How to calculate severance allowances for foreign employees?

Under Article 46 of the 2019 Labor Code and Article 8 of Decree 145, the severance allowance payable to an employee will equal half of a month’s wage for each working year of the employee.

My company signs labor contracts with a number of foreign employees. When terminating labor contracts signed with foreign employees, how can I calculate severance allowances for foreign employees?

Under Article 46 of the 2019 Labor Code and Article 8 of Decree 145, the severance allowance payable to an employee will equal half of a month’s wage for each working year of the employee. The specific formula is as follows:

Severance allowance equals (=) half of wage used for calculation of severance allowance plus (x) working period used for calculation of severance allowance.

In the above formula, the wage used for calculation of severance allowance is the average of six consecutive months’ wages under the labor contract before an employee is laid off or dismissed.

In case the employee has worked for the employer under different successive labor contracts, the wage used for calculation of severance allowance is the average of six consecutive months’ wages before the last labor contract terminates. In case the last labor contract is declared to be null and void for the reason that the wage stated therein is lower than the region-based minimum wage level announced by the Government or the wage level stated in the collective labor agreement, the wage used for calculation of severance allowance will be agreed upon by the two parties but must not be lower than the region-based minimum wage level or the wage level stated in the collective labor agreement.

Meanwhile, the working period used for calculation of severance allowance is the total period the employee has actually worked for the employer, minus the employee’s unemployment insurance participation period and the working period for which the employer has paid severance allowance to the employee.

The working period used for calculation of severance allowance of an employee will be calculated in year (full 12 months). A period of six months or less will be rounded up to a half year of working while a period of over six months will be rounded up to one year of working.

You may follow the aforementioned formula to calculate severance allowance for foreign employees.

Please note that foreign employees are not subject to unemployment insurance, hence, the working period used for calculation of severance allowance for a foreign employee is the total period the employee has actually worked for your company, minus the period for which he has previously received severance allowance (if any).

How do I calculate the actual time a foreign employee works for my company?

As per Article 8.3 of Decree 145, the total period an employee has actually worked for an employer includes: the period of actual working; the probation period; the period the employee is designated by the employer to attend training courses; the period of sickness leaves or maternity leaves under the law on social insurance; the period of paid leaves for medical treatment or functional rehabilitation from occupational accidents or diseases under the law on occupational safety and health; the period of paid leaves for performance of civic obligations in accordance with law; and law-specified weekly breaks. It also includes the work cessation period in case the employee is not at fault; the time for performance of tasks assigned by the employees’ representative organization, and the work suspension period for verification of the employee’s violation of the internal working regulation in complicated cases where the verification will face difficulties if the employee continues working.

Please keep in mind that for an employee who has worked for your company under different successive labor contracts but yet to receive severance allowance upon termination of previous labor contracts though he met the law-prescribed conditions for entitlement to several allowance at that time, his period of actual working for your company will be the total working period under all labor contracts he has signed with your company.

However, if one of these contracts is declared to be wholly null and void as its contents are illegal or the contractual job is prohibited by law or in case the employee is dismissed while performing a labor contract or unilaterally terminates a labor contract in contravention of law, the period of working under such contract will not be counted into his total working period for your company.

By: VLLF