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www.dezshira.com Vietnam Wages in Perspective and HR Considerations for FDI in Footwear/Textile Sectors 9 th FHKI VN Seminar Dustin Daugherty
Transcript of Vietnam Wages in Perspective and HR Considerations for · PDF fileVietnam Wages in Perspective...
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Vietnam Wages in Perspective
and HR Considerations for FDI
in Footwear/Textile Sectors 9th FHKI VN Seminar
Dustin Daugherty
www.dezshira.com
Dezan Shira & Associates A pan-Asia specialist FDI and Professional Services firm
1991 Dezan Shira & Associates’ establishment
300+ Our team of legal, tax, accounting, audit, and business
intelligence professionals
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Singapore; liaison offices in Italy, United States and
Germany; and alliance offices in Indonesia,
Malaysia, Philippines, and Thailand
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Our Vietnam Offices
4 2016/11/16 www.dezshira.com
Ho Chi Minh City Office:
Oscar Mussons
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Phone: +84 8 3930 2828
Email: [email protected]
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Dustin Daugherty
Associate
Phone: +84 4 3942 0443
Email: [email protected]
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We are a one stop shop, offering the following services:
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Asia Briefing, a subsidiary of Dezan Shira & Associates, publishes business magazines
and guides for China, India, Vietnam, Singapore and other key nations in emerging Asia
Wages
Section I
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Comparison of Wages (USD)
Flying Geese Model
• As a country moves up the manufacturing value
chain to more complex activities, it loses its
comparative advantage in simple manufacturing.
Hence, another country takes its spot in the value
chain.
China
• Improving living standards have led to increased
labor costs.
• Due to its increasingly protectionist policies, cost of
doing business in China has also gone up in the real
term.
• Hence, a move to a different manufacturing base, or
a China+1, would be logical to keep costs low.
• Reminiscent of the move of manufacturing from
Singapore, Taiwan, HK, and South Korea to China.
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Comparison of Wages (USD)
0 10000 20000 30000 40000 50000 60000 70000 80000
Thailand
Singapore
Philippines
Myanmar
Malaysia
Laos
Indonesia
Cambodia
Hong Kong
China
Vietnam
Cost of Labor (AverageYearly Income)
GDP Per Capita (PPP)
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Minimum Wages (USD)
Minimum wage rise
2017 Region 1: US$168
Region 2: US$148
Region 3: US$130
Region 4: US$115
7.3% /
US$9.5
Smaller
production cost
increase from
2016
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Vietnam’s Minimum Wage in Detail
NOTE: Employees who have passed vocational training must get at least 7% higher than
minimum
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Average Manufacturing Wages (USD)
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Labor Cost – Practical Examples
Position Salary range
USD/month
SS
(employer)
Total Cost
(USD/month)
Operator, unskilled worker 200 - 250 44 - 55 244 - 305
Skilled worker with experience 250 - 380 55 - 84 305 - 464
Office clerk 300 - 350 66 - 77 366 - 427
Engineer with experience 600 - 700 132 - 154 732 - 854
Supervisor 600 - 700 133 - 154 733 - 854
Production manager 1,000+ 220 - 227 1,220+
General Director 2,000+ 227 2,227+
Extra costs:
• Overtime payment
• Allowances: lunch, company bus, transportation, housing, mobile, etc
• 13th month salary and Tet bonus
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Starting a Business
14
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Tax Regime
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Laos, Myanmar, Cambodia
Rankings: 1 (worst) - 7 (best)
Based on World Economic Forum Global
Competitiveness Report 2015-16
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Vietnam’s Key Economic Regions
• The North:
– Popular China+1 location due to proximity.
– More capital-intensive manufacturing such as electronics, automobile, etc.
• The South:
– Overall most productive KER.
– Diverse industries: fuels (oil) products, textile, chemicals, fertilizers and rubber.
• Central Competitiveness:
– Lowest wages.
– Top Provincial Competitive Indices in Da Nang and Quang Nam
– Central location between other 2 KER’s.
– Local underserved middle class.
– Except Da Nang (Zone 2), the center is all Zone 3 or Zone 4 (mostly 4).
– VSIP Quang Ngai in Zone 3, VSIP Nghe An in Zone 4
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Implications for Footwear, Textile, Other
Labor Intensive Industries in Vietnam
• In terms of combination of FTA network with low labor costs and costs of doing business generally (compliance, tax etc.), Vietnam is top choice in ASEAN for foreign producers in labor intensive industries
• Within Vietnam, the Center is most competitive for pricing, and the region has ample infrastructure (new Industrial Zones, highway networks) and a strong port facility in Da Nang
• Developing port cities in Vinh and Thanh Hoa will act in support of Da Nang, by far the economic center of region to deepen logistics network in Central VN
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Implications for Footwear, Textile, Other
Labor Intensive Industries in Vietnam
• These considerations have led global leaders in footwear industry to enter the market, including Nike and Addidas
• Over 1,100 companies operating in footwear industry, of which roughly 70% of larger exporting firms are fully foreign owned, or a joint venture with local partner
• Industry exported over 150 million pairs of shoes/year by 2014-2015, growing very fast year on year
• However majority of market is OEM manufacturers (many from Taiwan and SK!) for more globally recognized brands
• VN knows it must focus on moving up value chain in footwear industry, but the opportunity will exist for at least a decade in labor intensive activities because of low cost of labor, the time to act is now!
HR Considerations
Section II
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Labor Contracts and Probation Periods
• A labor contract with a term of 3 months or longer must be confirmed in writing and signed before employment
• Terms of labor contracts:
(i) Indefinite term
(ii) Definite term from 12 to 36 months
(iii) Seasonal contract with term of less than 12 months
• Definite and seasonal contracts can be renewed only once. The 2nd renewal must be an indefinite term contract.
