Vietnam is one of the fastest-growing economies in Southeast Asia and is home to a skilled and tech-savvy workforce. Its diverse beauty and low cost of living also make it an attractive location for remote working professionals and digital nomads. These reasons make Vietnam a viable business hub for companies looking to recruit workers from the Asia Pacific region.
If you’ve decided to hire independent contractors in Vietnam , you have to be aware of the unique challenges of hiring and paying workers in the country. You have to understand local labor and tax laws and how they apply differently to independent contractors and employees. Finally, you have to set up a reliable payroll system to pay your contractors quickly and securely.
In this article, we’ll take you through some unique considerations of managing contractors in Vietnam. We also explain labor laws, tax and compliance practices, and how you can avoid employee misclassification .
Unique considerations of managing contractors in Vietnam
Vietnam's gross domestic product (GDP) has been steadily increasing as its skilled workforce grows. The country's Higher Education Reforms Agenda has allowed for greater access to higher education, especially in industries like IT. These reforms have led to a bigger pool of independent contractors and freelancers who are available for hire.
One of the challenges of hiring in Vietnam is to understand how Vietnamese law makes a distinction between a contractor and an employee.
The new Vietnamese Labor Code , released in 2021, contains updates to labor laws that apply to both employers and employees. The definition of “employee” was expanded to include an individual who:
Works under a contractual agreement (or a labor contract) with the employer
Works under employer supervision or control
Works for a regular salary
If an employment or labor contract specifies that the employee is under the control of the employer, and receives a salary from the employer — then the worker is an employee. If the above three conditions don’t apply to the worker, the worker is called a contractor (or freelancer). Their work is not bound by a formalized labor contract, and the contractor has the freedom to work on their terms.
Differences between an employee and an independent contractor in Vietnam, include:
Employees are protected by statutory employment rights under Vietnamese law, but independent contractors are not entitled to these statutory employment rights.
Employment contracts are mandatory for employees but are not required for independent contractors.
How do I pay an independent contractor in Vietnam?
You can pay your contractor in installments over project milestones, or in a lump sum following the completion of a project. The contractor usually submits an invoice to the employer to receive payment. The method of payment may be mutually agreed upon by the employer and the contractor and mentioned in the service contract.
Some popular payment methods include:
Bank transfer
Wire transfer
Traditional money transfer companies (Western Union or MoneyGram)
Digital payment platforms such as PayPal or Wise
Some of these methods can incur transfer fees or charge high currency conversion rates. Alternatively, you can use Remote's global payroll service to pay your independent contractors in Vietnam. Our simple, easy-to-use platform allows you to directly transfer money into your contractors’ accounts — regardless of where they are in the world.
What are the risks of misclassifying Vietnam independent contractors as employees?
It doesn't matter how an employer classifies the worker — ultimately, the local governing authority can determine if a worker is classified as an employee or an independent contractor depending on how they are treated. This classification is based on factors such as whether they are under the control of the employer, whether they’re receiving any benefits, overtime wages, vacation and medical leave, health insurance, equipment being used, and even the place of work.
In Vietnam, this classification goes further. A contract is required for all employees but is only recommended as best practice for independent contractors. If you do provide a contract for an independent contractor, you have to be careful about any language that may hint at an employer-employee relationship.
If a contractor is subject to a background check and found to be misclassified as an employee, there could be serious consequences for you such as fines, penalties, or legal disputes . You could also face intellectual property (IP) protection issues . For instance, if your worker’s classification is challenged, and they legally claim to own the IP, it could lead to costly litigation which could drain your resources.
Remote lets you focus on building your virtual team quickly and compliantly. Our global contractor management service is an effective way to minimize misclassification risks and avoid IP protection issues.
What are the labor laws in Vietnam?
To match international standards, Vietnam’s National Assembly approved a new Labor Code in January 2021. It introduced various amendments, such as a limit on an employee’s overtime hours. It also introduced anti-discrimination, sexual harassment, and termination laws to protect employees. According to the updated legislation, part-time employees are also entitled to the same minimum wages, rights, and benefits as full-time employees.
