Vietnam Wages in Perspective and HR Considerations for FDI in Footwear/Textile Sectors

Transcription

1 Vietnam Wages in Perspective and HR Considerations for FDI in Footwear/Textile Sectors 9 th FHKI VN Seminar Dustin Daugherty

2 Dezan Shira & Associates A pan-asia specialist FDI and Professional Services firm 1991 Dezan Shira & Associates establishment 300+ Our team of legal, tax, accounting, audit, and business intelligence professionals 2,000+ Multinational clients that have already chosen us 80+ Countries served by our professional services 28+ Our offices in China, Hong Kong, India, Vietnam, Singapore; liaison offices in Italy, United States and Germany; and alliance offices in Indonesia, Malaysia, Philippines, and Thailand

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4 Our Vietnam Offices Hanoi Office: Dustin Daugherty Associate Phone: hanoi@dezshira.com Ho Chi Minh City Office: Oscar Mussons Associate Phone: hcmc@dezshira.com 2016/11/16 4

5 We are a one stop shop, offering the following services: Accounting & Reporting Pre-Investment/ Market Entry Strategy Tax Compliance Corporate Establishment Payroll & HR Administration Business Model Comparison Audit & Financial Review IT Solutions Oscar A. Mussons

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7 Section I Wages

8 Comparison of Wages (USD) Flying Geese Model As a country moves up the manufacturing value chain to more complex activities, it loses its comparative advantage in simple manufacturing. Hence, another country takes its spot in the value chain. China Improving living standards have led to increased labor costs. Due to its increasingly protectionist policies, cost of doing business in China has also gone up in the real term. Hence, a move to a different manufacturing base, or a China+1, would be logical to keep costs low. Reminiscent of the move of manufacturing from Singapore, Taiwan, HK, and South Korea to China.

9 Comparison of Wages (USD) Vietnam China Hong Kong Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Cost of Labor (Average Yearly Income) GDP Per Capita (PPP)

10 Minimum Wages (USD) Minimum wage rise 2017 Smaller production cost increase from % / US$9.5 Region 1: US$168 Region 2: US$148 Region 3: US$130 Region 4: US$115

11 Vietnam s Minimum Wage in Detail NOTE: Employees who have passed vocational training must get at least 7% higher than minimum

12 Average Manufacturing Wages (USD)

13 Labor Cost Practical Examples Position Salary range USD/month SS (employer) Total Cost (USD/month) Operator, unskilled worker Skilled worker with experience Office clerk Engineer with experience Supervisor Production manager 1, ,220+ General Director 2, ,227+ Extra costs: Overtime payment Allowances: lunch, company bus, transportation, housing, mobile, etc 13 th month salary and Tet bonus

14 Starting a Business 14

15 Tax Regime

16 Laos, Myanmar, Cambodia Rankings: 1 (worst) - 7 (best) Based on World Economic Forum Global Competitiveness Report

17 Vietnam s Key Economic Regions The North: Popular China+1 location due to proximity. More capital-intensive manufacturing such as electronics, automobile, etc. The South: Overall most productive KER. Diverse industries: fuels (oil) products, textile, chemicals, fertilizers and rubber. Central Competitiveness: Lowest wages. Top Provincial Competitive Indices in Da Nang and Quang Nam Central location between other 2 KER s. Local underserved middle class. Except Da Nang (Zone 2), the center is all Zone 3 or Zone 4 (mostly 4). VSIP Quang Ngai in Zone 3, VSIP Nghe An in Zone 4

18 Implications for Footwear, Textile, Other Labor Intensive Industries in Vietnam In terms of combination of FTA network with low labor costs and costs of doing business generally (compliance, tax etc.), Vietnam is top choice in ASEAN for foreign producers in labor intensive industries Within Vietnam, the Center is most competitive for pricing, and the region has ample infrastructure (new Industrial Zones, highway networks) and a strong port facility in Da Nang Developing port cities in Vinh and Thanh Hoa will act in support of Da Nang, by far the economic center of region to deepen logistics network in Central VN

19 Implications for Footwear, Textile, Other Labor Intensive Industries in Vietnam These considerations have led global leaders in footwear industry to enter the market, including Nike and Addidas Over 1,100 companies operating in footwear industry, of which roughly 70% of larger exporting firms are fully foreign owned, or a joint venture with local partner Industry exported over 150 million pairs of shoes/year by , growing very fast year on year However majority of market is OEM manufacturers (many from Taiwan and SK!) for more globally recognized brands VN knows it must focus on moving up value chain in footwear industry, but the opportunity will exist for at least a decade in labor intensive activities because of low cost of labor, the time to act is now!

