Handling Labour Matters When Terminating an FDI Project: Severance Allowances, Social Insurance, Procedures

A typical scenario: an FDI enterprise has a factory in Binh Duong with nearly 200 workers. The overseas board has just decided to stop the project in Vietnam. The HR manager asks a very direct question: “The company can sell the machinery, but what about the workers? What must we pay, what procedures must we do, how long does it take?”

This is the question almost every foreign investor asks when exiting Vietnam — and it is the part most prone to disputes if handled carelessly. This article answers it fully: by what means labour contracts are terminated, how allowances are calculated, how social insurance records are finalised, how to work with the labour authorities, and how foreign employees (work permits, temporary residence cards) are handled.

1. Terminating labour contracts: how many routes?

When an FDI project stops, labour contracts (HĐLĐ) do not naturally “lose effect”. The company must terminate each contract under one of the grounds permitted by the Labour Code 2019 (Law No. 45/2019/QH14, effective from 01/01/2021). In practice there are 4 main routes:

Route 1: Mutual agreement to terminate (clause 3, Article 34). The company negotiates with each employee, agreeing the last working day and support amounts. This is the fastest and least dispute-prone route, especially when the company is willing to pay extra support beyond the statutory minimum so employees agree. The downside is negotiation time when headcount is large, and costs may exceed the statutory minimum.

Route 2: Contract expiry (clause 1, Article 34). If the fixed-term contracts of many employees coincide with the project’s stopping date, the company simply does not renew. But in reality contracts rarely all expire at the same time, so this route usually resolves only part of the workforce.

Route 3: The company ceases operations (clause 7, Article 34). When the company — as an employer that is not an individual — ceases operations (e.g. dissolves the enterprise after stopping the project), labour contracts terminate on this ground. This is the “cleanest” route legally when the investor exits Vietnam entirely. For the dissolution procedure, see dissolving an FDI enterprise.

Route 4: Dismissal for economic reasons or restructuring (Article 42). Applies when the project stops but the company still exists (e.g. closing only one factory, or stopping the project without immediate dissolution). This case demands the most procedures under the law:

Draw up a labour utilisation plan (Article 44): listing who continues to be employed, who is retrained, whose contracts are terminated; the rights and obligations of each party; measures and financial resources to ensure implementation.
Exchange opinions with the employees’ representative organisation at the establishment (the grassroots trade union, if any).
Give 30 days’ advance notice to the provincial People’s Committee (UBND) and to the employees before dismissal (clause 6, Article 42).

The key point: choosing the wrong termination ground, or skipping procedures, gives employees the right to complain and sue. Courts have ordered companies in many cases to re-employ workers and pay compensation for unlawful unilateral termination. Once the project has stopped, the company can no longer “re-employ” anyone — the damages are then converted to money, and the figure is usually much larger than the cost of doing it right from the start.

2. Severance allowance vs job-loss allowance: do not confuse the two

This is the part investors confuse most. The law provides two different allowances, with different conditions and benefit levels.

Common point: both require the employee to have worked regularly for the company for 12 months or more. The working time for calculating allowances = total actual working time minus the time covered by unemployment insurance (BHTN) minus the time for which severance or job-loss allowances have already been paid. The salary used as the calculation basis = the average salary of the 06 consecutive months under the labour contract immediately before the employee leaves (clause 5, Article 8 of Decree 145/2020/ND-CP).

Severance allowance (Article 46): half a month’s salary per year of work. Applies when labour contracts terminate under clauses 1, 2, 3, 4, 6, 7, 9 and 10 of Article 34 — i.e. including contract expiry, completion of work, mutual agreement, lawful unilateral termination by the employer, and the case where the company ceases operations. Two exclusions: employees eligible for retirement pension, and employees dismissed for voluntarily abandoning work for 05 consecutive working days or more without a legitimate reason.

Job-loss allowance (Article 47): 01 month’s salary per year of work, but at least 02 months’ salary. Applies when employees lose their jobs under clause 11, Article 34 — i.e. restructuring, technology changes or economic reasons (Article 42), division, separation, consolidation, merger, or transfer of ownership of enterprise assets (Article 43).

Practical example. An employee started work in June 2006; the company began paying unemployment insurance from January 2009 — when the unemployment insurance regime began to apply. The period for calculating allowances is 6/2006–12/2008 = 30 months = 2 years 6 months. Under clause 3, Article 8 of Decree 145/2020/ND-CP, odd months from 01 to 06 count as half a year, over 06 months count as 01 year — so 2 years 6 months counts as 2.5 years. Severance allowance = 2.5 × 0.5 month’s salary = 1.25 months’ salary (the average salary of the 06 consecutive months before termination). For the period from 2009, since the company paid unemployment insurance fully, the employee receives unemployment benefits from the unemployment insurance fund, and the company no longer pays allowances for that period.

This surprises many accountants: if the company paid unemployment insurance fully from the start, the severance/job-loss allowance the company must pay directly is usually very small, even zero. Conversely, if there were periods when the company owed or had not paid unemployment insurance, the allowance obligation “falls” on the company for exactly those periods. So before calculating, the first step is to reconcile each employee’s unemployment insurance contribution history.

