Short answer: When terminating a labor contract, an employer must budget for 4 groups of payments: (1) severance allowance = half a month salary x years of service counted for severance (Article 46 of the 2019 Labor Code); (2) job-loss allowance = 1 month salary per year, minimum 2 months salary — only where the employee loses the job under Article 34.11 (Article 47); (3) other settlements: unpaid wages, unused annual leave (Article 113), social insurance finalization; (4) payment deadline: 14 working days, up to 30 days in special cases (Article 48). This article systematizes the formula, eligibility, a worked example and the comparison table for the two most-confused allowances.
1. Severance allowance: who qualifies, who does not?
Under Article 46 of the Labor Code 45/2019/QH14 (effective 01/01/2021, still in force) and Decree 145/2020/ND-CP (effective 01/02/2021), an employee qualifies for severance allowance when both conditions are met:
- Having worked regularly for the employer for at least 12 months;
- The labor contract is terminated under one of the cases in Article 34 of the Labor Code (expiry, mutual agreement, lawful unilateral termination by either party…).
Exclusions — no severance allowance:
- Employees eligible for pension benefits under social insurance regulations;
- Employees who unilaterally terminate the labor contract unlawfully (point b, Article 8.4 of Decree 145/2020/ND-CP).
2. Severance formula + worked example
Formula (Article 46.1 of the Labor Code; Article 8.5 of Decree 145/2020):
Severance = 1/2 x Counted years of service x Average salary of the 6 consecutive months before termination
Where:
- Average salary (Article 46.3): the average contractual salary over the 6 consecutive months before the employee leaves;
- Counted years of service (Article 46.2, Article 8.3 of Decree 145/2020) = total actual working time − periods covered by unemployment insurance − periods already paid severance/job-loss allowance;
- Odd months: from 1 to 6 full months count as half a year; over 6 months count as one year.
Worked example: Mr. B worked for the company for 5 years 8 months, including 4 years covered by unemployment insurance; his average salary over the 6 months before leaving was VND 12 million/month. Counted time = 5 years 8 months − 4 years = 1 year 8 months → 1 year + 8 odd months (> 6 months) = 2 years. Severance = 1/2 x 2 x 12 million = VND 12 million. (Illustrative; eligibility depends on each specific termination case.)
3. Comparison: severance vs. job-loss allowance
| Criterion | Severance (Art. 46) | Job-loss allowance (Art. 47) |
|---|---|---|
| When it applies | Contract termination under Art. 34 (general) | Job loss under Art. 34.11 (restructuring, technology change, merger, split…) |
| Rate | Half a month salary/year | 1 month salary/year, minimum 2 months salary |
| Eligibility | Worked ≥ 12 months | Regular work ≥ 12 months + job loss |
| Exclusions | Pension-eligible; unlawful unilateral termination by employee | Similar + cases where the employee is reassigned |
Common mistake: calculating job-loss allowance at the half-month rate — wrong. Job loss pays double (1 month salary/year) with a 2-month floor.
For a detailed guide to calculating severance under the 2019 Labor Code, see our severance calculation guide.
4. Other settlements the employer must budget
- Unpaid wages: up to the contract termination date;
- Unused annual leave: payment for untaken leave days under Article 113 of the Labor Code;
- Social insurance finalization: completing contribution confirmation procedures and returning the social insurance book;
- CIT-deductible expenses: properly paid allowances count as deductible expenses — keep complete records for tax finalization defense.
5. Payment deadline: 14 working days
Under Article 48 of the Labor Code, within 14 working days from the labor contract termination date, both parties must fully settle all amounts related to each party’s interests; in special cases this may be extended but not beyond 30 days. Late payment may trigger disputes and compensation obligations.
Frequently asked questions
What is the severance formula?
1/2 x counted years of service x average salary of the 6 consecutive months before termination (Article 46.1, Labor Code).
How does job-loss allowance differ from severance?
Job loss (Art. 47): 1 month salary/year, minimum 2 months — double the severance rate (half a month/year).
Are unemployment-insurance periods deducted from severance service time?
Yes — periods covered by unemployment insurance are deducted (Article 46.2).
How fast must the employer pay?
14 working days, up to 30 days in special cases (Article 48).
Sources
- Labor Code 45/2019/QH14 (effective 01/01/2021, still in force): Article 34 (termination cases), Article 46 (severance), Article 47 (job-loss allowance), Article 48 (payment deadline), Article 113 (annual leave);
- Decree 145/2020/ND-CP (effective 01/02/2021): Article 8 (detailed severance and job-loss rules).
Note: Numerical examples are illustrative; eligibility depends on each specific termination case. Texts verified as of 14/10/2026.
Is your company restructuring and needs to budget labor-contract termination costs? Contact FLAT Law Firm for calculation and payment-obligation review.
Transparency note: This article was drafted by the FLAW AI Legal Council (an AI panel) and is not a substitute for advice from a licensed lawyer on your specific case.
This article is awaiting QA Council review.