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Labour and Employment

Penalty Not Paying Social Insurance Vietnam: 200-Worker Case

12 min readFLAT LAW FIRM
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Case study: penalized for not paying social insurance for 200 workers

Paying social insurance for employees is a mandatory duty, not a choice. Yet every year, authorities still find thousands of companies late, short, or evading social insurance contributions, with arrears reaching trillions of dong. Quite a few companies only take this duty seriously after a penalty not paying social insurance Vietnam — and are usually shocked that the total payable is many times what they "saved." The case study below — a manufacturer penalized for not paying social insurance for 200 workers over 18 months — shows the price far exceeds what the company thought it was "saving."

Note: this is an anonymized case study compiled from similar real cases; names and some details were changed for confidentiality.

Table of contents

1. The situation: 200 workers, 18 months without social insurance

Company X is a garment manufacturer in a southern industrial zone employing about 200 workers. From early 2024, falling orders squeezed cash flow. Instead of applying for formal contribution suspension, management decided to "temporarily" stop withholding social insurance (SI), health insurance (HI), and unemployment insurance (UI) for all workers — while still deducting employees' share from monthly payroll.

This lasted 18 months. When a group of workers resigned and found their SI books "frozen" the whole time — no book closure, no maternity or sickness benefits — they reported to the SI agency and labor inspectors.

The inspection team concluded Company X had evaded compulsory SI, HI, and UI for 200 employees over 18 months, with total payable amounts reaching billions of dong. The company was fined at the top of the administrative frame, ordered to pay all arrears plus late-payment interest, and the file was transferred to investigators for criminal review.

The 2024 Law on Social Insurance (effective 01/07/2025, replacing the 2014 law) reaffirms: employees working under labor contracts of 01 month or more are compulsory SI participants.

Employer duties include:

  • Registering and contributing: monthly withholding at correct rates and deadlines into the SI fund for compulsory participants.
  • Withholding and remitting employees' share: deducting employees' contributions from wages and remitting both shares to the SI agency.
  • Books and closure: issuing SI books, closing contribution periods when employees leave, coordinating benefit claims.

The key point: the SI duty arises from the actual employment relationship, regardless of the company's hardship. Financial difficulty is no exemption — the law only allows suspending retirement/survivorship fund contributions in special hardship cases through proper procedures.

In the case study, Company X's conduct was grave in one respect: it withheld neither its own share nor remitted employees' deducted share — i.e., it kept employees' money too. This is what pushed the case beyond ordinary administrative violation.

3. Administrative sanctions under Decree 283/2026/ND-CP

Decree No. 283/2026/ND-CP (effective 10/09/2026, replacing Decree No. 12/2022/ND-CP) sets administrative penalties for labor and social-insurance violations, with specific fine frames for each act.

For evasion of compulsory SI and UI contributions falling short of criminal prosecution — for example, registering a contribution wage base lower than prescribed, or failing to pay the full registered amount after 60 days past the due date despite being urged by the competent authority — Article 44 (SI) and Article 46 (UI) of Decree 283/2026/ND-CP impose fines of 18% to 20% of the evaded amount at the time the administrative violation record is drawn up, capped at VND 75 million.

For late payment — failing to pay or paying less than the registered amount within 60 days of the due date — Article 43 (SI) and Article 45 (UI) impose fines of 12% to 15% of the overdue amount at the time the record is drawn up, capped at VND 75 million; where the violation amount is below VND 400,000, only a warning is issued.

An important note: under Clauses 1 and 3 of Article 7 of Decree 283/2026/ND-CP, the fine levels in the decree are those applicable to individuals and household businesses; fines for organizations and enterprises are doubled. An enterprise (an organization) evading SI contributions can therefore be fined 36% to 40% of the evaded amount, capped at VND 150 million — double the often-misquoted VND 75 million figure.

Beyond fines, enterprises face remedial measures:

  • Compulsory payment in full of the outstanding SI and UI amounts to the SI agency.
  • An additional 0.03%/day calculated on the amount and days of late payment or evasion, payable into the SI fund.
  • Compulsory return to employees of any amounts the enterprise unlawfully withheld (if any).

In Company X's case — 200 workers over 18 months — the total payable (principal plus interest) dwarfed the administrative fine. This is what many owners don't anticipate: the fine is the tip; the inescapable arrears are the iceberg.

4. When criminal liability applies

This is the line many owners don't realize they've crossed. Article 216 of the 2015 Penal Code (amended 2017) defines the crime of evading social, health, and unemployment insurance for employees.

