Terminating Labor Contracts with Foreigners in Vietnam — Severance Pay and Procedures

When parting with foreign experts or managers, many FDI enterprises are unsure: is severance pay due? How is it calculated? There is a trap most HR departments never expect: an expired, unrenewed work permit terminates the labor contract but the worker gets NO severance pay.

1. When is severance pay due?

Under clause 1, Article 46 of the Labor Code 2019, when a labor contract terminates under clauses 1, 2, 3, 4, 6, 7, 9 and 10 of Article 34, the employer must pay severance to employees who have worked regularly for 12 months or more: half a month salary per year of work.

Common qualifying cases: contract expiry (clause 1); completion of contractual work (clause 2); mutual termination agreement (clause 3); lawful unilateral termination by the employer (clause 10) — regardless of Vietnamese or foreign nationality.

Two exclusions even after 12 months: eligibility for pension benefits; unlawful unilateral termination by the employee (point e, clause 1, Article 36).

2. When is severance lost? — The foreign worker trap

Termination under clauses 5, 8, 11, 12, 13 of Article 34 carries no severance pay. For foreigners, the two to watch:

• Clause 12 — Work permit expiry without renewal: the biggest trap. The company forgets to renew the permit, the contract automatically terminates, and no severance is due. Solution: track permit validity closely and renew before expiry;
• Clause 5 — Deportation under an effective court judgment or authority decision;
• Clause 8 (disciplinary dismissal), clause 11 (redundancy under Articles 42/43), clause 13 (failed probation) — same as for Vietnamese workers.

3. How severance is calculated

• Rate: half a month salary per year of work;
• Salary basis: average of the 06 consecutive months under the labor contract before termination (clause 3, Article 46);
• Creditable time: total actual working time minus periods covered by unemployment insurance and periods already compensated with severance/redundancy pay (clause 2, Article 46).

Example: a foreign expert works 3 years 8 months with no unemployment insurance participation in Vietnam — creditable time about 3.67 years, severance about 1.83 months of the last-6-month average salary.

4. Lump-sum SI on departure

Under clause 2, Article 70 of the Law on Social Insurance 2024 (41/2024/QH15), after SI participation ends and upon request, foreign workers receive a lump-sum payment if they:

• Reach retirement age but contributed for less than 15 years; or
• Suffer critical illness, at least 81% loss of working capacity, or particularly severe disability; or
• Qualify for pension but no longer reside in Vietnam; or
• Terminate the labor contract, or their work permit/practice certificate expires without renewal.

5. HR procedure checklist

1. Identify the termination ground (which Article 34 clause) and severance eligibility;
2. Issue the termination/liquidation decision;
3. Calculate and pay severance (if eligible);
4. Close SI books and guide the lump-sum claim;
5. Retrieve/submit the work permit as required;
6. Settle all wages, unused annual leave, and other amounts.

Prepared by the FLAW AI Legal Council. This content is pending QA Council review before submission for approval.