• Termination should comply with laws and provide prior notice of:
(i) Indefinite term contract: at least 45 days
(ii) Definite term contract: at least 30 days
(iii) Seasonal contract: at least 3 days
Only One
30-60 days
>85% of
regular salary
Probationary Periods
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An Introduction to Overtime in Vietnam
Regular working hours
• 8 hours a day/48 hours a week
• 6 hours a day for employees working in heavy or hazardous conditions
Anything exceeding
Type of Overtime Rate of Compensation
During day time, weekday 150%
During day time, weekend 200%
Public holiday, paid leave
day
300%
Night work during weekday Extra 30%,on top of rates
above
Overtime work during night Extra 20%, above rates
applied to night work
Vietnamese Overtime Compensation
Overtime limit
• 30 hours per month/ 200 per year
• In special cases: 300 hours per year
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• Working overtime
• Working at night
• Taking long distance business trips
As of 7th month of pregnancy
Women with babies under 12 months
Overtime Regulations
18
Working time max. 8 hours/day, 40 hours/week
Overtime and night work only in certain industries
Prohibitted: working in dangerous conditions or with potential exposure to toxic substances
Under 15 yrs: no overtime or night work
Prohibited
Minor Employees: age 15 to 18
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Holidays and Leave • Public holidays: 10 days
Calendar New Year's Day 1 day
Lunar New Year 5 days
Hung King's Anniversary 1 day
Victory Day 1 day
International Labour Day 1 day
National Independence Day 1 day
• Annual paid leave: 12 ~ 16 days, increases by 1 day for every 5 years working for an
employer
• Other paid leaves:
Marriage 3 days
Marriage of children 1 day
Bereavement i.e parents, parents-in
-law, spouses, or children 3 days
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Managing Labor Disputes
Step 1:
Soliciting opinion
Step 2:
Notice of starting time of a strike
Strikes are a temporary, voluntary, and organized stoppage of work by the worker’s
collective to achieve set demands in the process of labor dispute resolution.
• Accept some or all demands
• Temporarily close the
workplace
• Request court to declare the
strike as illegal
Employers‘ rights Procedures for going on strike
Executive Committtee of Trade Union‘s rights
• Withdraw the decision to go on strike
• Request the Court to declare the strike as lawful
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Strikes
If a strike...
Does not arise from an interest-based collective labor dispute
Is organized for employees who are not working for the same employer
Occurs whilst the collective labor dispute is being resolved or has not been resolved
Occurs in an enterprise in the list of enterprises provided by the Government in which strike is prohibited
Occurs when the decision to postpone or cancel the strike has been issued
It is illegal!
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Managing Strikes
Disagreement
Meeting
Settlement
Trade union organizing
the strike: disagreement
with at least one of the
contents specified in the
compensation
Send employer a request
for negotiation
- Agree on details of
meeting for negotiation on
compensation for damage
- Mandatory meeting
minutes -> legal basis for
rights and obligations of
both parties
Successful negotiations:
both parties must abide
by the terms of the
agreement
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Social Security and Trade Union Fees
Employee Employer Total
Social Insurance 8% 18% 26%
Health Insurance 1.5% 3% 4.5%
Unemployment Insurance 1% 1% 2%
Total Social Security 32.5%
Trade Union Fee 2% 2%
TOTAL 10.5% 24% 34.5%
Social security is compulsory for employees with labor contracts of 3 months or longer in
enterprises which employ one or more workers. From Jan. 1st, 2018 onward, this also
applies for workers with contracts from 1 to 3 months in length.
Social Insurance covers sickness, maternity, occupational disease and accident,
retirement and survivor pension
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Minimum Payments and Caps on Social
Insurance
Minimum Level Maximum Level
Social Insurance
Regional minimum wages:
2016: Region 1: 3,500,000
~ 157 USD/month
Region 2: 3,100,000
~ 139 USD/month
Region 3: 2,700,000
~ 121 USD/month
Region 4: 2,400,000
~ 107 USD/month
Most of cases: 7% higher
than minimum
20 times of common minimum wage:
Current: 1,150,000 x 20 = 23,000,000
VND/month ~ 1,030 USD/month
From May 1st, 2016: 1,210,000 x 20 =
24,200,000 VND/month ~ 1,085 USD/month Health Insurance
Unemployment
Insurance
20 times of regional minimum wages
2016: Region 1: 3,500,000 x 20 = 70,000,000
VND/month ~ 3,139 USD/month
Region 2: 3,100,000 x 20 = 62,000,000
VND/month ~ 2,780 USD/month
Region 3: 2,700,000 x 20 = 54,000,000
VND/month ~ 2,422 USD/month
Region 4: 2,400,000 x 20 = 48,000,000
VND/month ~ 2,152 USD/month
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Trade Unions
• Starting from January 10th, 2014, all enterprises must
pay a Trade Union fee regardless of whether they have
their own Trade Union.
• The employer must register with the local trade union or
industry trade union and cooperate with them to set up
the company trade union. This must be completed no
later than 6 months from the date they start operations.
Otherwise, the superior trade union shall appoint a
provisional executive committee of the trade union to
represent and protect the lawful rights and interests of
the employees and the labor collective.
• Penalty: maximum VND75 million ~ USD3,363 for not
paying or not paying in full the Trade Union fee
Our Practice in Vietnam
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115 Tran Hung Dao Street
Hoan Kiem District, Hanoi
Ho Chi Minh City
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