Vietnam has two statutory end-of-employment payments: a severance allowance of half a month's salary for each year worked, and a larger job-loss allowance of one month's salary per year (with a two-month minimum) when the job ends because of restructuring, technology change, economic reasons or a corporate reorganisation. Both apply only to employees who have worked regularly for at least twelve months, and periods covered by unemployment insurance are excluded from the count.
The rules sound mechanical, but disputes arise over which payment applies, which periods count, what "salary" means, and whether a foreign employee is treated differently. This guide works through each question, with a worked hypothetical example and notes for employers drafting contracts. It is general information based on the Labour Code adopted in 2019; check the current text and any implementing rules before calculating a real payment.
Severance allowance and job-loss allowance compared
The two payments are alternatives: an employee receives one or the other for the same period of work, depending on why the contract ended.
| Feature | Severance allowance | Job-loss allowance |
|---|---|---|
| Typical trigger | Contract expiry, mutual agreement, lawful resignation by the employee, lawful termination by the employer on most grounds | Termination because of structural or technological change, economic reasons, merger, consolidation, division or transfer of the business |
| Minimum service | Regular work for the employer of twelve months or more | Regular work for the employer of twelve months or more |
| Rate | Half a month's salary per year of work | One month's salary per year of work |
| Floor | No minimum amount | At least two months' salary |
| Excluded periods | Time covered by unemployment insurance; time for which severance or job-loss allowance was already paid | Same exclusions |
| Who pays | The employer | The employer |
An employee dismissed for disciplinary reasons, or one who resigns unlawfully, generally receives neither. An employee who reaches retirement age and qualifies for a pension also falls outside the severance allowance. Check the full list of excluded cases in the current code.
Which years count: the unemployment insurance deduction
The single most misunderstood rule is the deduction for unemployment insurance. The service period used for severance is the total time the employee actually worked for the employer, minus the time during which the employer and employee contributed to unemployment insurance, and minus any period for which severance was already paid. The logic is that unemployment insurance replaces severance for those years: the employee will receive unemployment benefits from the state fund instead.
For many Vietnamese employees who have worked in the formal sector since unemployment insurance began, this means statutory severance is small or even zero, which surprises managers who expect a large bill and employees who expect a large cheque. The service period also includes some time when the employee was not physically at work, such as paid leave, certain sick and maternity periods covered by social insurance, and time off for union activities, according to the detailed rules.
Foreign employees are different. Under the rules in force for many years, foreigners working in Vietnam were not covered by unemployment insurance, so none of their service is deducted and severance is calculated on the full period worked. The Law on Employment was revised more recently, so check whether foreign employees are now within unemployment insurance before relying on this point for a current calculation.
What "salary" means for the calculation
The salary used for both allowances is the average salary under the employment contract for the six consecutive months before the employee leaves. That raises an immediate question: what counts as salary under the contract? Under the 2019 code and its guidance, salary for this purpose means the base salary for the job or title plus allowances and other additional amounts agreed in the contract. Bonuses that depend on business results, meal support, and certain welfare payments are generally not part of salary.
This is where contract drafting has real consequences. An employer that splits pay into a modest base salary and large discretionary bonuses will pay less severance, but if the "bonus" is in fact fixed and paid every month regardless of performance, an employee may argue it is part of salary. Conversely, an employee whose contract lists a generous housing allowance will usually see it included in the base.
For foreign employees paid in foreign currency, the contract usually fixes the amount in that currency, and severance follows the same currency unless the parties agree otherwise. Exchange rate movements across the six months can create small disputes; agreeing in writing which rate applies avoids them.
A worked example (hypothetical)
Consider a hypothetical engineer at a foreign-owned company in Hai Phong. She is a Vietnamese citizen who worked there for seven years, all of them covered by unemployment insurance, and the company ends her contract by mutual agreement. Her statutory severance is zero, because every year was covered by unemployment insurance. She will instead apply to the state unemployment insurance fund for benefits, subject to its own conditions and filing deadlines.
Now consider a hypothetical foreign marketing director at the same company, who worked there for four years and six months, never covered by unemployment insurance, with an average contractual salary over the last six months of a fixed amount we will call S. His contract ends on expiry. Under the general rules, his service is rounded according to the implementing guidance, under which a remainder of six months or more is typically counted as a full year and a shorter remainder of at least a month as half a year. That gives five years, and his severance would be half of S multiplied by five, or 2.5 S. Check the current rounding rule before applying it.
If instead the company closed his department in a restructuring and ended his contract on that ground, the job-loss allowance would apply: one month per year, so 5 S, which is above the two-month floor. The same person, the same years, and a difference of double, all depending on the legal ground for termination. That is why the stated reason in a termination decision matters so much.
Common disputes and how they arise
Wrong ground, wrong payment. An employer describes a restructuring as a "mutual termination" to pay the lower severance rate. If the facts show the role was cut for economic reasons, the employee can claim the job-loss allowance.
