Compulsory social insurance unnerves foreign employees in Vietnam

When Malaysian expat Teo Jingwei first arrived in Vietnam he couldn't believe how easy it was to make money. 

“Salaries for expats are high, and things are cheap. I can actually save more money here than in any other country I've worked in,” Teo said. “Here I am among the rich, but in other countries, I am a pauper.”

However, the country may have dented its appeal for expats like Teo by announcing a plan that would require foreigners working in the country to pay social insurance.

Vietnam's labor ministry is seeking public opinion on a new rule that would require foreign workers to pay social insurance, the ministry recently said.

Under the draft decree on compulsory social insurance for foreigners, the basic package would cover sickness, maternity leave, occupational diseases and accidents, retirement and death, which is similar to what Vietnamese workers are covered for. If approved, the decree will come into force from January 1, 2018.

Teo said the regulation is irrational as it would make some expats like him, who already contribute to social insurance in their home countries, pay twice.

Echoing Teo, German Bkay M Adam, who works for a multinational based in Hanoi, questioned the relevance of the perks, saying: “Like many other expatriates, I already have adequate medical coverage from my company. Thus, for me, it makes no sense to pay the insurance. I would rather keep the money than pay it to the local government.”

A representative from the American Chamber of Commerce in Vietnam has questioned the compulsory pension payment part of the plan. He commented that expats often work in Vietnam for short periods of time. They don’t want or are not eligible to a pension, so the regulation is unpractical for foreign employees.

According to the draft, employees would pay a monthly insurance premium of 8 percent of their income, which would go to the retirement and death fund.

Employers would contribute 18 percent of an employee's monthly salary, including 3 percent to the sickness and maternity fund, 14 percent to the retirement and death fund, and 1 percent to the occupational diseases and accidents fund.

Income subject to social insurance payments would include wages, allowances and supplements, in accordance with Vietnamese law.

Some foreign employees have also asked if they would receive their insurance payouts quickly enough, or in currencies they were able to use when their contracts expired and they returned home.

Meanwhile, some experts are worried that the regulation would force companies to spend more on foreign laborers, making Vietnam’s business environment less competitive.

Other countries allow foreign workers to opt-out of local social insurance payments if they are contributing to a similar scheme at home.

British expats are allowed to continue paying National Insurance Contributions while living and working overseas to qualify for a UK state pension when they retire, according to The Telegraph.

The number of expats living and working in Vietnam has increased to nearly 84,000 in 2017 from over 12,600 in 2004, according to the Ministry of Labor, Invalids and Social Affairs.

According to HSBC's recent Expat Explorer survey, the average income for expats in Vietnam has dropped by 14.5 percent from last year to $88,096, which is lower than the global level. Vietnamese earned $2,200 on average last year.

Uneasy to collect

Deputy Director of the Vietnam Social Insurance Department Tran Dinh Lieu said the implementation of the regulation would face numerous difficulties relating to a mutually accessible and synchronized database between different countries, as well as currency conversion and tax issues.

In addition, it would also require social insurance staff to have good foreign language and IT skills, and an understanding of international practices. These issues pose a big challenge to Vietnam’s insurance industry, which needs huge state investment to improve.

Another issue is that Vietnam would have to sign bilateral agreements on the issue with other countries, said former Deputy Minister of Labor, Invalids and Social Affairs Pham Minh Huan. “However, this would take a lot of time and effort.”

Sharing Huan's opinion, Horoshi Karashima, chairman of the Japan Business Association in Vietnam, stressed the importance of bilateral agreements to avoid situations where foreign employees have to pay social insurance in two countries.

Expat Teo is not interested in these issues or about finding a solution for them. What he is concerned about now is that he will have to spend part of his monthly income on social insurance and will have less chance of securing a pay rise as his employer will also have to pay insurance contributions for him.

“Companies are unlikely to give their foreign employees a pay rise [if the plan is approved] as they will have to pay their social insurance, and employees will be out of pocket as they will have to make their own contributions,” he said.