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Vietnam HR Update
Vietnam HR Update
By Ames Gross
August 2008Published in Benefits & Compensation International Vietnam’s economy is taking off dramatically. After a long period of steady growth, foreign directinvestment (FDI) leapt to $10 billion in 2006 and $21 billion in 2007. The country’s economy, growingat an annual average of 8% for the last few years, is moving beyond basic industries, like garment-making, to more sophisticated products. In 2007, Intel and Foxconn (a large Taiwanese electronicsmanufacturer) each began new projects in Vietnam valued in the billions of dollars. This phase of rapid growth is creating new challenges for HR managers there.
Blue-collar employment
In this high-growth environment, Vietnam’s workforce is expanding very quickly. The country has apopulation of over 86 million, making it the thirteenth most populous country in the world. The 45million working Vietnamese are increasingly moving to the cities to take industrial and service jobs.According to the General Statistics Office of Vietnam, in mid-2006 there were 8.2 million peopleemployed in industry or construction. This number has been increasing by over 500,000 annuallysince 2000. The basic foreign-invested enterprise (FIE) minimum wage, ranging from US$50 toUS$63 monthly, is lower than basic wages in much of China. Vietnam’s plentiful labor makes it adraw to international firms that might have invested in China before.However, over the past few years, significant labor tensions have hit Vietnam. In the first four monthsof 2008 alone, there were about 300 strikes recorded. These strikes usually affect domesticVietnamese companies, but they have also involved large foreign manufacturers like Panasonic andYamaha. Workers’ grievances include inadequate wages, excessive overtime, and illegitimatelydeducted wages. Strikes in Vietnam are almost always illegal strikes, unauthorized by a union.Procedures for legal strikes exist, but they are difficult and are rarely used.High inflation has compounded labor tensions recently. As of May 2008, the annual consumer goods inflation rate in Vietnam had skyrocketed to 25%, one of the highest in Asia. As consumersare hit by rising prices, wage increases have become the primary demand of striking workers. Ingeneral, paying more than the minimum wage may be necessary to retain reliable basic laborers,especially in the more modern, urbanized areas around Ho Chi Minh City. Some enterprises reporthaving to pay low-level workers over US$80 per month (25-60% above the minimum wage).
White-collar employment
As more companies enter Vietnam, recruiting skilled employees for technical and managementpositions is becoming more difficult. Due to cultural differences and the legacy of Communism, themajority of local workers in Vietnam are not well suited to the demands of Western companies.Growing multinational companies are desperate for personnel who have experience in Westerncompanies and can speak English. However, the pool of people meeting these requirements issmall, and due to competition they tend to have inflated salaries. There is also the risk of poaching,which is rising as competition heats up.Vietnamese salary levels are increasing rapidly. White-collar salaries rose by about 12% yearly in2006 and 2007. Annual salary increases for key staff tend to be even higher. In 2007, salary levels for senior positions were at least US$2,500 per month for HR managers, US$4,000 for CFOs, andUS$6,000 for CEOs. Other job functions in high demand include finance, accounting, sales, andmarketing.More expensive expatriates can help when no one else is available, but they often encounter culturaland language barriers. One solution to this dilemma is to hire overseas Vietnamese. These “VietKieu” number over 3 million worldwide, about half of them in the US. Since they usually speak
1/16/2009Vietnam - Vietnam HR Updatepacificbridge.com/publication.asp?id…1/3
 
Vietnamese, they can integrate well with local workforces.The Vietnamese legal system can sometimes make overseas Vietnamese ambivalent aboutreturning to Vietnam to take high-level positions. In Vietnam, civil law and criminal law are not wellseparated. In some cases, parties involved in disputes have been imprisoned for months, even over business disputes that were civil in nature. This is infrequent, but it happens enough for somecandidates to be concerned. Even native Vietnamese may hesitate to take positions like CFO, whichare seen as particularly at risk.In the longer run, training local employees in-house can also provide good returns. Although itrequires more investment in the employee, it circumvents the supply shortage and gives theemployee a more Western business understanding. It can also instill a sense of loyalty and limit job-hopping.
Changes to labor laws
The Vietnamese social insurance system requires contributions of 15% of salary from the employer and 5% from the employee. The system was overhauled recently, significantly affecting some FIEs.The Law on Social Insurance, which went into effect on January 1, 2007, caps taxable “salary” at 20times the minimum wage for contribution purposes. For higher-paid employees, who might earn 60times the minimum wage or more, this will reduce contributions significantly as compared to thepast. On the other hand, contribution rates are slated to rise gradually to 18% from the employer and8% from the employee by 2014.In 2007, the Ministry of Labor, War Invalids, and Social Insurance (MOLISA) warned that only abouttwo-thirds of employers have been paying the required premiums. The government is starting toassess fines as well as charge interest on payments more than 30 days late. FIEs in Vietnamshould make sure they are fully compliant with their obligations. Revocation of a business license isone possible punishment for nonpayment, although this has not actually been reported yet.On July 1, 2007, the new Law on Gender Equality took effect in Vietnam. Passed in November 2006,this law bans “all forms” of discrimination against women, although its details are vague. It alsooffers tax breaks to enterprises employing a large number of women.Unemployment insurance, which currently does not exist in Vietnam, is set to be added to the socialsafety net in 2009. Although the details are still being worked out, employers and employees willprobably contribute 1% of monthly salaries each. Workers who pay into the system for at least 12months will be eligible for public assistance when out of work. FIEs should incorporate this intofuture budgets and be prepared to start paying into the government fund when the program starts up.This may entail more administrative work, since the government unemployment insurance fund willbe separate from the existing social insurance fund.Minimum wages in Vietnam are different for foreign and domestic companies, and also vary byregion. The most recent rise in minimum wages took effect on January 1, 2008. From that date, FIEminimum wages rose by about 15%, becoming VND 1 million (about US$63) in Hanoi and Ho ChiMinh City; VND 0.9 million (about US$57) in other major cities; and VND 0.8 million (about US$50)everywhere else. Minimum wage increases usually come at irregular intervals. In the future, MOLISAis planning to implement increases every year in September.Officially, since 2003, Vietnamese law prohibited enterprises from employing more than 3% or 50(whichever is less) foreigners in their total workforce. This rule received heavy criticism from FIEsoperating in the country. In March 2008, the government issued a new regulation governing the useof foreigners in foreign enterprises. This abolished the 3% maximum, but at the same time, itestablished a new rule on employing foreigners. The new rule is that no less than 20% of an FIE’s“managers and experts” must be Vietnamese nationals. Like the previous 3% rule, this may gounenforced in many cases.In 2008, the government seems to be taking more action to moderate the effects of labor strikes. Inparticular, a decree in June 2008 warned that trade unions or employee representatives could beheld responsible for damages to equipment, materials, etc. if they instigate illegal strikes. Themaximum compensation is three months’ wages per person involved. However, most strikes inVietnam are organized informally and identifying instigators can be difficult.
Differential Tax Rates to Go
Some changes are underway for income taxes in Vietnam. Previously, expatriates working inVietnam were taxed at somewhat lower rates than Vietnamese nationals. As of January 1, 2009, taxrates will be unified for everyone. Most expatriates will not see a significant decrease in their tax bills.However, the top marginal tax rate, for those making over 960 million VND annually (aboutUS$60,500), will be reduced from 40% to 35%. In addition, a wider range of non-salary benefitswhich were not taxable before, such as airfare for visiting home and tuition for children’s schools,will become taxable. 
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