How much compensation when dismissing an employee? This is the question almost every business asks before letting a worker go — for disciplinary reasons, poor performance, or workforce reduction. There is no single figure for all cases: depending on whether the company "dismisses" in compliance with the law or unilaterally terminates unlawfully, the amount payable can range from nothing to many months' salary plus other amounts. This article compiles the 10 most frequently asked questions from employers, answered on the basis of the Labor Code 2019 and its effective guiding documents.
Table of contents
- Does a company have to pay compensation when it dismisses an employee lawfully?
- How much must a company pay when it dismisses an employee unlawfully?
- Is a dismissed employee entitled to severance allowance?
- How is severance allowance calculated?
- How does job-loss allowance differ from severance allowance, and how is it calculated?
- Which salary is the basis for calculating compensation and allowances?
- What if a company dismisses a female employee who is pregnant or nursing a child under 12 months?
- What must a company pay when cutting staff for economic reasons?
- How much extra is payable when the required advance notice for unilateral termination is not given?
- How long does a company have to pay compensation and allowances? What if it pays late?
1. Does a company have to pay compensation when it dismisses an employee lawfully?
Short answer: No compensation is due. If the dismissal is carried out with proper grounds and proper procedures, the company only has to pay what it still owes the employee (wages, unused annual leave) and complete the insurance procedures.
Explanation: First, two concepts that many businesses confuse need to be distinguished. "Dismissal" in labor law is a form of labor discipline — the most severe one — applied to employees who commit serious violations such as theft, embezzlement, disclosing business secrets, sexual harassment at the workplace, or being absent without a legitimate reason for 05 cumulative days in 30 days. Letting an employee go in general (for poor performance, restructuring…) is a unilateral termination of the labor contract. When dismissal is done lawfully — with valid grounds, a registered internal labor regulation, correct disciplinary procedures and within the statute of limitations — the labor contract terminates lawfully and the company incurs no compensation obligation.
However, "no compensation" does not mean nothing is payable. The company must still pay wages in full for days worked, pay for unused annual leave days, and finalize and return the social insurance book to the employee.
Legal basis: Articles 34, 36, 122, 125 of the Labor Code 2019; Clause 3, Article 113 on payment of wages for unused annual leave.
Next steps: Before issuing a dismissal decision, a business should review the entire disciplinary file (violation records, minutes of the disciplinary meeting with the employee representative organization present) to ensure the decision will stand if challenged.
2. How much must a company pay when it dismisses an employee unlawfully?
Short answer: At least 2 months' salary under the labor contract, plus salary and social insurance, health insurance and unemployment insurance contributions for all days the employee was not allowed to work. If the parties agree to terminate definitively, the company must pay an additional compensation of at least 2 months' salary and pay severance allowance.
Explanation: "Unlawful dismissal" here covers both a disciplinary dismissal decision made without proper procedure or grounds, and cases where the company unilaterally terminates the labor contract without being permitted to or without giving proper notice. In such cases, the employer's obligations are set out very specifically in three scenarios. First, the company must reinstate the employee, pay salary and make insurance contributions for the days they were not allowed to work, and pay an additional amount of at least 2 months' salary under the labor contract. Second, if the employee does not wish to return to work, in addition to the above amounts, the company must pay severance allowance to terminate the contract. Third, if the company does not want to reinstate the employee and the employee agrees, the two parties negotiate an additional compensation amount — but at least 2 months' salary — plus severance allowance.
Thus, the total in the worst scenario can reach: salary for the days not allowed to work + corresponding insurance contributions + 2 months' compensation + 2 additional months' compensation + severance allowance. This is why businesses need to be especially careful before deciding to let an employee go — see this VND 2 billion unlawful dismissal case.
Legal basis: Article 41 of the Labor Code 2019.
Next steps: If a decision has been issued and there are doubts about its legality, the business should proactively reassess and negotiate with the employee before the matter goes to court, because post-judgment compensation costs are usually much higher than an early settlement.
3. Is a dismissed employee entitled to severance allowance?
Short answer: No. An employee disciplined by dismissal is an excluded case and is not entitled to severance allowance.
Explanation: Severance allowance is the amount the employer pays to an employee who has worked regularly for at least 12 full months when the labor contract terminates in the cases listed by law (contract expiry, mutual termination agreement, lawful unilateral termination by the employee…). However, Clause 1, Article 46 applies only when the labor contract terminates under Clauses 1, 2, 3, 4, 6, 7, 9 and 10 of Article 34 — not under Clause 8 of Article 34 (an employee disciplined by dismissal); it also excludes employees eligible for retirement pension and cases of voluntary absence from 05 consecutive working days without a legitimate reason (Point e, Clause 1, Article 36). The rationale is that severance allowance recognizes a record of lawful contribution; when an employee commits violations serious enough to warrant dismissal, the law does not require the business to pay this support amount.