Employers face criminal prosecution when using deceit or other tricks to avoid or underpay insurance for 06 months or more, falling into one of these cases: evaded insurance of VND 50 million to under VND 300 million, or evasion for 10 to under 50 employees — and having been administratively sanctioned for the same conduct yet reoffending (Clause 1, Article 216). Penalties for individuals include fines of VND 50 million to VND 1 billion and imprisonment up to 7 years depending on severity.

On the subject of criminal liability: not only the individual with decision-making authority in the company (director, legal representative, direct operator) but also the commercial legal entity (the enterprise itself) may be prosecuted. Article 76 of the 2015 Penal Code (amended 2017) lists Article 216 among the crimes for which commercial legal entities bear criminal liability; Clause 5, Article 216 imposes fines on offending commercial legal entities of VND 200 million to VND 3 billion depending on the frame. A commercial legal entity's criminal liability does not exclude the individual's criminal liability (Clause 2, Article 75 of the Penal Code).

At the scale of Company X — 200 people and billions of dong — the case falls under Clause 3, Article 216: individuals face 02 to 07 years' imprisonment, and the commercial legal entity faces fines of VND 1 billion to VND 3 billion.

In Company X's case: 200 people, 18 months, billions of dong, with signs of withholding employees' money without remitting — all elements for investigators to consider prosecution, with criminal liability potentially attaching to both the operator and the enterprise itself.

The message is clear: evading social insurance is no longer a "pay the admin fine and move on" matter — it can mean prison for the operator and fines up to billions of dong for the company.

5. Case analysis: where the company went wrong

Looking back, Company X made a chain of cascading mistakes.

Mistake 1: stopping unilaterally instead of applying. In hardship, companies may apply to suspend retirement/survivorship fund contributions through procedures. Company X skipped this lawful path and silently stopped everything.

Mistake 2: withholding employees' money without remitting. The gravest act, turning an administrative violation into criminal indicia. Payroll deductions are employees' money held in trust for remittance; keeping them may be assessed as abuse of trust or deceit.

Mistake 3: dragging on 18 months. The longer the violation, the larger the amount, the harder to plead "oversight" or "temporary difficulty." Article 216's 6-month threshold was far exceeded.

Mistake 4: ignoring internal complaints. When workers raised concerns, the company offered vague promises instead of a concrete remediation roadmap. Silence pushed workers to whistleblow — and once authorities step in, the company loses all initiative.

Mistake 5: no mitigation file when inspectors arrived. The company had no documentation of remediation efforts (repayment plans, deferral requests), leaving every mitigating circumstance unsupported.

6. Remediation plan after being penalized

Companies in similar situations should act in this priority order.

Priority 1: contain criminal risk. Highest priority. Assess immediately whether the case shows criminal elements under Article 216. Note that a company previously hit with an administrative penalty not paying social insurance Vietnam that reoffends meets one of the constitutive conditions of Clause 1, Article 216. If criminal indicia exist, voluntary full remediation (paying all arrears and interest) before investigators open a case is a significant factor affecting whether prosecution proceeds and the sentence if charged.

Priority 2: work with the SI agency on repayment. Propose a phased repayment plan within financial capacity, with concrete commitments. SI agencies usually accept repayment roadmaps from good-faith companies with performance assurance.

Priority 3: handle the administrative penalty decision. Assess the decision's correctness: proper authority, correct conduct, correct frame. If grounded, exercise complaint or administrative-litigation rights; if not, comply to avoid enforcement and extra costs.

Priority 4: stabilize labor relations. Dialogue with workers and the union; close SI books for departed workers; resolve affected benefits (maternity, sickness). A company under investigation facing fresh worker complaints only worsens its position.

Priority 5: system review. Set up automated SI contribution processes, assign responsible persons, payment reminders, and periodic reconciliation with the SI agency to prevent recurrence.

7. Lessons for companies: don't wait for the fine

Five principled lessons from the case study.

One: SI is a "non-negotiable" duty. Unlike cuttable costs, SI obligations attach to employees' direct rights and carry criminal sanctions. Never put SI on the "temporary cuts" list.

Two: hardship must go the lawful route. The law provides suspension and deferral mechanisms for genuinely struggling companies. Stopping unilaterally is the shortest path to penalties. In practice, SI agencies are usually willing to grant installment plans to companies that come forward proactively, present financial evidence, and propose a clear repayment schedule; what they won't tolerate is silence until inspectors arrive — explanations offered at that point carry little credibility.

Three: never withhold employees' money without remitting. This is the red line separating administrative violation from criminal offense. Many owners assume "the money is still in the company account, so it's not theft" — but the law looks at the nature of the act: withheld SI contributions are legally the employees' property, with the company merely acting as custodian. A custodian diverting those funds, even if the money sits untouched in the account, has already crossed the line. There is no room for wishful thinking here.

