Vietnam stalls policy that requires workers, employers to pay more for social security

Thanh Nien News

Email Print

A man works at a yarn weaving plant in Ha Nam Province outside Hanoi. Photo: Reuters A man works at a yarn weaving plant in Ha Nam Province outside Hanoi. Photo: Reuters


Vietnam has delayed a new social insurance policy that aims to increase contributions to the country's pension fund, following complaints from both businesses and workers. 
The policy, originally slated to take effect this January, is now waiting for further instructions from the labor ministry and relevant agencies. 
Deputy Minister Pham Minh Huan told a press briefing on Monday that employers and workers will adhere to existing regulations in the first quarter. 
That means contributions to the social insurance fund will continue to be calculated based solely on workers' monthly salary, exclusive of bonuses and allowances. Employers are obliged to pay 18 percent of the salary and employees another 8 percent. 
Contributions to this fund will make workers eligible to pensions and other forms of compensation when they are sick or take paternity or maternity leave. Unemployment insurance is a separate scheme. 
The new, controversial policy intends to collect more money from both employers and their workers, by calculating social insurance payments based on what workers contractually receive every month. That means their salary plus bonuses and allowances, such as extra amounts promised, explicitly in labor contracts, to high-skilled employees or to workers in toxic and dangerous environment. 
Huan admitted that, in reality, it would be very difficult to monitor all those bonuses and allowances. He told an earlier press briefing last week that about 40 different bonuses and allowances are handed out by local employers. 
Far future
In the meantime, both workers and businesses are not happy with the new policy.
Nguyen Thi Thin, a 25-year-old worker in the northern province of Bac Ninh, told news website VnExpress that the policy in theory means higher pension payouts in the future. 
But the risk now is that her company can start laying off workers to cut costs, she said.
For Thin herself, a higher pay into social security also means less money to spend for daily expenses. 
"We workers live from day to day. We can't live for something that so far away in the future," Thin said.
Many other workers also share her view, arguing that contributing more to the state pension fund can bring immediate hardships, while promises of future security do not seem very promising. 
To be able to receive the maximum pension allowance, which is equal to 75 percent of base salaries, workers are required to pay into the fund for at least 35 years for men and 30 years for women. 
Many businesses, especially those operate in the labor-intensive manufacturing sector with thousands of people on the payroll, have complained that the new policy comes with bad timing, considering a 12.4 percent minimum wage increase early next year. 
Some told local media that the new rule will possibly increase their social insurance payment by 30-50 percent.
Nguyen Xuan Duong, chairman of Hung Yen Garment Corp. in the northern province of Hung Yen, told news website Saigon Times Online that it pays around VND2.5 billion ($110,900) into social insurance for 2,000 workers a month, or VND30 billion ($1.33 million) a year.
The annual amount will rise a staggering 32 percent to VND39.6 billion, when both the insurance rule and the new minimum wage are applied, he said.
That will hurt local textile and garment exporters who have been struggling to compete with rivals such as Bangladesh, India and Myanmar, where production costs are cheaper, Duong said.
'Huge burden'
Ngo Thanh Phat, chairman of the labor union at Viet Tien Garment Corporation, was quoted as saying that the company estimated the new policy will add an extra social insurance payment of VND60 billion a year for around 9,000 workers.
The Ho Chi Minh City-based producer considered that amount as "a huge burden" that can further erode its competitive edge on the global market, he said.
In a recent interview with news website VnExpress, Tran Viet Anh, CEO of Ho Chi Minh City-based plastic packaging maker Nam Thai Son JSC, said without careful consideration, the new rules will put many businesses in a difficult position.
He said with a staff of around 800 people, his company's social insurance payment will increase by 50 percent. The extra cost will force the company to increase its prices and cause a slump in its revenues and profits, which will eventually hurt workers, according to Anh.
Phung Quang Huy, a representative of the Vietnam Chamber of Commerce and Industry (VCCI), told Saigon Times Online that social insurance, health insurance and unemployment insurance are now equivalent to 32.5 percent of employees' monthly salary, the highest rate in Southeast Asia. 
The new policy could possibly make refrain from recruiting employees and put them at risk of shutting down, according to Huy.
The Vietnam Chamber of Commerce and Industry's stance is that the policy should be delayed for at least one year so local businesses have time to build up their strength to compete with ASEAN rivals, he said. The chamber represents thousands of enterprises in the country.
Vietnam is facing a crisis with its social security fund. Officials said many businesses have evaded their payments, with the total defaulted amount estimated to have exceeded VND8 trillion.
The International Labor Organization forecast that the fund will be in deficits in 2021 and may be depleted by 2034 without reforms.

More Business News