Paying severance allowance for foreign employees: Key considerations for employers

As businesses in Vietnam increasingly employ foreign workers, issues relating to employee entitlements upon termination of employment have become a matter of growing concern. One frequently raised question is whether foreign employees are entitled to severance allowance, particularly given that they are not subject to Vietnam’s unemployment insurance regime. This article analyzes the current legal framework governing severance allowance entitlements and the method for determining the employment period used to calculate severance allowance for foreign employees. 

1. Conditions for foreign employees to receive severance allowance 

According to Article 46 of the Labor Code 2019 and Clause 1 Article 8 of Decree No. 145/2020/ND-CP, an employer is required to pay severance allowance to an employee upon termination of the labor contract if all of the following conditions are satisfied: 

1. The labor contract is terminated under Clauses 1, 2, 3, 4, 6, 7, 9, or 10 of Article 34 of the Labor Code 2019; 
2. The employee has worked regularly for the employer for at least twelve (12) months; and 
3. The employee does not fall into either of the following circumstances: (1) Being eligible for pension benefits in accordance with social insurance laws; or (2) Unilaterally abandoning work for five (05) consecutive working days or more without a legitimate reason. 

Vietnamese labor laws do not contain any provision excluding foreign employees from eligibility for severance allowance. Therefore, as a matter of principle, where a foreign employee satisfies the statutory conditions above, the employer is obligated to pay severance allowance upon termination of employment. 

2. Determination of the working period for calculating severance allowance for foreign employees 

Under Vietnamese law, foreign employees working in Vietnam are not subject to compulsory unemployment insurance.⁴ In such a scenario, the employer is responsible for paying the employee an additional amount equivalent to the unemployment insurance premium contribution concurrently with each regular pay period, as prescribed by labor laws.⁵ 

According to Clause 3 of Article 8 of Decree No. 145/2020/NĐ-CP, the working period used to calculate the severance allowance for a foreign employee is determined by taking the total actual working period with the employer and subtracting the period during which the employee was already paid the amount equivalent to the unemployment insurance premium along with their salary. Consequently, whether an enterprise has fully fulfilled its obligation to pay this equivalent amount will directly affect the final working period used as the basis for the severance calculation. 

2.1 Scenario 1: The employer has fully paid the equivalent unemployment insurance amount 

Where the employer can sufficiently demonstrate that, throughout the employee’s entire period of employment, it has paid together with the employee’s salary an amount equivalent to the employer’s unemployment insurance contribution in accordance with applicable laws, the corresponding period will be excluded from the calculation of severance allowance. In this case, the employer may argue that no severance allowance obligation arises in respect of such period, as the employment period used for severance calculation would effectively be reduced to zero after the statutory deduction. 

However, employers should pay particular attention to their burden of proof. Supporting documents such as payroll records, payslips, payment confirmations, salary policies, or other relevant records should clearly demonstrate that the equivalent unemployment insurance amount was actually paid to the employee. 

2.2 Scenario 2: The employer has failed to pay or has not fully paid the equivalent amount 

If the employer has not paid the equivalent unemployment insurance amount or lacks sufficient evidence to prove such payment, the corresponding period cannot be deducted when calculating severance allowance. In such circumstances, the employer is required to pay the severance allowance to the foreign employee for all or part of the working period that was not offset by the equivalent unemployment insurance payments. 

In addition, employers that fail to pay or fully pay the amount equivalent to the unemployment insurance contribution may be exposed to the following legal risks:⁶ 

1. An administrative fine ranging from VND 6,000,000 to VND 40,000,000 (applicable to organizations, depending on the number of affected employees); and 
2. A remedial measure forcing the employer to fully pay the amount equivalent to the unemployment insurance premium contribution plus interest calculated at the highest demand deposit interest rate announced by State-owned commercial banks at the time the administrative penalty is imposed. 

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^{(4) Clause 1 and 3 of Article 2 of the Employment Law 2025.}

^{(5) Clause 3 Article 168 of the Labor Code 2019.}

^{(6) Article 17 and Clause 3 Article 6 of Decree 12/2022/ND-CP.}

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2. Termination of the labor contract to perform a different job for the same employer

Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

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Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Employment and contact our team of lawyers in Vietnam via email info@apolatlegal.com.

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