Repeated fixed-term contracts. Service is counted across all consecutive contracts with the same employer, not only the latest one. An employer that resets the count with each renewal underpays.
Service with affiliated companies. Moving an employee between group companies can raise questions about whether earlier service counts. Transfer agreements should state how service is treated.
Missing unemployment insurance. If the employer was obliged to pay unemployment insurance but did not, it cannot deduct those years; it must pay severance for them and may face separate sanctions.
Contractual top-ups. Contracts or group policies sometimes promise more than the statutory minimum. Those promises are enforceable as contract terms, and a statutory calculation does not replace them.
Late payment. Severance is part of the final settlement and must be paid within the statutory window after termination. Delay is itself a breach.
Checklist for employers preparing a termination payment
A short internal review avoids most severance disputes:
- Identify the legal ground for termination and confirm which allowance it triggers.
- Calculate total service with the employer, including earlier consecutive contracts and any affiliated-company service the company has agreed to recognise.
- Subtract periods covered by unemployment insurance, using the social insurance record, and periods for which severance was previously paid.
- Compute average contractual salary for the six months before termination, listing which allowances are included and why.
- Add contractual or policy entitlements on top of the statutory amount.
- Combine with unused leave, final salary and any agreed settlement sum in a single, itemised final statement.
- Pay within the statutory period, return the employee's documents and confirm the social insurance period so the employee can claim unemployment benefits where eligible.
Tax treatment of termination payments is a separate question. Statutory allowances and negotiated settlement sums may be treated differently for personal income tax, so ask a tax adviser before finalising a large package.
Negotiated packages: going beyond the statutory minimum
In practice, many departures from foreign-invested companies end with a negotiated package rather than a bare statutory payment. The package usually combines the statutory allowance, unused leave, the final month's salary and an additional sum in exchange for the employee signing a mutual termination agreement. For the employer, the extra money buys certainty: no claim of unlawful dismissal, a controlled exit date and agreed wording for internal and external communication.
A sound mutual termination agreement states the legal ground clearly, lists every payment separately with its basis, sets payment dates, deals with company property and confidential information, and records that the employee has received an itemised statement. It should be in Vietnamese, or bilingual, and signed by the legal representative or a properly authorised person. Wording that the employee "waives all claims" is common, but it will not protect the employer against amounts the law makes compulsory if those were not actually paid.
Employees should not feel rushed. Asking for a day or two to read the agreement, to get a translation, or to check the calculation with an adviser is normal and rarely jeopardises the offer. Once signed, a mutual termination agreement is difficult to undo, and it usually removes the possibility of arguing later that the dismissal was unlawful.
When you need a Vietnamese lawyer
A straightforward expiry with a clear service record rarely needs a lawyer. Get advice when the termination ground is contested, when the employee has worked under a chain of contracts or across group companies, when the package includes equity, deferred bonuses or a non-compete payment, or when the employee is a foreigner whose unemployment insurance status is unclear.
Employers planning a restructuring affecting several employees should take advice before announcing it, because the job-loss allowance comes with procedural obligations, including consultation and notification, and getting those wrong can convert a lawful restructuring into a series of unlawful dismissals.
Employees who believe they were paid the wrong allowance should bring the termination decision, the contract chain, the social insurance record and the final statement to a licensed lawyer. Ask which ground the facts really support and what the difference is in money. Check the current rules with the labour authority or a licensed lawyer before filing, because implementing guidance on salary and service periods is updated from time to time.
Frequently asked questions
Do I get severance if I resign in Vietnam?
Usually yes, if you resign lawfully with the required notice or on a ground that allows immediate resignation, and you have worked regularly for at least twelve months. Severance is calculated only on years not covered by unemployment insurance. An unlawful resignation without proper notice forfeits severance.
Is severance paid if my fixed-term contract simply expires?
Yes. Expiry of a fixed-term contract is one of the grounds that triggers the severance allowance, provided you have twelve months or more of regular work and some of that time was not covered by unemployment insurance. Foreign employees typically have the full period counted.
Can an employer pay less severance than the law requires?
No. The statutory amount is a minimum. An agreement that waives or reduces it below the legal floor is generally not enforceable for the reduced part. An employer can always pay more, and many do as part of a negotiated departure.
Does the job-loss allowance replace unemployment benefits?
No. They come from different sources. The job-loss allowance is paid by the employer for service not covered by unemployment insurance. Unemployment benefits are paid by the state fund to eligible insured employees who apply within the deadline after losing their job.
Are bonuses included in the salary used for severance?
Generally not, if they are genuine bonuses that depend on performance or business results. The calculation uses contractual salary plus agreed allowances and additional amounts. A so-called bonus that is fixed and paid every month regardless of results may be argued to form part of salary.
What happens to severance if the company is sold?
In a merger, consolidation, division or transfer of a business, the employer must prepare a plan for using the workforce. Employees who keep their jobs carry over their service; those whose jobs end because of the reorganisation are generally entitled to the job-loss allowance. Who pays depends on the transaction terms.