Legal basis: Clause 1, Article 46 of the Labor Code 2019 applies only when the labor contract terminates under Clauses 1, 2, 3, 4, 6, 7, 9 and 10 of Article 34 — not under Clause 8 of Article 34 (an employee disciplined by dismissal) — so a dismissed employee is not entitled to severance allowance.
Next steps: Although not entitled to severance allowance, a dismissed employee is still entitled to pay for unused annual leave and finalization of the social insurance record. Businesses need to distinguish clearly so as not to deny entitlements the employee still holds.
4. How is severance allowance calculated?
Short answer: Half a month's salary for each working year, provided the employee has worked regularly for the company for at least 12 full months.
Explanation: The severance allowance formula has three elements. First is the working time used for calculation: the employee's total actual working time, minus the period of unemployment insurance participation and any period for which severance or job-loss allowance has already been paid. A practical note: since 2009, most employees have participated in unemployment insurance, so this period is deducted and in many cases only the pre-2009 working time remains countable. Second is the rounding of odd months: time is counted in years (12 full months); odd months from 01 to 06 months count as half a year, over 06 months count as one year. Third is the salary basis: the average salary of the 6 consecutive months under the labor contract before the employee's termination.
Example: an employee whose average 6-month salary is VND 12 million, with countable time of 3 years 8 months. The 8 odd months round to 01 year, so the total countable time is 4 years. Severance allowance = 0.5 × VND 12 million × 4 = VND 24 million.
Legal basis: Article 46 of the Labor Code 2019; Point c, Clause 3, Article 8 of Decree 145/2020/ND-CP.
Next steps: Businesses should prepare a detailed worksheet of working time, unemployment insurance participation time and average 6-month salary for each specific case, and keep the file for reference when employees raise questions.
5. How does job-loss allowance differ from severance allowance, and how is it calculated?
Short answer: Job-loss allowance applies when the company lets employees go due to structural or technological changes or economic reasons; the rate is 1 month's salary per working year with a floor of at least 2 months' salary — higher than severance allowance.
Explanation: The core difference lies in the cause of contract termination. Severance allowance is paid for ordinary terminations (contract expiry, mutual agreement…), while job-loss allowance is paid when the employee loses the job through no fault of their own — because the business changes its structure or technology, for economic reasons, or due to division, separation, consolidation, merger or conversion of the enterprise. Because the employee passively loses the job, the allowance is higher: 1 month's salary per working year, with a floor of 2 months' salary regardless of short service. The general condition remains regular work for at least 12 full months; the time-counting and salary-basis methods are similar to severance allowance.
Example: an employee with 2 years 3 months of service, average salary VND 10 million, let go due to company restructuring. Countable time rounds to 2.5 years; job-loss allowance = VND 10 million × 2.5 = VND 25 million. With only 1 year of service, the formula gives VND 10 million but the employee still receives at least VND 20 million due to the floor rule.
Legal basis: Article 47 of the Labor Code 2019; Articles 42 and 43 on structural/technological changes and economic reasons.
Next steps: When cutting staff for economic reasons, the business must formulate a labor utilization plan and consult the grassroots employee representative organization before deciding — skipping this step risks the termination being deemed unlawful.
6. Which salary is the basis for calculating compensation and allowances?
Short answer: The salary under the labor contract — including base salary, salary allowances and other additional amounts — averaged over the 6 consecutive months before the employee's termination or job loss.
Explanation: This is the most disputed point in practice, because many businesses use only the base salary (the insurance-contribution salary) to calculate allowances, while employees demand calculation on actual total income. The law is clear: the salary for calculating severance and job-loss allowances is the average salary of the 6 consecutive months under the labor contract before the employee's termination. "Salary under the labor contract" is understood under Article 90 of the Labor Code 2019 as including the salary for the job, salary allowances and other additional amounts agreed in the contract. Fixed allowances and bonuses recorded in the contract are therefore included; welfare payments not recorded in the contract are not part of the calculation basis. For the compensation of at least 2 months' salary for unlawful unilateral termination (Article 41), the basis is the salary under the labor contract at the time of termination.
Legal basis: Clause 3, Article 46, Clause 2, Article 47, Clause 1, Article 41, Article 90 of the Labor Code 2019.
Next steps: Businesses should review the salary structure in their model labor contracts — clearly separating base salary, allowances and additional amounts from the outset will help calculate accurately and avoid later disputes.
7. What if a company dismisses a female employee who is pregnant or nursing a child under 12 months?
Short answer: The law prohibits dismissing or unilaterally terminating the labor contract of a female employee on grounds of pregnancy, maternity leave or nursing a child under 12 months. Such a decision is unlawful and the company must pay compensation under Article 41.
