Vietnam Severance Pay: How It Is Calculated and When It Applies
By Dee (Diep) Hoang, Minh Nguyen
An employee resigns after four years. The employer settles the final pay, returns the social insurance book, and moves on — then a labour inspector issues a fine. The company had never enrolled the employee in unemployment insurance, so all four years counted as qualifying service, and severance was owed. It is one of the most common compliance gaps Dilinh Legal sees — and entirely avoidable. Here is how Vietnam severance pay works under the Labour Code 2019 and Decree 145/2020/ND-CP.
Two Types of Severance Allowance
Vietnam's Labour Code No. 45/2019/QH14, as consolidated by Official Compilation 18/VBHN-VPQH dated 12 February 2026, creates two distinct severance payments. They are not interchangeable.
Severance allowance applies to most contract terminations. The rate is half a month's salary for each year of qualifying service.
Job-loss allowance applies when an employee loses their job due to restructuring, economic necessity, or a business transfer. The rate is one full month's salary per year of qualifying service — and no less than two months' salary in total, regardless of tenure.
| Allowance type | Rate per year | Minimum |
|---|---|---|
| Severance allowance | 0.5 months' salary | None |
| Job-loss allowance | 1 month's salary | 2 months' salary |
The trigger event, not the employee's preference, determines which category applies.
When Severance Allowance Applies (Article 46, Labour Code)
The employer must pay the severance allowance — at the rate of 0.5 months' salary per year of service — when a labour contract ends for any of the following reasons:
- The fixed-term contract expires (and the employee has worked at least 12 months)
- The parties mutually agree to terminate
- The work contracted for has been completed
- The employee is convicted and sentenced to prison, or banned from performing the contracted work
- The employee dies, is declared legally incapacitated, missing, or deceased by a court
- The employing entity ceases to operate or loses its legal representative
- The employee exercises their right to unilaterally terminate — provided they follow the statutory notice periods
- The employer unilaterally terminates — provided they follow the lawful grounds and notice requirements
The allowance is not paid when the employee qualifies for a pension at the time of termination. It is also not paid when the employee abandons their post without justification for five or more consecutive working days — a ground for employer-initiated termination under Article 36.
When the Job-Loss Allowance Applies (Article 47, Labour Code)
The higher job-loss allowance — 1 month's salary per year of service, minimum 2 months' salary — applies when an employee is let go under Article 42 or Article 43 of the Labour Code. These cover:
- Structural or technological change: reorganisation, new production processes, machinery upgrades, or product restructuring
- Economic reasons: economic crisis or recession, or government-mandated economic restructuring or implementation of international commitments
- Business transfer: the employer is split, merged, sold, leased, converted in type, or transfers ownership or use rights of assets — and the employee cannot be retained under the resulting workforce plan
Before proceeding with any terminations under these grounds, the employer must prepare a workforce utilisation plan under Article 44. Where a representative employee organisation exists, the plan must be discussed with that organisation. The employer must also notify the provincial-level People's Committee 30 days before any terminations take effect.
Skipping these steps does not excuse the terminations — it makes them unlawful, with consequences for reinstatement and additional compensation.
How the Calculation Works
The calculation is the same for both allowance types, using three inputs: qualifying working time, reference salary, and rounding rules. Decree 145/2020/ND-CP (Article 8) sets out the detail.
Step 1 — Determine qualifying working time
Start with the employee's total actual working time with the employer. Then subtract:
- Time covered by unemployment insurance: the period during which the employee participated in Vietnam's compulsory unemployment insurance scheme (or, where the employer paid an equivalent amount directly to the employee instead of making unemployment insurance contributions)
- Any period already paid: any time for which severance or job-loss allowance has already been paid under a prior contract or termination event
The result is the qualifying period for the current calculation. Time that counts toward the total includes: probation, employer-sponsored training, sick leave and maternity leave covered by social insurance, work suspension not caused by the employee, weekly rest days, and public holidays.
Decree 145 Article 8(3)(c) sets the rounding rule:
- Odd months of 6 or fewer → round down to half a year
- Odd months of more than 6 → round up to a full year
Step 2 — Determine the reference salary
The reference salary is the average contractual salary over the 6 consecutive months immediately before termination.
"Contractual salary" means the salary agreed in the labour contract — not total remuneration including bonuses, irregular allowances, or benefits in kind. If the final contract was declared partially void because its salary clause fell below the applicable regional minimum wage, the parties must agree on a replacement figure no lower than the minimum wage.