Minimum wages
In Vietnam, there are four salary levels, which vary depending on the region within the country. This ranges from about 3 million Vietnamese dong (VND) to about 4.5 million VND per month. Unskilled workers often receive the minimum wage, while skilled workers should get at least 7% higher than the minimum wage.
Income tax
Employees in Vietnam are subject to a progressive tax rate, varying from 5% to 35% of their income. Employers must provide employees with health insurance, social insurance, and unemployment insurance. Each employee is mandated to obtain an individual tax number and declare their dependents. Employees that receive their income from overseas must complete their tax returns every quarter. Non-residents are to pay a flat 20% income tax, regardless of their earnings. Independent contractors have to pay a tax rate that varies from 0% to 35% depending on their yearly taxable income.
Social security
Social security taxes are paid by both the employer and employees. This tax is collectively categorized into social insurance, health insurance, and unemployment insurance. Independent contractors need to pay their social security contributions.
Tax and compliance practices for hiring independent contractors from Vietnam
Independent contractors in Vietnam are responsible for filing and submitting their taxes.
Any US company that hires contractors in Vietnam must request the necessary information from their contractors and fill out Form W-8 BEN . This United States Internal Revenue Service (IRS) tax form is necessary for any foreign contractors who meet specific criteria.
The taxation rate for these contractors is different from that of US citizens and green card holders, so they need to be filed separately to be compliant with US tax laws. It's the responsibility of the US employer to provide this form to all employees and contractors who are subject to the conditions mentioned above. If you are a US company that's paid contractors for their services this year, you may also need to file a 1096 Form .
Tax compliance for US companies is quick and easy if you use Remote’s global management service. Remote simplifies contractor management by helping you keep track of all the necessary paperwork, and ensuring you’re compliant with tax laws.
How do I convert an independent contractor in Vietnam to an employee?
Many companies prefer hiring global independent contractors because it’s easy and flexible. But, there may be instances when businesses want to eventually convert their contractors into employees . This is a good move if the company values their contractor, and wants to make them a permanent part of the team. It can also help the company avoid non-compliance issues as well.
Converting a contractor to an employee consists of the following steps:
Verify the worker's classification in accordance with Vietnamese law.
Inform the worker of the change.
Gather the information required to make the conversion and create an employee file.
Add the employee to your payroll.
Fill in the local, relevant tax forms. In the US, this would include a W-2 form.
If you decide to convert a contractor to an employee, you will have to draw up an updated employment contract that is compliant with Vietnamese labor law. It must include vital information related to working hours, benefits, equipment, workspace, and vacation time.
This process may sound like a hassle, but with Remote, it doesn’t have to be. Our team of experts in global contractor management can help you convert your contractors to employees in minutes.
The best way to hire international contractors in Vietnam
Vietnam has emerged as a top IT outsourcing hub, making it a solid choice for employers who are looking to hire tech talent. Hiring contractors in Vietnam makes good sense if you’re looking for top talent at affordable rates.
But understanding labor laws and ensuring compliance can be a time-consuming process. Any mistake when it comes to misclassifying your workers can lead to serious financial and legal penalties for your company.
Labor laws in Vietnam have been streamlined to make it easier to attract global employers, but you still have to understand employment and tax laws when you’re hiring and paying independent contractors in Vietnam .
Remote saves you the time and the hassle of hiring and onboarding contractors, leaving you free to focus on growing your business. Our global contractor management tool can help you to:
Onboard contractors in minutes with customizable contracts
Save time with automated invoicing approvals and payments
Make global payments quickly and securely
Manage all your contracts in one place
Want to know more about how Remote can help you hire, onboard, and pay your contractors efficiently? Contact our friendly team today! If you're ready to start onboarding your team of contractors in Vietnam, sign up with Remote and get started in minutes.
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