Compulsory social insurance for expats to go ahead despite firms’ concerns

April 02, 2018 - 09:00

A controversial rule requiring foreign workers in Việt Nam to make social insurance payments is likely to be put into practice soon, several months after it took effect according to law.

A lot of foreigners work as English language teachers in Việt Nam. — VNS Photo Trương Vị
Viet Nam News

Thu Hà – Mai Hiên

HÀ NỘI — A controversial rule requiring foreign workers in Việt Nam to make social insurance payments is likely to be put into practice soon, several months after the Government’s issuance of a decree to implement the new provision of the Law on Social Insurance 2014, which came into effect on January 1 this year.

The chorus of varied and strong opinions from the business community and related ministries and sectors has delayed the issuance. However, Trần Hải Nam, deputy head of the Department for Social Insurance under the Ministry of Labour, Invalids and Social Affairs (MoLISA), said a draft decree had been sent to the Government, after getting the nod from the National Assembly Standing Committee in mid-March. Nam said the draft is expected to be ratified in about a month.

The draft decree is expected to narrow the number of foreigners affected by the compulsory social insurance policy, which according to the Law on Social Insurance 2014 includes foreign workers in Việt Nam who possess work permits, practice certificates or practice licences issued by competent Vietnamese authorities.

Under the upcoming draft decree, “only foreign workers working in Việt Nam under labour contracts of at least one year are entitled to the compulsory social insurance scheme,” Nam told Việt Nam News.

According to the MoLISA, expats who fit this description numbered about 62,000 in 2016, accounting for 95.6 per cent of all expats working in Việt Nam.

“This group, however, excludes foreign workers who are temporarily transferred to work in Việt Nam from mother companies abroad, regardless of whether they have labour contracts or not,” Nam said, adding this would be clearly stated in the draft decree.

This exclusion is one difference between the current draft and a draft decree released last year.

Nam said the additional detail was aimed at addressing the concern of foreign enterprises, especially South Korean and Japanese firms, regarding the duplication of social insurance payments.

According to current labour law, foreign workers under temporary work transfer from mother companies abroad are not required to sign labour contracts with subsidiary companies in Việt Nam. However, in reality, many have to do so at the request of local competent authorities and to tackle tax issues, according to the Japan Business Association in Việt Nam. Meanwhile, all of them already pay social insurance in their home country.

Implementation roadmap

The social insurance package for foreign workers, which covers sickness, maternity leave, occupational diseases and accidents, retirement and death, will not be implemented all at once but will follow a roadmap, Nam said.

In the initial phase, which is expected to end at the beginning of 2022, the package will only cover sickness, maternity leave and occupational disease and accidents.

Employers would pay an amount equivalent to 3.5 per cent of an employee’s monthly salary or of the capped salary for contributions to social insurance regulated by the State, currently VNĐ26 million or US$1140, in case the former exceeds the latter.

Employees, meanwhile, do not have to pay anything.

At the beginning of 2022, the social insurance scheme will be expanded to cover retirement and death, which will require employers to pay an extra 14 per cent while employees must pay 8 per cent of their monthly salary, including wages, allowances and supplements. 

The delay in implementing long-term social insurance regimes is aimed at providing enough time for the Government to sign bilateral agreements with other countries to avoid duplication of social insurance contributions and to guarantee the benefits of insured foreigners when they finish working in Việt Nam, Nam said.

Cost increase

Many foreign enterprises, however, have complained that compulsory social insurance for foreign workers will increase employment costs for enterprises, especially those who have a large number of foreign workers.

“We have researched and made a comparison of the social security contribution in seven Asian countries. Accordingly, the rate of contribution and the contributed amount of Việt Nam is highest among others,” Mai Lan Anh, chairwoman of HR and Training Sector Committee, the European Chamber of Commerce in Vietnam, told Việt Nam News. Though unusually high, the contribution is typically paid by Vietnamese labourers and not foreign workers—after the policy is implemented, all will pay the same high rate.

She added that apart from the social insurance premiums that both employers and employees have to pay, the administrative cost related to the procedure is also a matter of concern especially when foreign workers generally cannot speak Vietnamese.

Keisuke Taniguchi of the Labour Department, Japan Business Association in Việt Nam, worries that the new regulation would have a negative impact on supporting industries, especially as labour costs in Việt Nam are already on the rise.

“Small- and medium-sized enterprises which contribute to the development of supporting industry are sensitive to labour costs. They may hold down investment in Việt Nam or reduce the number of foreign experts who transfer technical skill to Vietnamese employees,” he told Việt Nam News through email.

Nam from MoLISA plays down these concerns.

“Under the current labour law, even for the employees who are not subject to compulsory social insurance, employers are still required to pay them an amount equivalent to the social insurance premium in their monthly salary so that they can join social insurance scheme by themselves.”

Nam said the new rule therefore would not increase costs for enterprises, but admitted that in reality, many enterprises have failed to practise according to law.

Although sharing the business community’s concerns, Bùi Sỹ Lợi, vice chairman of the National Assembly’s Social Affairs Committee, said compulsory social insurance for foreign workers was necessary to ensure fairness between Vietnamese and foreign workers and between enterprises which only use domestic workers and those that employ foreigners.

“Until now, enterprises using foreign workers have already enjoyed certain preferential policies in terms of tax and social insurance,” he said.

The implementation of regulation, however, faces a tough road ahead, given the fact that a large number of enterprises have already evaded paying social insurance for their Vietnamese employees, leaving a social insurance debt of trillions of đồng.

An HR consultant of a big company providing advisory services to businesses told Việt Nam News on condition of anonymity that many of her business clients were waiting for the detailed guidelines in the Government’s decree to decide their next step. 

“Some businesses have no problem with the new regulation, while some are more sceptical, saying they would comply with it only if they find it reasonable,” she said. — VNS