For employees who worked under successive fixed-term contracts with the same employer and were never paid severance between contracts, the reference salary is drawn from the last 6 months before the final contract ends.
Step 3 — Apply the formula
Example — severance allowance. An employee worked continuously for 7 years and 4 months. Unemployment insurance was paid for 5 of those years. Average contractual salary in the last 6 months: VND 15,000,000/month.
- Total working time: 7 years 4 months
- Deduct unemployment insurance period: 5 years
- Qualifying period: 2 years 4 months → 2.5 years (4 months ≤ 6, rounds to half-year)
- Severance allowance: 2.5 × 0.5 × VND 15,000,000 = VND 18,750,000
Example — job-loss allowance. Same employee, but terminated due to a company restructuring. Qualifying period: 2.5 years.
- Job-loss allowance: 2.5 × 1 × VND 15,000,000 = VND 37,500,000
- Minimum check: 2 × VND 15,000,000 = VND 30,000,000
- VND 37,500,000 exceeds the minimum → VND 37,500,000 is payable
When No Severance Is Paid
Three situations result in zero severance entitlement:
Retirement. An employee who has reached retirement age and meets the social insurance contribution thresholds for a pension is not entitled to severance. Retirement is a separate terminal event with its own regime.
Abandonment. An employee who walks off the job without valid reason for 5 or more consecutive working days forfeits the right to severance. Under Article 8(1)(b) of Decree 145, valid reasons for absence are defined by Article 125(4) of the Labour Code and include natural disasters, dangerous illness, or other force majeure events.
Unlawful resignation. An employee who unilaterally terminates without following the required notice periods is not entitled to severance. They must also compensate the employer equal to half a month's salary, plus salary in lieu of the unserved notice period, plus any training costs the employer advanced under Article 62 of the Labour Code.
Payment Deadline and Employer Obligations on Exit
Once a labour contract ends, both parties must settle all financial obligations within 14 working days (Article 48, Labour Code). This period may be extended — but never beyond 30 days — in cases of employer insolvency, restructuring, merger or acquisition, or force majeure.
In addition to settling the severance payment, the employer must:
- Complete and return the employee's social insurance and unemployment insurance contribution records
- Return any original documents the employer held on the employee's behalf
- Provide certified copies of documents relating to the employee's work history, if requested, at the employer's expense
Failure to settle within the deadline exposes the employer to administrative penalties. Severance obligations are treated as a priority debt in insolvency proceedings — they rank ahead of most other creditor claims.
Practical Checklist for HR Teams
Before processing any separation, confirm the following:
- Identify the correct termination ground. The statutory reason — not any reason given informally — determines which allowance category applies and whether notice is required.
- Calculate unemployment insurance periods carefully. This is the step most commonly missed in Vietnam payroll calculations. Pull the employee's insurance history from the social insurance records before finalising the figure.
- Check the reference salary against the contract, not the payslip. Bonuses, irregular allowances, and benefits in kind do not form part of the reference salary unless explicitly included in the salary clause of the contract.
- Confirm whether a workforce plan is required. Any termination arising from restructuring, economic grounds, or a business transfer requires the plan to be drafted, consulted upon, and notified to the provincial authority before taking effect.
- Issue written notice of termination. Under Article 45 of the Labour Code, the employer must notify the employee in writing when the contract ends, subject to limited exceptions.
- Settle within 14 working days. Calendar the deadline at the time of termination, not after.
Severance disputes and unlawful terminations usually trace back to one of two things: the wrong termination ground chosen at exit, or a salary clause that does not match what was actually paid. The second is avoidable at the drafting stage — see our guide to employment contract requirements under the 2019 Labour Code. For advice on severance calculations, restructuring procedures, or wider employment compliance in Vietnam, contact Dilinh Legal. Our Labour practice advises employers across manufacturing, FMCG, logistics, pharmaceuticals, and technology on workforce transitions and employment compliance.
About the Author
Diep Hoang is the Founding Partner of Dilinh Legal, a business law firm in Ho Chi Minh City. She founded the firm in 2010 and has built it into one of Vietnam's leading practices in Corporate and M&A. Diep has been ranked by Chambers as a leading lawyer in Corporate & M&A since 2020. Dilinh Legal is ranked by Chambers Asia in Corporate & M&A, Dispute Resolution, and Labour & Employment, and by Legal500 in Corporate & M&A and Dispute Resolution.
This article is for general information only and does not constitute legal advice. For further information, please contact Dilinh Legal at contact@dilinh.com | +84 (28) 73000864 | dilinh.com