Vietnam will eventually have the highest labor cost in the region related to hiring expat workers if these workers are forced to apply for social insurance, officials said.

Foreign workers are seen at a construction site in Vietnam

Starting from 2022, enterprises will have to pay an extra US$362 per month if they employ a foreign laborer at a monthly salary of US$4,000, heard participants at a forum on December 4.

The Government’s Decree 143/2018/ND-CP, dated October 15, 2018, which stipulates in detail the laws on social insurance and occupational safety and health, particularly mandatory social insurance for foreigners, came into force on December 1.

Speaking at the 2018 Vietnam Business Forum, held in Hanoi on December 4, Nicolas Audier, co-chairman of the European Chamber of Commerce in Vietnam (EuroCham), stated that Decree 143 had drawn concern from investors over the potential jump in labor costs and the ebbing attractiveness of the country, which is considered a major destination for investment.

“This accelerating cost could discourage recruiters from cooperating with foreign laborers and prevent foreign talent from entering Vietnam,” Audier remarked.

According to the decree, mandatory social insurance must be applied to foreign workers with work permits, trade certificates or licenses issued by Vietnamese authorities and indefinite-term employment contracts or definite-term contracts extending over one year with employers in Vietnam. Foreign workers in Vietnam have to buy social insurance, except laborers transferring within a business and employees reaching retirement age.

The five social insurance parameters applicable to foreign workers are the same as those for local workers: sickness, maternity, occupational accidents and disease, retirement and mortality, with the employer required to pay 17.5% of the employee’s monthly salary, while the employee contributes 8%.

Addressing a press conference taking place in April, Tran Hai Nam, deputy director of the Ministry of Labor, Invalids and Social Affairs' Department of Social Insurance, noted that the decree - which was then a draft one - was designed to ensure an appropriate roadmap for enterprises to gradually access the insurance system in Vietnam.

Short-term parameters will be prioritized in the initial period.

Starting from December 1, enterprises were only required to pay 3% of wages to the sickness and maternity fund and 0.5% to the occupational accident and disease fund. Also, as of January 1, 2022, businesses and foreign workers will begin to pay 14% and 8% to the mortality and retirement funds, respectively.

Although the decree was aimed to help enterprises get used to the new regulation and ensure equality among domestic and international laborers, firms are worried about the high labor cost.

The Investment and Trade Working Group of the Vietnam Business Forum stated that the payment of social insurance for expat workers in Vietnam was a kind of tax. As such, Vietnam has the highest taxes in the region in terms of volume, rates and large-scale application due to the new policy.

“The cost will become a burden for firms,” the group said, adding that when all the five social insurance parameters are applied in 2022, enterprises will have to pay 10% more per year than they did before the decree was issued.

Besides this, Decree 143 regulates that the Ministry of Labor, Invalids and Social Affairs is responsible for negotiating and signing bilateral and multilateral agreements with foreign partners on social insurance to avoid double imposition. However, lists of the agreements have not been published and their impact on the decree remains unknown.

The group said these problems should be rectified as soon as possible to protect expat workers’ interests.

The Eurocham co-chairman stated that the two long-term parameters, including mortality and retirement, should not be applied to foreign laborers, adding that it is necessary to simplify procedures so that expats can get a single allowance when returning home from Vietnam.

SGT