Four: be transparent with employees. Workers today check their SI records on apps. Concealment only makes things explode in the worst way. Conversely, communicating proactively during hard times — disclosing the contribution plan and a timeline — often buys understanding and breathing room. Workers usually don't demand immediate full repayment; they want an explanation and a schedule.

Five: compliance costs less than violation costs. What Company X "saved" over 18 months was far smaller than the total fines, interest, legal fees, and reputational damage — not to mention prison risk for the operator. Every company facing a penalty not paying social insurance Vietnam pays far more than the cost of complying from the start. Nor does that count being placed on the SI "blacklist": restricted bidding, bank credit, and listing reviews follow, and those hidden costs run higher and longer than any fine.

8. Social insurance compliance checklist

Companies should periodically self-check these points (see also the labor law compliance handbook for businesses). For a newly established FDI company in Vietnam, this checklist should be built into the HR setup process from day one to avoid violations in the first months of operation.

  1. Coverage: have all employees been reviewed, including fixed-term contracts of 01 month or more and workers in de-facto employment regardless of contract title?
  2. Contribution base: is the salary base correct (wages, allowances, and stable supplements), fully contributed for all covered persons?
  3. Deadlines: monthly payments on time, with automatic reminders?
  4. Book closure: departed employees' SI books closed and returned on time?
  5. Reconciliation: periodic data reconciliation against SI agency notices?
  6. Records: complete labor contracts, payrolls, and SI payment vouchers kept for inspections?
  7. Ownership: a specifically assigned person responsible for SI tracking, avoiding "nobody remembers"?

9. Frequently asked questions

Can a company sign piece-rate or service contracts with workers to dodge social insurance?

No. Authorities determine employment relationships by actual work substance, not contract titles (see labor contracts in Vietnam). If workers operate under the company's management, direction, and supervision with periodic pay, it is an employment relationship subject to compulsory social insurance, whatever the contract is called. Such circumvention, once discovered, is treated as intentional evasion.

Is social insurance required during probation?

Under current rules, probation under a separate probation contract is not subject to compulsory social insurance. But if probation terms are written into the official labor contract, that probation period must be insured. Many companies confuse this and get hit with arrears during inspections.

How long can social insurance payments be delayed before penalties?

Decree 283/2026/ND-CP sets a 60-day dividing line: failing to pay or underpaying the registered amount within 60 days of the due date counts as "late payment" (fine 12%–15% of the overdue amount, capped at VND 75 million); after 60 days past the due date, with the competent authority’s urging still ignored, it counts as "evasion" (fine 18%–20%, capped at VND 75 million; organizations fined double). There is no grace period — late, underpaid, or under-enrolled contributions are all violations attracting a penalty not paying social insurance Vietnam as soon as discovered through inspection, audit, or whistleblowing. Beyond fines, companies must pay all arrears plus an additional 0.03%/day on the amount and days of delay or evasion.

Are employees affected when the company doesn't pay social insurance?

Yes, directly: no sickness, maternity, or occupational-accident benefits; uninsured periods don't count toward pension eligibility. This is also why employees may report evading employers and claim damages.

Can a struggling company pause social insurance payments?

The law allows suspending contributions to the retirement and survivorship fund in certain hardship cases through prescribed procedures — but not unilateral suspension of all insurance types. Struggling companies should apply for proper suspension rather than stopping payments and facing penalties and criminal liability.

10. When to work with a lawyer

Situations where companies need counsel on social insurance:

  • SI arrears: building repayment plans, negotiating with the SI agency, assessing and containing criminal risk. Where the arrears exceed the company's ability to pay, corporate restructuring options should be considered instead of letting SI liabilities keep growing.
  • Inspections and audits: preparing files, working with inspection teams, explaining and protecting lawful rights.
  • Administrative penalties: assessing penalty decisions, exercising complaint and litigation rights where grounded.
  • Signs of criminal review: an emergency needing criminal counsel from the verification stage.
  • Periodic compliance review: comprehensive SI duty checks, catching errors before inspectors do.

FLAT Law Firm helps companies handle SI matters from compliance review and agency liaison to criminal defense in SI cases. Contact hotline 0988424851 for timely advice.

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References

  1. Law on Social Insurance No. 41/2024/QH15 dated 2024, effective 01/07/2025.
  2. Decree No. 283/2026/ND-CP on administrative penalties in labor and social insurance, effective 10/09/2026.
  3. Penal Code 2015, amended 2017 (Article 216).