Vietnam: Avoid worker misclassification & Compliance Risks

Oct 08, 2025

HR & Payroll

Worker Misclassification in Vietnam: Legal Risks Companies Must Avoid

The Vietnamese labor market is highly flexible. Many businesses, especially foreign companies, use freelancers and independent contractors. However, incorrect classification of these contingent workers can cause serious legal problems. This includes significant financial penalties and unforeseen costs. This post from NetViet HRS clarifies why correct employee classification is crucial. We detail the classification forms under Vietnamese law. Most importantly, we show how businesses can avoid the risks of worker misclassification in Vietnam.

Table of Contents

The Significance of Correct Worker Classification

Correctly classifying the employment relationship is vital. It’s a core legal requirement. It directly impacts the rights and obligations of both the employee and the company.

Compliance with Labor Law: The 2019 Labor Code requires clear worker classification. This determines the employer’s mandatory duties. These duties include:
- Paying mandatory Social, Health, and Unemployment Insurance (SI/HI/UI).
- Providing statutory entitlements like annual leave and maternity leave.
- Adhering to rules on working hours and overtime compensation.
Avoiding Penalties and Arrears: If inspectors find worker misclassification in Vietnam, the business faces severe consequences. This often means paying full arrears for unpaid SI/HI. Penalties and late-payment interest add to the financial damage.
Preventing Labor Disputes: Misclassification is a top cause of lawsuits. When workers lose out on rights (like insurance), they can sue. Litigation is both time-consuming and costly for the business.

Types of Worker Classification Under Vietnamese Law

Vietnamese law mainly separates two groups. The first group works under a Labor Contract (employment relationship). The second group provides services (civil/commercial relationship).

Classification under Labor Contracts (Employee)

The 2019 Labor Code governs these workers. They receive full statutory benefits.

Indefinite-Term Contract: Used for stable, ongoing work.
Definite-Term Contract: Has a set term, lasting a maximum of 36 months.
Part-Time Employees: They receive the same benefits as full-time staff. Their benefits are calculated based on their actual working hours.

Independent Contractors and Freelancers

These individuals sign a Service Agreement. They do not form an employment relationship with the company.

Nature: They are business partners, not employees. They provide a specific service or final outcome.
Entitlements: They are not entitled to mandatory SI/HI, annual leave, or other labor law benefits. They handle their own Personal Income Tax (PIT) and individual insurance duties.

Key Factors to Prevent Worker Misclassification in Vietnam

An employment relationship exists when there is a paid work agreement, management, and supervision. Companies cause worker misclassification in Vietnam when they call someone a contractor but treat them like a permanent employee.

To avoid this risk, businesses must follow these clear distinctions:

Differentiation Factor	If a Labor Contract (Employee)	If a Service Agreement (Contractor)
Control/Supervision	Controlled over working time, location, and process.	Self-determines how and when work is done to meet the outcome.
Work Tools	Employer provides tools, machinery, and office supplies.	Must provide their own work tools (computer, software, etc.).
Nature of Work	Performs core, routine, and ongoing business functions.	Performs short-term projects or supplementary services.
Internal Rules	Must follow company labor rules and regulations.	Only bound by the service completion terms in the contract.

Specific Measures to Prevent Misclassification:

Draft Clear Contracts: Service Agreements must confirm the worker is not an employee. They must state the worker is responsible for their own tax and insurance.
Separate Payment: Pay contractors based on project milestones or deliverables. Avoid fixed monthly salaries or hourly rates common for employees.
Limit Supervision: Do not require contractors to join non-essential meetings. Avoid mandating strict clock-in/clock-out times.
Tax withholding: The employer has the responsibility of withholding proper PIT based on the residency or nonresidency status of the individuals.

How NetViet HRS Can Help

Ensuring correct worker classification is vital for stable business operations in Vietnam. Addressing worker misclassification in Vietnam should be a top priority.

NetViet HRS offers deep local expertise in labor law and HR. We provide full solutions to help businesses avoid this risk:

Accurate Classification Consulting: We analyze your jobs and team structure. Then, we recommend the most suitable legal contract model.
Staffing Services (Manpower Supply): For temporary staff, NetViet HRS acts as the legal employer. We sign the Labor Contract and handle all Payroll, SI/HI/UI, and compliance. You simply manage the daily work tasks.
Standardized Service Agreements: We draft specialized Service Agreements. These are designed for legal independence. They protect your business against claims of misclassification.

Contact NetViet HRS today. Ensure your contingent workforce is managed efficiently. Most importantly, ensure 100% compliance with Vietnamese labor law.

Follow NetViet for the latest industry updates and more: