Labor Outsourcing in Vietnam: 5 Key Reforms from Decree 29

Vietnam recently issued new updates on labor outsourcing regulations under Decree 29/2019/ND-CP (Decree 29). The new regulation came into effect on May 5 and details guidelines on Clause 3 of Article 54 of the Labor Code regarding outsourcing services, deposit payment and the list of permissible outsourced jobs.

We look at five main highlights of the decree and what changes foreign businesses operating in Vietnam should be aware of.

1. Labor license period

Under the new decree, a labor license term is valid for 60 months instead of the previous 36-month term. The license can be renewed as many times as desired for another 60 months. The changes bode well for labor outsourcing companies that can now operate without term limitations.

2. Labor outsourcing period

The new decree removes a 12-month restriction on the outsourcing of an employee. While nothing has been written explicitly regarding long-term outsourcing of employees, the government may scrutinize outsourcing companies, as the purpose of labor outsourcing is to satisfy the temporary shortage of employees in a sector.

3. Expanded list of jobs

Three new jobs have been added to the 17 jobs that the government permits to be outsourced. The 20 jobs eligible for outsourcing are below.

4. Labor outsourcing licensing conditions eased

The decree has eased some conditions while applying for a labor outsourcing license. The new regulation only requires two conditions:

• An escrow deposit of US$90,000 (VND 2 billion) should be deposited at a local bank or foreign bank branch operating in Vietnam;
• An appointment of a legal representatives who meets the following criteria, which
  • Has previously held a managerial position in an enterprise,
  • Does not have a criminal record, and
  • Has at least three years of experience in the labor outsourcing sector.

5. Better protection for employees

The escrow deposit can be used for salaries and compensation to employees in case of a breach of labor contract by the labor outsourcing company. It can also be used to cover social insurance, health insurance, unemployment insurance or insurance for work related injury or disease.

Labor outsourcing companies are also required to keep the bank deposit certificate up to date under the new regulation. Any change to the name of the company, address, and account number must be informed to the bank along with supporting documents.

In addition, the labor outsourcing company’s bank must pay employees directly all benefits such as salaries, allowances and insurance premiums. This minimizes the risk of abuse if the labor outsourcing company were to withdraw from the bank and fail to play employees.

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