Explanation: This is a group specially protected by labor law. An employer may not dismiss or unilaterally terminate the labor contract of an employee on grounds of marriage, pregnancy, maternity leave or nursing a child under 12 months. This provision protects maternity and mothers' rights. If the company still issues a dismissal decision in these cases, it is inherently unlawful — even where the employee committed a disciplinary violation — and the company must fully perform the compensation obligations under Article 41: reinstate the employee, pay salary and make insurance contributions for the days not allowed to work, and pay at least 2 months' salary in compensation. In practice, many businesses circumvent this by not renewing an expiring contract — note that failing to re-contract on grounds of pregnancy or nursing a young child may also be seen as discrimination and give rise to disputes.
Legal basis: Article 137 of the Labor Code 2019; Article 41 of the Labor Code 2019.
Next steps: Before any decision concerning a female employee who is pregnant, on maternity leave or nursing a young child, the business should consult a lawyer to assess legal risks, as courts generally protect employees at the highest level in this category of disputes.
8. What must a company pay when cutting staff for economic reasons?
Short answer: Job-loss allowance under Article 47, wages and outstanding payables, pay for unused annual leave, finalization and return of the social insurance book, and the business must formulate a labor utilization plan in the statutory sequence.
Explanation: When a business changes its structure or technology or faces economic difficulties leading to workforce reduction, the law imposes two parallel groups of obligations. The first is procedural: the business must formulate a labor utilization plan, consult the grassroots employee representative organization, and in cases of structural or technological change, notify the state labor administration authority in advance. Skipping these steps may render the termination decision unlawful even where the economic reason is genuine. The second group is financial: pay job-loss allowance (1 month's salary per year, minimum 2 months), settle all wages and unused annual leave pay in full, finalize the social insurance record and hand over related documents. In addition, the business has an obligation to give priority to retraining or re-employing these employees when there is a need.
Legal basis: Articles 42, 43, 47 and 48 of the Labor Code 2019.
Next steps: Businesses should prepare the labor utilization plan as early as possible and keep full minutes of consultation with the trade union — this is the most important evidence if the reduction decision is challenged.
9. How much extra is payable when the required advance notice for unilateral termination is not given?
Short answer: An amount corresponding to the salary under the labor contract for the days notice was not given — known as salary in lieu of notice.
Explanation: When unilaterally terminating the labor contract in cases where the law requires advance notice, the employer must notify the employee: at least 45 days for indefinite-term contracts, at least 30 days for definite-term contracts of 12 to 36 months, and at least 03 working days for definite-term contracts under 12 months. If the notice period is violated — for example, only 10 days' notice when the law requires 30 — then in addition to other obligations, the company must pay the employee an amount corresponding to the salary for the 20 days' notice not given. This amount is independent of the compensation of at least 2 months' salary for unlawful termination; in many disputes, employees receive both amounts cumulatively. Note: dismissal as a disciplinary measure is not subject to advance notice, but must strictly follow disciplinary procedures.
Legal basis: Clause 2, Article 36, Clause 1, Article 41 of the Labor Code 2019.
Next steps: Businesses should maintain a checklist of notice periods by contract type and compute the effective date of the termination decision before issuing it, to avoid incurring additional salary in lieu of notice days.
10. How long does a company have to pay compensation and allowances? What if it pays late?
Short answer: Within 14 working days from the date of labor contract termination; in special cases it may be extended but no more than 30 days. Late payment gives the employee the right to complain to the labor authority or sue in court.
Explanation: When the labor contract terminates, the two parties are responsible for fully settling all amounts related to each party's rights within 14 working days. The law permits extension but no more than 30 days in special cases such as the business ceasing operations, structural or technological changes for economic reasons, division, merger, or natural disasters, fires or epidemics. In practice, late payment of allowances and compensation is a common cause pushing labor disputes to court. When suing, in addition to the principal amounts, the employee may also claim salary for the days of delayed performance of obligations in cases of unlawful unilateral termination, and the business may face administrative sanctions in the labor sector. For businesses, proactively paying on time not only complies with the law but also significantly reduces the risk of prolonged disputes.
Legal basis: Article 48 of the Labor Code 2019.
Next steps: Businesses should finalize the list of payable amounts as soon as a termination decision is made and complete payment within 14 days; if facing objective difficulties, they should issue a clear written explanation and agree on a payment schedule with the employee.
Is your question not covered here?
Each business has a different staffing structure, internal labor regulations and specific circumstances — the actual compensation and allowances depend on each case's file. If you need an assessment of a dismissal decision, an accurate calculation of the amounts payable, or handling of a labor dispute that has arisen, contact FLAT Law Firm for direct legal advice: hotline 0988424851.
Further reading: FLAT's labour law handbook and the step-by-step guides on severance allowance calculation and lawful contract termination linked above.
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References
- Labor Code No. 45/2019/QH14, effective from 01/01/2021.
- Decree No. 145/2020/ND-CP dated 14/12/2020 detailing and guiding certain articles of the Labor Code on working conditions and labor relations, effective from 01/02/2021.
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