To replace workers who are exercising their right to strike and resolve labor disputes.

– There is no specific agreement on the liability for compensation for labor accidents and occupational diseases of subleased workers with the labor subleasing enterprise.

– Replace workers who are laid off due to structural changes, technology, economic reasons or division, separation, consolidation, or merger.

The outsourcing party is not allowed to transfer the subhired employee to another employer; i.e. they do not utilize subleased workers provided by businesses that do not have a Labor Subleasing License.


List of occupations eligible for labor subleasing

Even though the enterprise is licensed to hire labor, labor leasing enterprises are only allowed to conduct labor subleasing activities for occupations that fall under the list of jobs specified in the Appendix. II Decree 145/2020/ND-CP as follows:  Interpretation, translation, shorthand; secretary, administrative assistant; receptionist; our guide; sales support; project support; programming production machine systems; production and installation of television and telecommunications equipment; operate, inspect, and repair construction machinery and production electrical systems; cleaning buildings and factories; document editing; bodyguard, security guard; marketing and customer care via phone; handle financial and tax issues; repairing and checking automobile operations; scanning, industrial technical drawing, interior decoration; drive; management, operation, maintenance and service on ships; management, supervision, operation, repair, maintenance and service on oil and gas rigs; piloting aircraft, serving on aircraft/maintaining, repairing aircraft and aircraft equipment, dispatching, flight operations, flight supervision.


Characteristics of labor subleasing activities 

The most characteristic feature of labor leasing activities is the concurrent existence of three legal relationships in labor:  the labor subleasing enterprise, the labor subleasing party, and the employee.

– The relationship between the labor subleasing enterprise and the labor subleasing party.  This can be considered a commercial business relationship for profit between one party who is a labor rental trader and the other party who may or may not be a labor hirer. When the labor hiring term expires according to the contract, the labor subleasing party will return the hired laborer to the employment of the labor subleasing party. This can also be considered a form of service contract.  Both parties will sign a labor subleasing contract which contains the content that the labor subleasing party is responsible for providing the labor subleasing party with the quantity of labor required and the standards set by that labor subleasing party. At the same time, the labor subleasing party is responsible for paying the labor subleasing party a service fee.

– The relationship between labor leasing businesses and employees. High Importance

 This system is established on the basis of the labor contract and complies with the provisions of laws on labor contracts.  Employees are subject to the management of the labor subleasing party.  The labor-subleasing enterprise is responsible for paying wages and ensuring the rights of employees according to the provisions of labor law. Leasing businesses still carry out indirect management activities of workers through mobilizing and sending workers to work at locations according to the request and assignment of the subleasing party. The labor subleasing enterprise is responsible for the employee in cases of issues related to the employee’s rights such as labor accidents, occupational diseases, social insurance, and medical expenses

– The relationship between the labor subleasing party and the employee.  The labor subleasing party has the right to manage and utilize the skills of employees but does not sign a direct contract with the employee. The employee works according to the assignment’s requirements or directives and is subject to the management and supervision of the outsourcing party throughout the working period. The difference here compared to a normal labor relationship is that the two parties do not have a labor contract, the outsourcing party does not pay the employee, or when the employee becomes involved in any dispute. In cases when there is any violation of labor obligations or violation of labor discipline, the subleasing party will not deal directly with the employee, but will instead, return the employee to the labor subleasing party for resolving the dispute.


Advantages of labor leasing activities

Labor subleasing is a flexible method, especially in urgent situations and for temporary jobs requiring immediate filling. The obvious advantages of the labor outsourcing method are:

– Timely addition of personnel.  The advantage of having a suitable quality labor source in the shortest time possible when there is an urgent need for labor and personnel to quickly meet a given production schedule.

– Save time and recruitment costs.  Streamlining the employee recruitment process involves factors such as job posting, screening, and interviewing. Streamlining the process minimizes the time necessary for searching for human resources which can be very time-consuming. Additionally, using hired labor helps businesses minimize this time while still sourcing suitable personnel.

– Be proactive in your work.  For labor subleasing businesses, labor subleasing services contribute to solving immediate difficulties and problems quickly and conveniently for positions that do not require maintaining regular staff such as accounting services, and translation services. Companies can adjust and arrange production schedules and practices for available labor resources from the labor subleasing company.

– Reduce costs and management time.  Businesses hiring workers do not have to worry about resolving possible human resources issues which can arise such as benefits and obligations for employees. This, in turn, helps to limit legal risks during the employment process.

– Minimizes liability risks to employees.  Businesses hiring workers can minimize the risk of being responsible for ensuring the livelihoods of workers such as paying wages, bonuses, and insurance, especially in periods when revenue is high, or conversely when orders are reduced and economic contraction occurs. Furthermore, resolving risks from the employee perspective such as accidents and strikes is also the responsibility of the labor lessor.

In case of necessity, when the business faces the obstacle of scarcity in human resources, outsourcing labor has the potential to be an economical, flexible, and effective solution, that allows businesses to quickly meet appropriate human resource needs.


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