3. Finalising social insurance: mandatory — nothing proceeds without it

“Chốt sổ BHXH” (closing the social insurance book) is the common term for the procedure of confirming social insurance, health insurance and unemployment insurance contribution periods for employees when they leave. This responsibility lies with the employer, under clause 3, Article 48 of the Labour Code 2019 and clause 3, Article 13 of the Law on Social Insurance 2024 (Law No. 41/2024/QH15, effective from 01/07/2025).

The practical sequence is:

Report the headcount reduction to the social insurance agency, fixing the contribution stop date.
Pay social insurance in full up to the final month. In principle, the employer is responsible for coordinating with the social insurance agency to confirm contribution periods when employees terminate their contracts (clause 3, Article 13 of the Law on Social Insurance 2024). In practice, enterprises with arrears should plan how to handle the debt (supplementary or retroactive payment) so the contribution process is fully confirmed for employees. Where the enterprise has not paid social insurance in full, the social insurance agency settles benefits for employees based on the time actually paid and confirms the contribution process up to the paid point; after the full debt is recovered, it confirms the additional contribution process and adjusts benefit levels (clause 3, Article 8 of Decree 158/2025/ND-CP). Many FDI enterprises get “stuck” at this step when exiting because of arrears — so settling social insurance debts must be planned early, not left to the last minute.
Coordinate with the social insurance agency to confirm contribution periods and return the books/inserts to employees. Under Article 25 of the Law on Social Insurance 2024, social insurance books are now issued electronically (paper copies only on request), so confirming the contribution process on the electronic system is sufficient legally.

On deadlines: within 14 working days of contract termination, both parties must fully settle all amounts relating to each party’s rights. Where the company ceases operations, this period may be extended but not beyond 30 days (clause 1, Article 48). One employee protection investors should know: wages, social insurance, health insurance, unemployment insurance and severance allowances are paid with priority when the enterprise ceases operations, dissolves or goes bankrupt (clause 2, Article 48). That is, in the company’s asset liquidation process, these amounts are paid before ordinary creditors.

4. Unemployment benefits: employees apply themselves; the company supports with documents

This section applies to employees covered by unemployment insurance under the Law on Employment 2025. Note: foreign employees may not be covered by unemployment insurance — check the current rules for each specific case.

Unemployment benefits are paid by the unemployment insurance fund; employees file at the employment service centre themselves. But they can only do so once the company has finalised the social insurance records and returned all documents (the contract termination decision, the confirmed social insurance book). So the company’s record-finalisation pace directly determines whether employees receive unemployment benefits on time — delays here are the source of many complaints.

From 01/01/2026, this regime applies under the Law on Employment 2025 (Law No. 74/2025/QH15). The key points investors and accountants need to know to guide employees:

Eligibility (Article 38): unemployment insurance contributions of 12 months or more within the 24 months before contract termination for labour contracts of 12 months or more; for labour contracts from 01 month to under 12 months, the condition is 12 months or more of contributions within 36 months before termination. In addition, the employee must submit the complete file within 03 months of contract termination.
Benefit level (Article 39): monthly, 60% of the average monthly salary used for unemployment insurance contributions over the most recent 06 months, capped at 05 times the regional monthly minimum wage.
Benefit duration: 12–36 months of contributions entitles 03 months; each additional full 12 months adds 01 month, up to 12 months.
Benefit start: the 11th working day from the date the complete file is submitted.

Practical note: the 03-month filing deadline passes very quickly. The company should proactively notify each employee in writing of this right at the time of termination, rather than leaving them to find out themselves.

5. Procedures with the labour authorities: do not forget to “close” the administrative books

Beyond settling matters for each employee, the company has administrative obligations to the management authorities:

Notify the labour utilisation plan to the provincial People’s Committee 30 days in advance when carrying out mass dismissal for economic / restructuring reasons (clause 6, Article 42, as noted in section 1).
Final labour utilisation report (practical recommendation). Under Decree 145/2020/ND-CP, employers report periodically every 06 months using Form No. 01/PLI. When ceasing operations, the company should proactively complete a final headcount report to “close” the labour file and avoid being questioned later.

An organisational change many FDI enterprises have not yet updated: since early 2025, the Department of Labour, Invalids and Social Affairs has been merged into the Department of Home Affairs (in Ho Chi Minh City, the new Department of Home Affairs officially began operating on 01/3/2025). After the rearrangement, the state management function over labour is in principle received by the Department of Home Affairs — however, depending on the procedure and local delegation, some files are submitted directly to the provincial People’s Committee; the enterprise should confirm the local receiving point before filing. Filing with the wrong authority can leave a file stuck with nobody reporting back.