20 Section II HR Considerations

21 Labor Contracts and Probation Periods A labor contract with a term of 3 months or longer must be confirmed in writing and signed before employment Terms of labor contracts: (i) Indefinite term (ii) Definite term from 12 to 36 months (iii) Seasonal contract with term of less than 12 months Definite and seasonal contracts can be renewed only once. The 2 nd renewal must be an indefinite term contract. Termination should comply with laws and provide prior notice of: (i) Indefinite term contract: at least 45 days (ii) Definite term contract: at least 30 days (iii) Seasonal contract: at least 3 days Only One Probationary Periods days >85% of regular salary

22 An Introduction to Overtime in Vietnam Regular working hours 8 hours a day/48 hours a week 6 hours a day for employees working in heavy or hazardous conditions Anything exceeding Overtime limit 30 hours per month/ 200 per year In special cases: 300 hours per year Vietnamese Overtime Compensation Type of Overtime Rate of Compensation During day time, weekday 150% During day time, weekend 200% Public holiday, paid leave day Night work during weekday Overtime work during night 300% Extra 30%,on top of rates above Extra 20%, above rates applied to night work

23 Overtime Regulations As of 7 th month of pregnancy Women with babies under 12 months Prohibited Working overtime Working at night Taking long distance business trips Minor Employees: age 15 to 18 Working time max. 8 hours/day, 40 hours/week 18 Overtime and night work only in certain industries Prohibitted: working in dangerous conditions or with potential exposure to toxic substances Under 15 yrs: no overtime or night work

24 Holidays and Leave Public holidays: 10 days Calendar New Year's Day Lunar New Year Hung King's Anniversary Victory Day International Labour Day National Independence Day 1 day 5 days 1 day 1 day 1 day 1 day Annual paid leave: 12 ~ 16 days, increases by 1 day for every 5 years working for an employer Other paid leaves: Marriage Marriage of children Bereavement i.e parents, parents-in -law, spouses, or children 3 days 1 day 3 days

25 Managing Labor Disputes Strikes are a temporary, voluntary, and organized stoppage of work by the worker s collective to achieve set demands in the process of labor dispute resolution. Procedures for going on strike Employers rights Step 1: Soliciting opinion Step 2: Notice of starting time of a strike Accept some or all demands Temporarily close the workplace Request court to declare the strike as illegal Executive Committtee of Trade Union s rights Withdraw the decision to go on strike Request the Court to declare the strike as lawful

26 Strikes If a strike... Does not arise from an interest-based collective labor dispute Is organized for employees who are not working for the same employer Occurs whilst the collective labor dispute is being resolved or has not been resolved Occurs in an enterprise in the list of enterprises provided by the Government in which strike is prohibited Occurs when the decision to postpone or cancel the strike has been issued It is illegal!

27 Managing Strikes Trade union organizing the strike: disagreement with at least one of the contents specified in the compensation Send employer a request for negotiation Disagreement Meeting - Agree on details of meeting for negotiation on compensation for damage - Mandatory meeting minutes -> legal basis for rights and obligations of both parties Successful negotiations: both parties must abide by the terms of the agreement Settlement

28 Social Security and Trade Union Fees Employee Employer Total Social Insurance 8% 18% 26% Health Insurance 1.5% 3% 4.5% Unemployment Insurance 1% 1% 2% Total Social Security 32.5% Trade Union Fee 2% 2% TOTAL 10.5% 24% 34.5% Social security is compulsory for employees with labor contracts of 3 months or longer in enterprises which employ one or more workers. From Jan. 1 st, 2018 onward, this also applies for workers with contracts from 1 to 3 months in length. Social Insurance covers sickness, maternity, occupational disease and accident, retirement and survivor pension

29 Minimum Payments and Caps on Social Insurance Social Insurance Health Insurance Unemployment Insurance Minimum Level Regional minimum wages: 2016: Region 1: 3,500,000 ~ 157 USD/month Region 2: 3,100,000 ~ 139 USD/month Region 3: 2,700,000 ~ 121 USD/month Region 4: 2,400,000 ~ 107 USD/month Most of cases: 7% higher than minimum Maximum Level 20 times of common minimum wage: Current: 1,150,000 x 20 = 23,000,000 VND/month ~ 1,030 USD/month From May 1st, 2016: 1,210,000 x 20 = 24,200,000 VND/month ~ 1,085 USD/month 20 times of regional minimum wages 2016: Region 1: 3,500,000 x 20 = 70,000,000 VND/month ~ 3,139 USD/month Region 2: 3,100,000 x 20 = 62,000,000 VND/month ~ 2,780 USD/month Region 3: 2,700,000 x 20 = 54,000,000 VND/month ~ 2,422 USD/month Region 4: 2,400,000 x 20 = 48,000,000 VND/month ~ 2,152 USD/month

30 Trade Unions Starting from January 10 th, 2014, all enterprises must pay a Trade Union fee regardless of whether they have their own Trade Union. The employer must register with the local trade union or industry trade union and cooperate with them to set up the company trade union. This must be completed no later than 6 months from the date they start operations. Otherwise, the superior trade union shall appoint a provisional executive committee of the trade union to represent and protect the lawful rights and interests of the employees and the labor collective. Penalty: maximum VND75 million ~ USD3,363 for not paying or not paying in full the Trade Union fee

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