Severance Allowance in Vietnam: Eligibility, Calculation Formula, and Worked Example Under the 2019 Labor Code
An employee resigns after years of service: how much severance must the company pay? Underpay and face complaints; overpay and bleed cash. The statutory formula is clear, but determining "creditable service" and "basis salary" is where most errors occur.
Contents
- 1. Eligibility for severance allowance
- 2. The formula: half a month's salary per year
- 3. Determining creditable service
- 4. Determining the basis salary
- 5. Worked example
- 6. Severance vs job-loss allowance
- 7. FAQs
- 8. When to work with a lawyer
1. Eligibility for severance allowance
Under Article 46 of the 2019 Labor Code, employees who have worked regularly for the employer for 12 months or more receive severance allowance upon termination of the labor contract.
Exceptions — no severance allowance where:
- The employee is eligible for pension under social insurance rules;
- The employee voluntarily quits without plausible reasons for 05 consecutive working days or more.
Note: employees dismissed for disciplinary reasons are likewise excluded.
2. The formula: half a month's salary per year
The statutory formula:
Severance allowance = 1/2 month's salary × creditable years of service
Where:
- Creditable years = total actual working time minus unemployment-insurance (UI) participation periods minus periods already paid severance or job-loss allowance.
- Salary = average salary of the 06 consecutive months under the labor contract before resignation.
Fractional time: from 01 month to under 06 months counts as half a year; from 06 months to under 12 months counts as one year.
3. Determining creditable service
The most error-prone step. Under Article 8 of Decree 145/2020/ND-CP, creditable service is the total actual working time, including:
- Probation periods;
- Apprenticeship/traineeship for the employer;
- Sick and maternity leave;
- Paid personal leave, weekly rest, public holidays, annual leave;
- Work stoppage not at the employee's fault…
Then subtract:
- Periods the employee participated in unemployment insurance (those periods are covered by UI benefits from the UI fund upon job loss);
- Periods already paid severance or job-loss allowance.
The logic: mandatory UI (since 01/01/2009) already covers job-loss risk, so UI-covered periods are not double-counted.
4. Determining the basis salary
The basis is the average salary of the 06 consecutive months under the labor contract before resignation. Disputes in practice center on whether allowances and bonuses count as "salary" — the answer depends on the salary structure in the labor contract, the salary scale, and company pay regulations. Companies should review how salary is recorded in contracts to avoid disputes at calculation time.
5. Worked example
Ms. Lan worked from 01/3/2015 to 28/2/2026 (11 full years). The company paid UI for her since 01/01/2009 — her entire service was UI-covered. Creditable severance service = 0 → no severance allowance (but UI benefits from the UI fund apply).
Mr. Minh worked from 01/6/2005 to 31/5/2026 (21 years). Mandatory UI began 01/01/2009, so creditable service = 01/6/2005 to 31/12/2008 = 3 years 7 months → rounded per rules. Assuming a 6-month average salary of VND 15,000,000: allowance = 1/2 × 15,000,000 × creditable years.
The takeaway: severance allowance today mostly arises from pre-2009 service (before mandatory UI) — companies with pre-2009 long-serving staff need special care.
6. Severance vs job-loss allowance
| Criterion | Severance (Art. 46) | Job-loss allowance (Art. 47) |
|---|---|---|
| Trigger | Ordinary termination | Job loss from restructuring, technology change, merger, split… |
| Tenure condition | 12 months or more | 12 months or more |
| Rate | 1/2 month's salary/year | 01 month's salary/year (minimum 02 months' salary) |
Confusing the two is a common error — job-loss allowance is double the rate with a minimum floor, so identifying the correct termination ground matters greatly.
Watch for mergers and conversions. When companies merge, employees' service time at the old company carries over for severance computation at the new one — accrued rights are not lost. Acquiring companies must review labor files, especially for pre-2009 service, to provision severance liabilities correctly. Missing this step is a common source of post-M&A labor disputes.
Severance in the termination paperwork. Every mutual-termination or unilateral-termination dossier should contain a severance computation sheet: service period with start/end dates, pre-2009 vs post-2009 breakdown, average salary basis with the six-month payroll attached, and the final amount with the employee's acknowledgment signature. This single sheet prevents the majority of post-termination disputes — most severance litigation we see starts not from disagreement about the law, but from missing or inconsistent paperwork.
7. FAQs
Q: Who is eligible for severance allowance?
A: Under Article 46 of the 2019 Labor Code, employees who have worked regularly for the employer for 12 months or more receive severance allowance upon termination, except: those eligible for pension; or employees who voluntarily quit without plausible reasons for 05 consecutive working days or more.
Q: How is severance allowance calculated?
A: Half a month's salary per year of service. Creditable service equals total actual working time minus unemployment-insurance participation periods minus periods already paid severance or job-loss allowance. The salary basis is the average salary of the 06 consecutive months under the labor contract before resignation.
Q: Do probation and maternity leave count toward severance service?
A: Under Article 8 of Decree 145/2020/ND-CP, creditable service includes probation, apprenticeship, sick and maternity leave, paid personal leave… — then minus UI participation periods and previously paid allowance periods.
Q: Do dismissed employees get severance allowance?
A: Employees dismissed for disciplinary reasons are not entitled under Article 46. Distinguish from job loss due to restructuring or technology change — that attracts job-loss allowance under Article 47 at a higher rate.
8. When to work with a lawyer
Work with a lawyer when: the company has pre-2009 long-serving staff and must calculate severance for many employees; disputes arise over the basis salary (allowances, bonuses); or severance vs job-loss allowance must be distinguished in restructuring rounds. FLAT Law Firm advises FDI enterprises on labor law — hotline 0988424851.
References
- 2019 Labor Code (No. 45/2019/QH14), effective 1/1/2021.
- Decree 145/2020/ND-CP, effective 1/2/2021.
- Cross-checked via thuvienphapluat.vn as of drafting (28/9/2026).
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