6. Foreign employees: work permits and temporary residence cards expire together

For foreign experts and managers, project termination triggers the expiry of two legal documents:

Work permits. Under Decree 219/2025/ND-CP (issued 07/8/2025, effective from issuance, replacing the foreign labour provisions of Decree 152/2020/ND-CP as amended by Decree 70/2023/ND-CP), work permits expire in the cases at clause 1, Article 30 — which refers to the cases at clauses 2 to 7, Article 156 of the Labour Code 2019, including termination of the labour contract and the case where the enterprise employing foreign workers ceases operations. Within 15 days of the permit’s expiry, the employer revokes the permit to return it to the issuing authority, with a report on the revocation case (clause 1, Article 31); where revocation is not possible, the reason must be clearly stated.

On authority: from 07/8/2025, under clause 1, Article 4 of Decree 219/2025/ND-CP, granting, re-granting, extending and revoking work permits fall under the provincial People’s Committee where the foreign worker is expected to work — replacing the Department of Labour, Invalids and Social Affairs as before. Clause 2, Article 4 allows the provincial People’s Committee to decide on delegation to the directly competent authority. FDI enterprises handling permit revocation/return should confirm the specific local receiving point before filing.

Temporary residence cards (TRC). Foreign employees usually reside on LĐ1/LĐ2 temporary residence cards, valid for no more than 02 years and substituting for a visa (Article 38 of the Law on Entry, Exit, Transit and Residence of Foreigners in Vietnam 2014 — Law No. 47/2014/QH13, as amended by Law No. 51/2019/QH14). These cards are tied to the purpose of working for the sponsoring enterprise. When the labour contract terminates and the company stops operating, the foreigner no longer has a residence basis under the old purpose — they must convert (e.g. a new enterprise sponsors them, or switch to an appropriate visa) or exit before the card expires. Overstaying without valid documents leads to administrative sanctions and may even affect subsequent entries.

Our usual practical advice: make a separate list of all foreign employees (full name, nationality, work permit validity, temporary residence card validity, whether accompanying family members exist) and handle this group earliest, because residence procedures concern them personally and cannot be “left for later” like other administrative procedures.

7. Checklist: the labour handling sequence when terminating an FDI project

List all employees: Vietnamese and foreign separately; contract type; working time; each person’s social insurance/unemployment insurance contribution history.
Reconcile financial obligations: how much wage and social insurance/unemployment insurance debt remains — plan payment first, because outstanding social insurance debts slow down record finalisation.
Choose the contract termination ground for each group (mutual agreement / expiry / company ceases operations under clause 7, Article 34 / economic reasons) and prepare the corresponding procedures.
If carrying out mass dismissal for economic reasons: draw up the labour utilisation plan (Article 44), exchange opinions with the grassroots trade union, give 30 days’ advance notice to the provincial People’s Committee and employees.
Calculate allowances — severance / job-loss — for each person under the statutory formula; prepare transparent payment documents.
Terminate the labour contracts in writing (decision/agreement); hand over work.
Pay in full within 14 working days (up to 30 days if the company ceases operations).
Report the headcount reduction and finalise social insurance records for all employees; return books/inserts.
Notify employees in writing of their right to unemployment benefits and the 03-month filing deadline.
Handle foreign employees: revoke work permits and return them to the issuing authority within 15 days of the permit’s expiry, with a report; guide each person on residence procedures (temporary residence card/visa).
Complete the final labour utilisation report, sending it to the local receiving point (confirm first: the Department of Home Affairs or the delegated authority).
Archive all labour files at least until dissolution and tax finalisation are complete — the tax authority and auditors often re-ask about allowances already paid.

All the steps above sit within the bigger picture of capital withdrawal. See terminating FDI investment projects and the 12-step FDI project termination checklist for the overall work sequence.

8. When should a lawyer accompany you?

Not every project needs a lawyer for the labour part. But the following situations almost certainly generate risk if handled alone:

A large headcount (several dozen or more) requiring mass dismissal — a single error in the labour utilisation plan or the 30-day notice period is enough for employees to file a collective lawsuit.
Disputes over allowance calculation: employees working since before 2009 (the pre-unemployment-insurance period), employees transferred from the parent company / sister companies, probation periods, maternity leave — whether they count toward seniority.
The grassroots trade union does not agree with the dismissal plan.
The company has large social insurance debts and needs a payment plan to finalise records in time for dissolution.
Foreign employees have long-valid temporary residence cards, or have spouses/children accompanying them who need synchronised residence handling.

Accompanying investors through the capital withdrawal phase

Handling labour is one of the most sensitive links when terminating an FDI project — done right it is smooth, done wrong disputes drag on for years after the factory has closed. The insurance aspect is analysed in depth at Social insurance, health insurance, unemployment insurance upon FDI project termination — reporting reductions, finalising records, handling arrears and liability when debts remain. If you need support, FLAT Law Firm can accompany the investor through the entire withdrawal process: from the labour utilisation plan, allowance calculation and social insurance finalisation to handling work permits and residence for foreign experts.

Leave your information below — the first 30-minute consultation is free, we respond within 4 working hours:

Full name:
Email:
Phone number:
What you need advice on:

Or contact us directly: 0988424851 · 0988424851 · 0988424851