Severance Pay vs Job-loss Allowance in Vietnam

Feb 25, 2025

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Severance Pay vs Job-loss Allowance in Vietnam

In the evolving landscape of employment law in Vietnam, it is crucial for both employers and employees to understand the nuances of different types of compensation. Two significant forms of financial support that often come into play when employment contracts terminate are severance pay and job-loss allowance. Although some people use these terms interchangeably, they have distinct definitions, eligibility criteria, and calculation methods. In this blog post, we will explore the differences between severance pay and job-loss allowance as outlined in Vietnam’s Labor Code.

Table of Contents

1. Definitions

Severance Pay: This payment refers to the financial support employers provide to employees after they end their employment. According to Article 46 of the Labor Code 2019, employees who have worked continuously for at least 12 months qualify for severance pay under various circumstances. These circumstances include contract expiration, completion of work, mutual termination of the contract, or unilateral termination under certain conditions.

Job-Loss Allowance: Employers specifically design this payment for employees who lose their jobs due to organizational changes, technological shifts, or economic reasons. This allowance applies to employees who have also worked continuously for a minimum of 12 months and who have lost their jobs due to objective factors beyond their control.

2. Eligibility Criteria

Severance Pay: Employees qualify for severance pay under several conditions, including:

Expiration of the employment contract.
Completion of the contracted work.
Mutual agreement to terminate the contract.
Certain legal circumstances, such as a prison sentence or the employee’s death.

Job-Loss Allowance: Employers grant this allowance when employees lose their jobs for specific reasons, such as:

Changes in organizational structure.
Technological advancements leading to redundancy.
Economic crises.
Mergers, acquisitions, or other corporate restructuring.

3. Calculation Methods

To calculate severance pay, use the following formula:

Severance Pay = ½ * Salary for Severance Pay * Duration of Employment for Severance Pay

The average monthly salary is based on the employee’s average earnings over the six months preceding termination.

To calculate job-loss allowance, follow this formula:

Job-loss Allowance = Duration of work eligible for allowance × Monthly salary used to calculate the allowance.

This calculation considers the total length of actual service, minus any time the employee received unemployment insurance benefits or previously received severance pay.

4. Minimum Payment Conditions

Severance Pay: Employees receive half a month’s salary for each year of service.

Job-Loss Allowance: Employees receive one month’s salary for each year of service, with a minimum payment of two months’ salary, regardless of their length of service.

5. Situational Context

Severance Pay: This compensation applies in various termination scenarios, whether initiated by the employer or the employee.

Job-Loss Allowance: Employers specifically provide this allowance for situations where job loss relates to external changes rather than personal decisions.

Conclusion

Both severance pay and job-loss allowance serve as vital forms of financial assistance for employees transitioning out of their jobs. Understanding the distinctions between these two types of compensation is essential for ensuring compliance with labor laws and fostering a fair workplace environment. By communicating clearly about these terms, employers can mitigate misunderstandings and support employee relations during challenging transitions. Meanwhile, informed employees can navigate the complexities of employment termination with greater confidence.

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NetViet offers comprehensive HR solutions for businesses entering or expanding in the Vietnamese market. Established in 2000, NetViet provides expert, seamless, and compliant HR solutions.

Legal Disclaimer: The information provided is for general informational purposes only and does not constitute legal advice. For specific legal advice on compliance in Vietnam, schedule a consultation with NetViet or consult legal counsel.

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